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The Real Lesson of the New Deal for the US Left
Written by Zoltan Zigedy
Power concedes nothing without a demand. It never did and it never will. -- Frederick Douglass
Seventy-five years ago this March, the Presidential inauguration of Franklin Delano Roosevelt ushered in a new era of US capitalism in response to the seemingly bottomless decline of production, trade, and employment which began with the stock market crash in October of 1929. Dubbed the “New Deal,” the policies of the Roosevelt administration sought to restore growth and employment in new and untested ways.
Political liberals and a large section of the left fondly remember the New Deal as a great era of reform and social change that established a more benign social order befitting the nation’s democratic tradition. Conservatives and business interests demonize the period as a vast social experiment that harmfully distorted the normal functioning of a market economy, only to be corrected by the neo-liberal restoration brought forth by Ronald Reagan
Much of today’s two-party politics is couched in these popular views. What remains of the Democratic Party progressive wing seeks a twenty-first century version of the New Deal while the rest of the Democrats and nearly all Republicans subscribe to the neo-liberal vision of radical individualism and unfettered markets revived by Reagan and those who followed.
Both views draw upon a flawed picture of the New Deal era.
When Roosevelt became President in March of 1933 (the last campaign to include a four-month span between the election and the inauguration), he faced both a deep and deepening economic crisis (The Great Depression) and great popular resistance to the human costs of the economic contraction. Between 1929 and 1933 gross national product in the US had fallen 46% and industrial production more than 50%. In human terms, unemployment reached 20-25% of the work force, totaling at least 13 million. Nearly half of all employees were either out-of-work or underemployed. Of those employed, average weekly earnings of production workers dropped by a third, compensated only partially by slipping consumer prices. Foreclosures, repossessions, hunger, failing health, mass migration, crime, and disillusionment plagued the working class.
The nation’s 6 million farms suffered greatly with over a million foreclosures in this period. Most farmers owned small farms or were tenant farmers (half of all farmers earned little more than $350 in 1929). Farmers were especially hard hit: their share of national income dropped from 12% in 1929 to 5% in 1932, a time when national income was dropping dramatically for every sector of the economy.
And, of course, African-Americans suffered the most. With most African-Americans living in the South under the brutal repression of institutional segregation, incomes and living standards were roughly half of that of white workers before 1929. African-Americans experienced the constant threat of lynching and a repressive apartheid regime that retained the de facto conditions of the pre-Civil War South. Conditions in the North were only marginally better. The economic decline pressed them even further behind the white working class.
The Hoover Response
From the October 1929 crash until the installation of Roosevelt in March 1933, President Herbert Hoover led the national response to the deepening crisis. Though faced with a Democratic House after November 1930, Hoover had no difficulty mustering political support for his recovery program. For the most part, he viewed the crisis as one of confidence. His deep faith in the rationality and ultimate soundness of capitalist markets led him to anti-crisis measures more dependent on confidence-building than action. Nonetheless, he moved to grant business a 1% reduction in income taxes in order to stimulate growth. Though the stock market rebounded, it crashed again in May 1930, followed by a grinding decline of prices, production and employment for the next two years.
Contrary to popular liberal lore, Hoover did not stubbornly refrain from all action. He acted vigorously to support big business, banks, and wealth. One of his first acts was to increase tariffs to the highest levels ever seen, hoping to protect the domestic market from dumping by other distressed economies. There is no reason to believe this had any noticeable ameliorative effect on the crisis.
In the face of agricultural impoverishment brought on by the collapse of prices and a persistent drought, Hoover signed a $20 million drought relief package for seed loans, but available for farm relief as well. The Hoover administration created a National Credit Corporation with assets of $500 million on November 10, 1931 to stimulate the flow of credit (gross domestic product was $91.2 billion in 1930). This move was also his answer to unemployment, assuming that increased business activity would “seep down” to the working class – an early version of what came to be called “trickle down” economics in our era.
Nearly immediately after the formation of the NCC, the administration established the Reconstruction Finance Corporation to lend money to banks, insurance companies and other enterprises with a government subsidy of $500,000,000 and another $1,500,000,000 available from the sale of notes guaranteed by the government. Nonetheless, bank failures continued through 1932. It is, perhaps, useful to note that this stimulus package totaled well over 3% of the GDP at that time, a percentage greater than the plan agreed to by Bush and the Congress this year.
Often lost in the popular view of the Great Depression is the profound role of turmoil, struggle and rebellion. Too many histories of the period recount the actions of politicians while ignoring the mass upsurge that influenced and shaped their actions. Bonus marchers – World War I veterans seeking their promised bonuses from the war – gathered in Washington DC in June 1932 to protest. The Communist-led Workers Ex-Servicemen’s League called the march after Congress rejected its demands for immediate relief. Twenty-five thousand vets and their families responded, forced to set up squalid shelters on the barren land called Anacostia Flats, across the Potomac from the Capitol. In late July, Hoover ordered the military, under the leadership of the future military “heroes,” MacArthur, Eisenhower, and Patton, to attack the bonus marchers’ makeshift city. These brave warriors shamefully drew swords and bayonets and, quoting the New York Times, “Amidst scenes reminiscent of the mopping up of a town in the World War, Federal troops… drove the army of bonus seekers from the shanty village…” Indeed, this was a proud moment for our military. As one of the protester’s slogans said, “Heroes in 1917- Bums in 1932.”
Similarly, forced evictions were met by resistance. As soon as residents and their belongings were removed, neighbors and supporters returned them to the foreclosed homes. This process was repeated again and again throughout the US. It was the Communist-led Unemployed Councils that organized and inspired these defiant actions. The National Unemployed Council was founded on July 4, 1930 from the deliberations of 1,320 delegates (by 1938, the organization had 800,000 members). The first national demonstration against unemployment was called by the Communist- led Trade Union Unity League and the Communist Party on March 6, 1930 with over 1,250,000 participating (110,000 in NYC, 50,000 in Chicago, 50,000 in Pittsburgh…).
In the Midwest, farmers fought eviction and falling prices through various organizations: the bigger farmers followed the Farm Bureau Federation and the National Grange while the more numerous small farmers supported the Farmers National Holiday Association and the Communist-led National Farmers Union. NFU leader, John Simpson, was especially vocal and respected among small farmers. The latter two organizations were famously militant, often packing courtrooms and even threatening judges bent on granting evictions.
Communists were crucially active in the southern Sharecroppers Union, an organization uniting poor African-American and white farm workers in the segregated South.
Clearly, anger and resistance to the hardships of the Depression and the callousness of the Hoover administration were growing dramatically. This judgment was expressed emphatically in the Presidential election of 1932.
The First New Deal
Many historians usefully divide the New Deal into two periods: the first beginning with the Roosevelt inauguration of 1933 and the second beginning in 1935 after the landslide electoral victory of the Democrats in the 1934 midterm elections.
Roosevelt’s career as governor of New York was suggestive of the kind of liberalism he favored (the term really only took on its contemporary meaning with the New Deal). In general, he had no principled objection to limited public ownership of some assets when he deemed it beneficial. In addition, he supported legislation, on different occasions, that would afford working people an opportunity to better their conditions. Whether this was because of the political climate in New York or because of some deeper ideological commitment is hard to determine. Clearly, however, Roosevelt understood the profound sentiment for change that was stirred by the misery of the Great Depression. He also appreciated the insurgency that was springing up around the country.
In the primary campaign leading to the Democratic Convention, Roosevelt defused the contentious Prohibition issue and emphasized farmers, relief to banks and homeowners, tariff policy and the “forgotten man.” The latter phrase struck a chord that led him to speak even more forcefully for working people: “The millions who are in want will not stand by silently forever while the things to satisfy their needs are in easy reach.” This statement clearly was presented as a reminder to the Democratic Party conservatives that the masses were in motion and needed to be heeded. An early clue to his policy approach was revealed by his unspecific endorsement of “bold, persistent experimentation.” Roosevelt won the nomination on the fourth ballot.
In the campaign against Hoover, Roosevelt supported the call for a repeal of Prohibition, a stance that would find favor with modern-day liberals advocating a live-and-let-live lifestyle. Conservatives attempted to force the issue to the center of the campaign, but Roosevelt had the good sense to subordinate the issue to economic policy.
To address the unemployment issue, Roosevelt called for greater relief. Paradoxically, he also endorsed the platform commitment to a balanced budget. His recovery program was a vague commitment to corporatism, the bringing together of all interests, all classes to cooperate under the banner of economic nationalism. To some on the left, this sounded dangerously like the program projected in fascist Italy and soon-to-be-fascist Germany. In hindsight, it may be difficult to understand this fear. But in 1932, many on the left saw the economic and political crisis of the time as intimately linked. Fascism was gaining ground in the world precisely as the world economy appeared to be spiraling towards disaster. It was not far-fetched to view fascism as a ruling class response to the growing economic disaster. Like the vague, early Roosevelt program, fascists advocated a strong state that would balance the interests of all classes under a nationalist banner. Some saw Roosevelt’s folksy, fatherly addresses to the nation as a New World version of the Old World charismatic leader.
One early left critic of the Roosevelt program was Lewis Corey, the pen name of one of the founders of the US Communist Party, Louis Fraina. Corey, an independent, eccentric, but sometimes insightful Marxist, saw state capitalism as the logical and necessary antidote to economic catastrophe. With this view, he was an early, prescient expositor of the theory of State Monopoly Capitalism. In his 1934 book, The Decline of American Capitalism, Corey sees the roots of fascism in the rise of state capitalism as a response to the Great Depression. He found state capitalism in Roosevelt’s vision and feared a desperate transition to fascism.
Nonetheless, Roosevelt’s promise of a new “economic constitutional order” proved popular with voters who wanted nothing if not change. Roosevelt won the election with nearly a seven million popular vote plurality, the largest majority since 1864, and all but five electoral votes. Such was the thirst for change.
It became clear during the transition that Roosevelt was determined to attack the Depression domestically, rather than pursue Hoover’s more often internationalist strategy. He saw the fundamental problem as a lack of domestic purchasing power to keep pace with domestic production Therefore, the key to recovery was to bring them in line. And recovery was the watchword of the first New Deal.
The notion of increasing mass purchasing power – increasing effective demand – to overcome a slumping economy has become associated with the thinking of economist John Maynard Keynes. Of course Keynes major work was not published until 1936, too late in the life of the New Deal to count as a major influence. Nonetheless many in the New Deal administration retrospectively embraced Keynes’ work as a further confirmation of the wisdom of their approach. Keynes’ views grew to dominate mainstream economics only to be overshadowed by neo-classic, liberal economics in the last thirty years. We shall see, however, how it remains a pillar of the post-war economy in the US.
Like most inaugural addresses, Roosevelt’s churned with rhetorical flourishes and vague, but suggestive proposals. His statement “[W]e must move as a trained and loyal army willing to sacrifice for the good of a common discipline… with a unity of duty hitherto evoked only in time of armed strife” further stoked the fear of fascism. His pronouncement that “The measure of the restoration lies in the extent in which we apply social values more noble than mere monetary profit” aroused those thirsting for social justice. And the “Good Neighbor” policy promised a peaceful, fair foreign policy.
But the first New Deal was about action and Roosevelt quickly called a bank holiday and an embargo on gold before meeting with some of the nation’s leading bankers. The crisis was so demoralizing that they were in no mood to resist government action. As a historian of the New Deal notes: “If the administration had been bent upon achieving radical reforms as a condition of recovery, it could have had them… including nationalization of the nation’s banks. As it was, a conservative solution, highly acceptable to bankers and businessmen, and symptomatic of the First New Deal, was decided upon.” (Basil Rauch The History of the New Deal, p. 63-64).
The Roosevelt Emergency Banking Bill was seen by many as a move strengthening the hand of big bankers. Swift action to balance the budget came at the expense of veterans’ benefits and federal salaries. For the most part, business was pleased, resulting in a fifteen per cent jump in the stock market. Agricultural policies were largely shaped by conservative George Peek who was appointed to administer the program. The National Farmers Union and the Farm Holiday Association vigorously opposed them, calling a farmers' strike which was only postponed when the President intervened.
Roosevelt’s unemployment relief initiative was threefold: a Civilian Conservation Corps to employ 250,000 young workers in the national forests at subsistence wages, grants under the Federal Emergency Relief Administration that supplied states with monies in contrast to the Hoover administration’s loans, and the Public Works Administration, providing employment on federal infrastructure – an expansion of Hoover’s earlier program.
For industrial policy, Roosevelt hoped to achieve a compromise between labor’s demand for minimum wages and reduced hours (a thirty-hour work week) and management’s demand for a relaxation of anti-trust restraints and the tolerance of price-fixing. Labor’s gain in the resultant National Industrial Recovery Act was the famous Section 7a which promised that industrial codes would guarantee unspecified minimum wages and maximum hours along with collective bargaining rights. The NIRA was to be administered by General Hugh S. Johnson famed for organizing war production in World War I – a man not noted for liberal ideas. Roosevelt expressed the goal of NIRA as “…the assurance of a reasonable profit for industry and living wages for labor.”
In addition, the first New Deal brought the Tennessee Valley Authority into being, a project that established public ownership, if only in this exceptional instance, and brought affordable, rural electrification to a large sector of the South.
A Securities Act was passed in late May 1933 to protect the public from fraud and misrepresentation in the sales of financial instruments. And in June, the Glass-Steagall Act was passed separating investment banking from commercial banking, FDIC was established to minimally protect designated accounts from loss, and the Federal Reserve was given powers to influence interest rates and to restrain speculation. The Glass-Steagall Act was repealed late in the Clinton administration, contributing greatly to the financial chaos now afflicting the economy.
In foreign policy, the Roosevelt administration recognized the Soviet Union, but gave questionable support to the London Economic Conference, the last effort to apply an internationalist solution to the Great Depression.
For workers, the centerpiece of New Deal action was Section 7a of NIRA. The remainder of NIRA fostered the recovery of business, allowing enterprises to regulate themselves to restore prices and profits. Throughout 1933 that was precisely what the capitalists did with the encouragement of General Johnson, the administrator.
Section 7a was inspirational to labor, but in fact it was relatively toothless. Under pressure, Roosevelt urged business in June 1933 to voluntarily accept a thirty cents per hour minimum wage and a thirty-five hour work week. To further assuage labor, the Blue Eagle campaign – allowing compliant businesses to display the Blue Eagle insignia – was mounted. Neither changed the existing relationship between capital and labor. In early 1934, General Johnson conceded that that big business had accrued all the benefits of NIRA at the expense of small business, labor, and the consumer.
Nonetheless, despite the weak Section 7a and a nearly moribund AFL, workers took the spirit of 7a into their own hands, often prodded by Communists and the left. As Boyer and Morais recount in Labor’s Untold Story:
The law said that an employer had to bargain collectively with unions and millions of workers were suddenly becoming fanatically determined that employers would do just that. It became more imperative to them when the gains of NIRA as to wages and hours proved in the overwhelming majority of cases to be unsatisfactory. And when company unions were set up, their members often determined to capture them and transform them into real unions.
And it was on the picket lines that the workers struggled with their employers to make Section 7(A) of the NIRA mean something. In 1933 more than 900,000 workers went on strike for union recognition and wage increases, three times more than the previous year. Trade union membership zoomed as 775,000 workers flocked into labor organizations, 500,000 into the AFL, 150,000 into independent unions, and 125,000 into the Communist-led Trade Union Unity League. The latter organization led strikes in steel, auto, coal mining, meatpacking and the beet sugar industry. In 1933 alone the TUUL conducted strikes of 16,000 autoworkers in Detroit, 5,000 to 6,000 steel workers in Ambridge, Pennsylvania and 2,700 meat packers in Pittsburgh. (p. 276)
Thus, the gains of workers from the first New Deal were won on the mass action front and not in the legislative chambers. As Basil Rauch recounts in The History of the First New Deal: “A wave of company union organizing swept the country when NRA was launched. Under these circumstances it became possible for businessmen to observe the child-labor and hours-and-wages provisions of the codes and at the same time reduce labor costs…killed and semi-skilled categories lost more than unskilled and women workers gained, so that overall hourly earnings declined.” (p. 98)
Similarly, agricultural workers and farmers saw no gains from the first New Deal. Again Basil Rauch paints a bleak picture: “Dissatisfaction with the AAA (Agricultural Adjustment Administration) became widespread… the farm products which were benefited were raised chiefly by large landowners, farming corporations, and banks and insurance companies which had become large owners of farm lands through foreclosures… Farm laborers, who were excluded from the provisions of the NRA, sharecroppers, and tenants usually received no share of AAA checks or found themselves put off the land as a consequence of the landowners’ reduction of acreage.” (p.102) Both the National Farmers Union and the Farm Holiday Association resisted these results.
Towards the end of 1933, the administration succumbed to public pressure and empowered the Civil Works Administration thereby staving off mass dissatisfaction by employing four million workers on various civil tasks, but the program was ended, nevertheless, the following April 1.
The year 1934 was a watershed – a year of aggression on the part of capital and ferocious fight back from labor. Capital organized under the banner of the viciously anti-labor Liberty League, spent vast sums on labor spies and security services, and cracked down hard on labor organizing. The KKK, the Black Legions, and the Sentinels of the Republic were unleashed to sow discord, ethnic intimidation and anti-Communism. The Smedley Butler affair – overtures to General Butler with the hope of staging a coup – occurred in 1934.
Perhaps no event signaled labor’s determination to meet these threats than the San Francisco general strike in May of 1934. Nearly 127,000 workers shut the city down in solidarity with striking seamen. The militancy of that action both inspired and foretold the mass uprisings to come.
The Roosevelt administration suffered a self-inflicted wound when it established the National Recovery Review Board in March of 1934. The independent Board was to review business practices during Roosevelt’s presidency. Chaired by Clarence Darrow, the Board delivered a scathing indictment of the advantages gained by capital under the NIRA. Darrow’s references to the advantages of socialism embarrassed the administration which never published the three reports.
The pro-business NIRA brought rising prices in 1934 coupled with falling production, employment and payrolls. At the same time, the administration witnessed a wave of strikes unprecedented since 1922 with militia called out in 19 states and 46 workers killed resisting. In general, Roosevelt was hostile to these labor actions.
Nonetheless, labor stood by Roosevelt in the interim election producing what historian Charles A. Beard called “thunder on the left.” A new, more radical Congress came to be, with the Republicans losing 10 Senators and 10 Representatives.
At the end of 1934, the first two years of the Roosevelt administration were characterized by intense, widespread and often violent class struggle between capital and labor. At best, the administration stood aloof. At worst, it demonstrated a partisanship for capital despite rhetorical disclaim. The unusual shift in a midterm election in a leftward direction was to redirect that trend.
The Second New Deal
Roosevelt fully understood the meaning of the 1934 elections. He spoke, in his January, 1935 State of the Union address, of the “clear mandate” given. Nonetheless, he offered a tortured explanation of that mandate: “We continue to recognize the greater ability of some to earn more than others. But we do assert that the ambition of the individual to obtain for him and his a proper security, a reasonable leisure, and a decent living throughout life is an ambition to be preferred to the appetite for great wealth and great power.” It should be noted that despite these high sounding words, the administration opposed, early on, the Wagner Labor Relations Act and the Fair Labor Standards Act advocated by the new Congress.
On January 17, 1935, the Social Security Act was placed before Congress addressing unemployment and retirement benefits. The debate on and evolution of this bill serves as a pattern for much of later New Deal legislation. For the most part, critics saw it as too limited in scope. The AFL leadership objected to its reliance for funding upon payroll taxes instead of income taxes. Earl Browder, speaking for the Communist Party, went further. He argued that funding should come from taxes on the wealthy and capital. The bill passed in August, amended to block the administration’s desire to allow private insurance companies to offer larger annuities outside of the system.
One can say that the second New Deal was a response to the recognition that “seep down” (“trickle down” in the Reagan-era jargon) policies of stabilizing prices and offering assistance and encouragement to capital had failed. Instead, the administration accepted that only by directly increasing the economic means of the masses could the economy recover. The Keynesian notion of the necessity of massive public spending on jobs and relief was largely adopted. In the view of Roosevelt’s team, increasing effective demand by putting cash into the hands of under and unemployed workers would stimulate the economy where business incentives had failed. Payrolls in December of 1934 were only 60% of those in 1926 while dividends and interest were 150% of their level in that year.
Thus the alphabet soup of New Deal programs increased and enlarged through 1935. Four billion dollars were allocated to state relief programs. The Works Project Administration (WPA) was established in May which in the next two years accounted for 1600 new schools, 105 airport landing fields, 1600 clinics, 36,000 miles of rural roads, dams, traveling libraries, millions of school lunches and medical home visits, and the well-known arts projects. Wages were below prevailing levels, but above welfare payments. An unforeseen (and likely unwelcome) consequence of this program was stirrings among the WPA workers for union representation.
The administration’s agricultural program, AAA, had only added to the process of reducing farmers to tenancy. As a result, over 40% of all farmers were saddled with tenancy. To address this, the administration established the Resettlement Administration which offered tenants farm ownership on easy terms and cooperative farm equipment. Little distribution of new farm acreage was achieved and Southern sharecroppers and migrant workers were essential ignored.
Under pressure from leftist youth organizations and massive youth unemployment and poverty, the administration created the National Youth Administration which spurred a national organization, the American Youth Congress. The organization proved to be a seedbed for left, radical recruits and an embarrassment to the administration (except Eleanor Roosevelt!). Redbaiters attacked the organization vociferously.
Under pressure from the crackpot Townsendites, the legitimately populist ideas of Huey Long, the labor movement and Communists, Roosevelt sought to revise tax policies. Like the Social Security Act, the Wealth Tax Bill was a minimalist program designed to add purchasing power to the masses without a shock to the basic mechanism of capitalism. As it passed in August 1935, corporate taxes were lowered slightly for small businesses and raised slightly for large corporations. Taxes on individuals with earnings over $1,000,000 were graduated steeply to 75% on incomes over $5,000,000. An excess profits tax was also passed.
Probably the most important legislative action of 1935 was not initially supported by the administration. Though the Wagner-Connery Labor Relations Act was overwhelmingly passed by Congress, the administration feared the hostility of capital and leaned towards extending NIRA and Section 7(a) instead – recovery was one thing, social justice another. The bill outlawed company unions and guaranteed exclusive union recognition by majority assent. NRA’s General Johnson fought the measure to the end, arguing for “minority” rights for workers who did not support the majority decision. While the AFL strongly supported the bill, President William Green made the curiously conservative argument: “We cannot and will not continue to urge workers to have patience, unless the Wagner bill is made law, and unless it is enforced, once it becomes law.” But while
Green was flaunting his restraint, a maverick group of AFL dissidents, leftists, and Communists was moving to take the labor movement in a different, more radical direction, a direction that would militantly and successfully confront capital and shift the balance between capital and labor for many years.
Led by Mineworkers’ John L. Lewis, the Committee for Industrial Organization (later the Congress of Industrial Organizations) was founded on November 10, 1935. The event was electrifying, releasing all the pent-up frustration and determination of unorganized, super-exploited industrial workers. A massive strike wave swept through industrial plants through the remainder of 1935 and throughout 1936. Rubber workers, autoworkers, steelworkers, electrical workers and other industrial workers, organized and encouraged by selfless, often Communist, CIO organizers, took to picket lines, frequently resorting to the militant and effective tactic of the sit-down strike. Despite hostility and red-baiting by the AFL leadership, despite violent, organized resistance on the part of capital, despite brutal, anti-labor actions by police and militia and a hysterical media, they succeeded in organizing millions of workers into new industrial unions. Unlike their AFL counterparts, these new, fighting unions embraced democratic principles, anti-racist policies, and, most importantly, class struggle. By 1940, the CIO had organized 3.8 million members into the CIO unions.
This historic movement had two consequences seldom acknowledged in standard accounts of the New Deal. Firstly, the wage gains added much buying power to the New Deal effort to stimulate economic activity. The shift in the balance of forces between capital and labor corrected some of the crisis-inducing inequalities of the “prosperity” of the twenties. In his address to the 1939 CIO Convention, Phillip Murray noted: “[We] have increased the national purchasing power of the workers in the United States approximately $5,000,000,000 per year.”
Secondly, the organizing campaign also marshaled enormous influence over the 1936 elections, benefiting both Roosevelt and the Congress. The landslide victory of the Democrats owed much to the sympathies stirred by this powerful struggle. Despite demons concocted by the capitalist media, most voters identified with the fighting workers.
Notwithstanding the Supreme Court’s attempt to derail the New Deal in 1935-1936, the legislative agenda continued, led by a Congress generally more aggressive than the administration. To his credit, Roosevelt chose to ride the wave of change and economic justice unleashed by the CIO in his 1936 election campaign. Unlike modern “triangulators,” he spoke to and for the masses of workers and farmers. Some of his most militant rhetoric came forth in the 1936 campaign such as his oft-cited attack upon “economic royalists”. Roosevelt spoke of 200 corporations controlling half of the nation’s wealth: “This concentration of wealth and power… has been a menace to the social system as well as to the economic system which we call American democracy.” He took this message vigorously to all reaches of the country.
The 1936 election was a landslide victory for the Democrats and New Deal policies. Roosevelt received 60.8% of the votes and the new congress was overwhelmingly Democratic (3/4 of the Senate, nearly 4/5 of the House). Even the “independent” Supreme Court felt the wave and softened its opposition to the New Deal.
The Communists ran Earl Browder and James Ford in the presidential election. Though placing the dangers of fascism and reaction at the center of their campaign, they sought to raise issues that would, in fact, strengthen the popular base of the New Deal. Where the Democrats were weakest – on racial equality – the candidacy of Ford, an African-American, brought greater awareness to the forefront.
Armed with this powerful mandate, the administration curiously emphasized organizational issues over social justice. It used the early part of 1937 to advocate Supreme Court reorganization – despite the Court’s newfound spirit of cooperation – and an Executive Reorganization Bill which sought to make changes in the executive branch of the government. While Roosevelt argued that these moves would be both democratically and managerially sound, mistrust fractured the unity of the New Deal coalition. The component designed to expand civil service was clearly democratic in character, but the other elements were not nearly as unambiguous. Many wondered why a President with unprecedented power and an overwhelming mandate pressed so hard for mere formal shifts in power, for example by trying to weaken the judicial branch.
No satisfactory explanation of Roosevelt’s path is available, but clearly it was a setback for both the quest for social justice and a deepening of progressive reforms. We can only speculate that Roosevelt lacked a confidence in the support of the masses or, more likely, felt a fear of unleashing further radical change, choosing institutional changes over stoking the democratic upsurge that propelled him to unprecedented popularity. Perhaps, there are some similarities with the recent institutional changes urged by President Hugo Chavez in Venezuela. Like the Roosevelt administration, the Chavistas lost some of the momentum won by enormous electoral victories by choosing institutional change over engaging the masses more directly in the pursuit of change.
The Administration lost further steam by aggressively attempting to balance the budget in 1937. With the economy sharply rebounding, administration officials began to sound the fear of inflation, urging budgetary restraint. Federal spending was cut drastically, with the WPA nearly shut down. Consequently, the economy quickly sank into decline. Industrial production fell drastically (35% in 9 months), prices fell and unemployment jumped dramatically.
Through the first months of 1938 Roosevelt stayed firmly with the policy of fiscal restraint urged by capital. This appeasement of business only deepened the crisis. In April, Roosevelt reversed his policies, reviving WPA with $1. 25 billion for employment and further funding other programs to the total of $3 billion. The Congress overwhelming approved these moves.
The turnabout of policy led to a turnabout in economic activity. Almost immediately, industrial production, employment, prices, and payrolls begin to climb. Nonetheless, the US economy never reached pre-Depression levels of employment and industrial production until 1939, seven years after their lows. By then, the mandate of 1936 was gone, eroded and crippled by the retreat of 1937 and the fresh economic slump of 1937-1938. The momentum of New Deal progressive legislation was lost without achieving the goals of full recovery or social justice.
The Roosevelt administration passed only one important New Deal policy in 1938, the Fair Labor Standards Act. It gave minimum wage and maximum hours protection to non-union workers and restricted the use of child labor. The administration’s interest started shifting to the looming European War and managing the US attitude towards it. Defense spending began to rise and war fears were stoked, diverting attention from domestic problems. Right-wing legislators successfully exploited these fears, warning of “un-American” activities. A new red scare emerged, fueling intense red-baiting extending even to unions and the more progressive New Dealers. The attack on labor reached absurd heights: Eighty-five unions faced indictment in 1940 under the Sherman Anti-Trust Act.
Recovery came only with the massive war spending of the Second World War. The ruling class found a new economic stimulus with military employment and the Federal government pumping massive revenues into war industries. Military Keynesianism brought high productivity and labor cooperation through patriotic sacrifice and effort. Military pump priming brought huge profits through government contracts tolerant of waste and cost-escalation. The destructiveness of war and the race for more lethal weapons promised an endless growth of demand. Thus, capital found, for that moment, the answer to the challenge of the Great Depression without conceding much ground to the people.
The New Deal Balance Sheet
We have in no way offered a complete or thorough history of the New Deal. We have, however, unlike most histories of this period, presented these six or seven years as a history of class struggle. Where most accounts stress the political maneuvers of the two parties or the legislative agenda of the Roosevelt team, we have attempted to show the impact of mass action upon the policies of the ruling class. Faced with a groundswell of dissatisfaction backed with organized opposition, desperate elites sought to treat a wounded capitalism while restraining the radically democratic expectations of those participating in this struggle.
Writers stress the two-fold goals of the New Deal as recovery and reform. In fact, the Roosevelt administration sought to stabilize a system that had, by the resounding dominance of capital over working people, run aground. As the Labor Research Association publication Trends in American Capitalism shows the average industrial worker gained only 15% in real annual earnings between 1919 and 1929 while producing 53% more than in 1919. Thus, the so-called “golden age” of capitalism was only golden for those who reaped the fruits of this increase in production and not the workers producing the “gold.” Moreover, workers were in no position to absorb the commodities generated by this rapid growth in production. The authors of Trends in American Capitalism concluded, “It was this very sharp disparity between the expanded volume of production and the relatively restricted incomes of the workers that helped bring on the violent crash of 1929 and the ensuing great crisis and depression.”
Leading up to the 1932 election, the only certainty was that Hoover had failed and change was desired. Entering office with these strong winds behind him, Roosevelt set out on a deliberately cautious and experimental course. Like Hoover, he hoped that incentives to capital would produce a growth in employment and prices which would “jump start” the economy and “seep down,” increasing the buying power of the masses. These quaint, shallow metaphors still serve conventional bourgeois economics in our time.
Unemployment remained stubbornly high and wages desperately low. But capital fared rather better after 1933. Small businesses were devastated between 1929 and 1932 (50% more failures in 1932 than 1929), a time of survival of only the fittest (and biggest) enterprises. From 1933 on, business failures and annual liabilities dropped precipitously. By 1936 failures were 40% of the failures reported in 1928 with liabilities reduced almost as much. Clearly the New Deal was successful in stabilizing the business community!
Real gross private domestic product per man hour (productivity) grew consistently from 1933 through 1939 with only a pause for the 1937 relapse. The level of productivity rose by 28% between 1933 and 1939 with the productivity level of 1929 surpassed in 1934. At a time of mass unemployment and a deteriorating standard of living, those lucky enough to have jobs were squeezed even harder – labor exploitation increased steadily during the New Deal. Likewise, farm labor failed to recover until 1942. The wage rate per day without room and board stood at $2.30 in 1928. In 1940 it was only $1.60.
The only counterforce to this trend was the intense struggle on the part of labor.
But even with the mass militancy, consumer price-adjusted spending per capita only surpassed 1929 levels in 1940! The New Deal achieved little in improving the standard of living of the masses.
Thus, contrary to the conventional liberal view, the New Deal generated a business recovery without a concomitant recovery for the working class. Despite an intense, militant class struggle bringing millions into confrontation with capital, the numbers show that the Roosevelt administration betrayed their hopes in fact.
Popular accounts view the second New Deal as an era of the reform of capitalism. While the number of programs grew dramatically, the figures cited above challenge the performance of the second New Deal if not the actual merit of the reform claim. Undoubtedly, the second New Deal brought relief, some institutional relief, like Social Security and a legal minimum wage and restrictions on child labor. But even in this arena, the record shows a measured, cautious commitment. During the Hoover years of the Great Depression, social welfare expenditures grew from 3.9% of GDP to 7.9% of GDP, an increase of over 100%. Social welfare expenditures rose even more under Roosevelt, peaking at 13.2% of GDP in 1936, the year of Roosevelt’s greatest electoral mandate. But spending dropped dramatically in the next two years to 9% of GDP, only to spike again in 1939 in response to the mini-depression of 1937-38. Even at its peak in 1936, nearly 40% of the relief total was veteran’s benefits of the long denied World War I bonus provided in the form of US bonds One might be cynically tempted to see the administration as using veterans’ relief as an election year ploy.
Where the dominance of capital was actually challenged – the Wagner/Connery Bill – the Roosevelt administration was at best neutral, at worst in opposition.
The acronymic expansion of New Deal programs brought an accompanying explosion of government employees. Paid civilian government employees rose from 603,587 in 1933 to 953,891 in 1939, topping a million the following year. Thus, the New Deal did succeed in increasing Federal employment at a much faster rate than in the private sector.
Further evidence of this failure to restore employment is demonstrated by WPA figures: Works Project Administration Employment numbers marched steadily forward, peaking in 1939 at 2,911,000. Even in 1941 1,638,000 workers were employed by WPA. Similarly, Civilian Conservation Camp employment expanded consistently to a high of 919,000 in 1941. Thus, on the eve of World War II, there was a surplus of employable citizens totally 8,117,000 engaged in WPA, CCC, or without work - roughly 8% of the entire adult population. This reserve army of workers, workers desperate for real employment, makes the successes of union organizing in the New Deal period even more impressive and the plight of the unorganized even more tragic.
Apart from the liberal myths surrounding the achievements of the New Deal, a look at the statistics regarding civilian consumption between 1933 and 1937 – the most intense period of government intervention – reveal a mixed, but significant decline. While beef, fish, fresh vegetable, and egg consumption were up, pork, chicken, turkey and – staples of the working class diet – lard, milk, potatoes, wheat flour, corn flour and meal were down. In the same period, gross national product grew by 62.6%. The fruits of the New Deal were not “seeping down” to the masses. After a decade of government intervention, earnings in key industries still trailed their 1929 levels: by 12% in manufacturing, 10% in mining, and 24% in construction.
Roosevelt’s “Good Neighbor” foreign policy proved to be neither always neighborly nor always virtuous. When fascist Italy invaded Ethiopia, the administration invoked the Neutrality Act of 1935 to deny weapons shipments to either party. This course flaunted the fact that Italy was the aggressor and Ethiopia desperately needed assistance against this unprovoked attack. And when Franco and his fascist allies attempted to destroy the legitimate government of Spain the following year, millions everywhere saw the struggle as a bulwark against the further military aggression of the extreme right militarists. The US response was to again invoke the Neutrality Act, effectively blocking any but the most determined assistance to the Republic. At the same time little effort was made to restrain the insurgents and their German and Italian allies.
Similarly, the Neutrality Act thwarted needed aid to the Chinese when the Japanese invaded China in 1937. Even the sinking of an American gunboat by the Japanese failed to change this false neutrality that, in fact, encouraged aggression and fascist audacity. Good neighbors should be able to distinguish between friendly visitors and brutal intruders.
The Roosevelt administration showed a more aggressive side to its neighbors to the south. When Mexico nationalized oil in 1938, reprisals came quickly, including a boycott of Mexican oil. Basil Rauch notes “[t]he suspicions [at the time] that the Good Neighbor policy was merely a new mask for economic imperialism…”(p. 336).
The Real Lesson of the New Deal
Howard Zinn wrote of the New Deal: “The Roosevelt reforms went far beyond previous legislation. They had to meet two pressing needs: to reorganize capitalism in such a way to overcome the crisis and stabilize the system; also, to head off the alarming growth of spontaneous rebellion in the early years of the Roosevelt administration – organization of tenants and the unemployed, movements of self help, general strikes in several cities.” (A People’s History of the United States, p. 383)
Zinn gets many things right: he understands the undercurrent of class struggle that fundamentally shaped the populist aspects of the New Deal, he appreciates the imperative of stabilizing and recharging a stagnant capitalist system, and he recognizes that the Roosevelt administration brought something new to the state’s relationship with capital. But he gets some important things wrong as well.
But Zinn is not alone in misunderstanding the meaning of the period between the onset of economic decline and the beginnings of the US engagement in World War II.
Today liberal Democrats and social democrats point to the New Deal as a model for a humane and democratic society. Undoubtedly, there was a massive effort to bring relief to those harmed most by capitalism’s stumble. But the facts show how this effort was forced by the organized resistance and near rebellion of millions of working people and farmers. The ever-growing electoral mandate for more radical change was pacified by both relief efforts and moralistic rhetoric. Yet the Roosevelt administration neither proposed nor wholeheartedly accepted any change that fundamentally altered the relationship between capital and labor to the benefit of the people. There was no nationalization and little expansion of public ownership outside of the TVA. Government employment in such agencies as the Works Progress Administration and the Civilian Conservation Corps was always assumed to be temporary with the exception of a swollen Federal bureaucracy. True, hitherto untried government regulation expanded enormously, but all in the interest of establishing rules that would smooth the way for a more viable capitalism. A majority of an occasionally divided ruling class recognized from harsh experience that slash-and-burn capitalism threatened the continued existence of the system. That was the thrust of the first sentence of NIRA Title I: “A national emergency productive of widespread unemployment and disorganization of industry, which burdens interstate and foreign commerce, affects the public welfare, and undermines the standards of living of the American people, is hereby declared to exist.” Thus, NIRA was both an emergency and a temporary ameliorative to be entrusted to the administration of a conservative, business-friendly General Johnson.
Liberals see the New Deal as a forbearer of the welfare state that bloomed in Europe after the Second World War and less vigorously in the US. There is some truth to this, though the trend to offer relief began during the Hoover administration in the US and with mass pressure and popular front and labor governments in Europe (Social insurance was established in France in 1930, family assistance in 1932. The US was among the last industrial countries to adopt a national pension system.). Clearly what has come to be viewed as a feature of mature capitalism was directly and proportionally based upon the relative strength and organization of the workers’ movements in their respective countries. Its continuance after the War was thanks to a militant left and the necessity on the part of ruling circles to present a humane face against the appeal of socialism throughout most of the world. This is apparent from the mounting efforts to dismantle the welfare state after the fall of the Soviet Union and the simultaneous decline and confusion of the left. As neo-liberalism spread in the 1980’s and 1990’s as the dominant and pervasive ideology in capitalist countries, much of organized labor shifted from pressing labor’s interests to defending and promoting their national industries and enterprises against borderless competition. The attempted destruction of the welfare state further sapped the strength of labor, creating a larger pool of impoverished, unorganized, desperate workers forced by the market to settle for lower wages. The labor movement’s less than effective defense of the welfare state did not forestall releasing what Marx called the “Reserve Army of the Unemployed” from the bondage of relief.
Another shamefully ignored lesson from the New Deal era is the relationship between crime, poverty, and economic desperation. As in every period since industrialization, crime and incarceration are guides to the true status of the working class. Over a twenty year span, the suicide rate peaked in 1932 and the homicide rate in 1933, the crest of unemployment. Incarceration, as one might expect, reached its zenith a few years later. With more US citizens incarcerated today than anywhere else in the world, one looks in vain for a mainstream leader who makes the connection.
While welfare economics was often seen as offering a stimulus to capitalism, the capitalists found an even better, more agreeable mechanism during the Roosevelt administration. If we were to pretend that 1941-45 was not a period of unparalleled, devastating international bloodshed, we would credit Roosevelt with achieving his goals in this period: the economy recovered and grew enormously, unemployment was virtually eliminated, and there was relative peace between capital and labor. But, of course, we know that was because conscription absorbed the unemployed, war production boomed, and patriotism brought unity in place of class struggle. And this would prove to be a profound lesson for the ruling class. Even as early as 1938, with war in Europe and even greater war looming, military orders for home and abroad were accounting for more and more of the economy’s recovery. With the full hitching of the economy to military needs, unemployment was statistically non-existent by the end of 1942, wages and industrial growth rocketed past pre-depression levels, and the trend continued until the post-war recession. And the war brought an important moral reminder to the ruling class: depravation and sacrifice on the part of the working class is more palatable when clothed in nationalism and accompanied by patriotic music. An unspoken truth about the Great Depression is that it was overcome by a partly planned, “command,” non-market war economy – the economic mechanism often associated with socialism. But this was not socialism of the people, but a “socialism” of capital.
One can see the scope of this war-induced road to recovery by comparing the public debt incurred during the New Deal with the public debt accumulated during wartime. At its peak, the New Deal public debt never exceeded $59 billion (1939). At the end of World War Two, the public debt stood at $265.9 billion. From 1933 to 1939 New Deal reform and recovery grew public indebtedness by $18.4 billion. From 1939 to 1945, the debt grew by $206.9 billion! Imagine the US if the “sainted” Roosevelt and the New Deal politicians had made a similar commitment to the people’s needs, a commitment to education, public health, infrastructure, leisure, incomes, etc. But it was not to be.
The war against fascism and Japanese imperialism was justified; the elimination of Nazism, fascism, and Japanese imperialism was a costly, but necessary calling. The sacrifices were great, but not for capital. Wartime profit well exceeded historic rates.
Perhaps Roosevelt’s greatest legacy is the establishment of a war economy as the basis for expanding economic activity. Absent a world conflagration of the tragic dimensions of World War II, US ruling circles have nonetheless chosen to pursue a perpetual war economy over developing public assets, encouraging productive employment, or expanding equitably the consumption of the masses. They have created threats where little or none exists to demoralize a public that succumbs to a manipulated, media-driven trade off between the common good and bogus security. The Cold War and the current “Global War on Terror” serve as a constant, never-ending framework for imperial adventures on behalf of a state which serves monopoly capital. From covert activities, military interventions and surrogate wars in Greece, Indo-china, Iran, Guatemala and Korea to the interventions in Grenada, Afghanistan, and Nicaragua at the end of the Cold War, anti-Communism served as a handy excuse for maintaining a war footing. Those who foolishly thought that the Soviet Union’s demise would slow the tempo of military spending were rudely presented with an international “liberation mission” in Iraq and “humanitarian intervention” in the purposely dismantled Yugoslavia. Today, of course, the excuse for war comes from a new set of imaginary adversaries: the comic book “axis of evil,” “Islamo-fascists,” and exotic “terrorist cells.” The very words conjure bigotry-laced images of fanatical, childhood bad guys.
This devotion to military spending affords many opportunities for capital: nearly all of the corporate world can participate in this enormously wasteful enterprise – weapons manufacturers, construction companies, myriad services, technology firms, transportation, etc, etc; demand emanates from government orders and is predictable, precise, and ever growing; competition is minimal or non-existent; payment is guaranteed; there is little pressure for cost containment. Where once these were presented as the supposedly fatal inefficiencies of a Soviet-style planned economy, they are today wholly embraced by the titans of monopoly capital. And they are extraordinarily profitable.
Chalmers Johnson, an always insightful progressive, estimates that military spending from 1947 to 1990 added up to an astounding $8.7 trillion. Add several trillion to get us to 2008 and one gets some rough idea of the enormous opportunity lost by what Johnson calls “military Keynesianism” (Of course the costs of a war economy far exceeds the annual official budget). One cannot calculate how many lives were adversely affected by establishing this priority over a war on cancer, poverty, mental illness, environmental hazards, etc, etc.
Sixty years before Chalmers Johnson’s condemnation of “military Keynesianism”, Communist leader William Z. Foster anticipated his point by describing “big capital” Keynesianism. In a speech in 1948, he said: “Building a war economy has many political advantages for the reactionary capitalist Keynesians… Armament expenditures by the government are incomparably more favorable from a profit standpoint to the capitalists… in contrast to the less profitable reformist program of public works and the strengthening of the workers’ buying power and social security systems. Moreover, gigantic munitions orders can easily be secured under the cover of hysterical war scares, and besides this, the resultant militarization greatly facilitates big capital’s drive toward fascism… At the same time that the big capitalists readily agree to have the government spend billions yearly for the war economy, they also fill the air with strident cries for government “economy”. It will be seen, however, that their ideas of economy in government sum up pretty much to reducing the outlay of all sorts of social services and to the securing of lower taxes for themselves.”
And so it came to pass. This too is the legacy of the New Deal.
Soviet writers correctly saw the New Deal as the beginnings of the fundamental shift from monopoly capitalism to state-monopoly capitalism in the US. They perceptively note that: “American historians tend to ignore the objective fact that statist processes underlay FDR’s reforms, and exaggerate the importance of FDR himself while underestimating the working class struggle for progressive reforms” (The US Two-Party System: Past and Present, unidentified authors, p. 242) Born with the New Deal was the notion that the state had a right – more a duty – to steer the economic ship of capitalism over rough shoals. Of course government was never the neutral arbiter of bourgeois fiction. States are captured by classes and require revolutionary restructuring to serve a different class. But before the New Deal, the affairs of business were the affairs of business alone. The New Deal brought a blending of government and monopoly. Insofar as mass action may press militantly for reforms, the state will accommodate this pressure in ways that will protect monopoly capital and disarm the challenge of radical change. Otherwise, the state will oversee the workings of monopoly capital in ways that will promote its growth and dominance. This new, enlarged role for the state was necessitated by the failings of laissez-faire capitalism prior to the Great Depression. Ironically, as state-monopoly capitalism has matured, both its corporate and state managers have arrogantly assumed that there are no
The Real Lesson of the New Deal for the US Left
Written by Zoltan Zigedy
Power concedes nothing without a demand. It never did and it never will. -- Frederick Douglass
Seventy-five years ago this March, the Presidential inauguration of Franklin Delano Roosevelt ushered in a new era of US capitalism in response to the seemingly bottomless decline of production, trade, and employment which began with the stock market crash in October of 1929. Dubbed the “New Deal,” the policies of the Roosevelt administration sought to restore growth and employment in new and untested ways.
Political liberals and a large section of the left fondly remember the New Deal as a great era of reform and social change that established a more benign social order befitting the nation’s democratic tradition. Conservatives and business interests demonize the period as a vast social experiment that harmfully distorted the normal functioning of a market economy, only to be corrected by the neo-liberal restoration brought forth by Ronald Reagan
Much of today’s two-party politics is couched in these popular views. What remains of the Democratic Party progressive wing seeks a twenty-first century version of the New Deal while the rest of the Democrats and nearly all Republicans subscribe to the neo-liberal vision of radical individualism and unfettered markets revived by Reagan and those who followed.
Both views draw upon a flawed picture of the New Deal era.
When Roosevelt became President in March of 1933 (the last campaign to include a four-month span between the election and the inauguration), he faced both a deep and deepening economic crisis (The Great Depression) and great popular resistance to the human costs of the economic contraction. Between 1929 and 1933 gross national product in the US had fallen 46% and industrial production more than 50%. In human terms, unemployment reached 20-25% of the work force, totaling at least 13 million. Nearly half of all employees were either out-of-work or underemployed. Of those employed, average weekly earnings of production workers dropped by a third, compensated only partially by slipping consumer prices. Foreclosures, repossessions, hunger, failing health, mass migration, crime, and disillusionment plagued the working class.
The nation’s 6 million farms suffered greatly with over a million foreclosures in this period. Most farmers owned small farms or were tenant farmers (half of all farmers earned little more than $350 in 1929). Farmers were especially hard hit: their share of national income dropped from 12% in 1929 to 5% in 1932, a time when national income was dropping dramatically for every sector of the economy.
And, of course, African-Americans suffered the most. With most African-Americans living in the South under the brutal repression of institutional segregation, incomes and living standards were roughly half of that of white workers before 1929. African-Americans experienced the constant threat of lynching and a repressive apartheid regime that retained the de facto conditions of the pre-Civil War South. Conditions in the North were only marginally better. The economic decline pressed them even further behind the white working class.
The Hoover Response
From the October 1929 crash until the installation of Roosevelt in March 1933, President Herbert Hoover led the national response to the deepening crisis. Though faced with a Democratic House after November 1930, Hoover had no difficulty mustering political support for his recovery program. For the most part, he viewed the crisis as one of confidence. His deep faith in the rationality and ultimate soundness of capitalist markets led him to anti-crisis measures more dependent on confidence-building than action. Nonetheless, he moved to grant business a 1% reduction in income taxes in order to stimulate growth. Though the stock market rebounded, it crashed again in May 1930, followed by a grinding decline of prices, production and employment for the next two years.
Contrary to popular liberal lore, Hoover did not stubbornly refrain from all action. He acted vigorously to support big business, banks, and wealth. One of his first acts was to increase tariffs to the highest levels ever seen, hoping to protect the domestic market from dumping by other distressed economies. There is no reason to believe this had any noticeable ameliorative effect on the crisis.
In the face of agricultural impoverishment brought on by the collapse of prices and a persistent drought, Hoover signed a $20 million drought relief package for seed loans, but available for farm relief as well. The Hoover administration created a National Credit Corporation with assets of $500 million on November 10, 1931 to stimulate the flow of credit (gross domestic product was $91.2 billion in 1930). This move was also his answer to unemployment, assuming that increased business activity would “seep down” to the working class – an early version of what came to be called “trickle down” economics in our era.
Nearly immediately after the formation of the NCC, the administration established the Reconstruction Finance Corporation to lend money to banks, insurance companies and other enterprises with a government subsidy of $500,000,000 and another $1,500,000,000 available from the sale of notes guaranteed by the government. Nonetheless, bank failures continued through 1932. It is, perhaps, useful to note that this stimulus package totaled well over 3% of the GDP at that time, a percentage greater than the plan agreed to by Bush and the Congress this year.
Often lost in the popular view of the Great Depression is the profound role of turmoil, struggle and rebellion. Too many histories of the period recount the actions of politicians while ignoring the mass upsurge that influenced and shaped their actions. Bonus marchers – World War I veterans seeking their promised bonuses from the war – gathered in Washington DC in June 1932 to protest. The Communist-led Workers Ex-Servicemen’s League called the march after Congress rejected its demands for immediate relief. Twenty-five thousand vets and their families responded, forced to set up squalid shelters on the barren land called Anacostia Flats, across the Potomac from the Capitol. In late July, Hoover ordered the military, under the leadership of the future military “heroes,” MacArthur, Eisenhower, and Patton, to attack the bonus marchers’ makeshift city. These brave warriors shamefully drew swords and bayonets and, quoting the New York Times, “Amidst scenes reminiscent of the mopping up of a town in the World War, Federal troops… drove the army of bonus seekers from the shanty village…” Indeed, this was a proud moment for our military. As one of the protester’s slogans said, “Heroes in 1917- Bums in 1932.”
Similarly, forced evictions were met by resistance. As soon as residents and their belongings were removed, neighbors and supporters returned them to the foreclosed homes. This process was repeated again and again throughout the US. It was the Communist-led Unemployed Councils that organized and inspired these defiant actions. The National Unemployed Council was founded on July 4, 1930 from the deliberations of 1,320 delegates (by 1938, the organization had 800,000 members). The first national demonstration against unemployment was called by the Communist- led Trade Union Unity League and the Communist Party on March 6, 1930 with over 1,250,000 participating (110,000 in NYC, 50,000 in Chicago, 50,000 in Pittsburgh…).
In the Midwest, farmers fought eviction and falling prices through various organizations: the bigger farmers followed the Farm Bureau Federation and the National Grange while the more numerous small farmers supported the Farmers National Holiday Association and the Communist-led National Farmers Union. NFU leader, John Simpson, was especially vocal and respected among small farmers. The latter two organizations were famously militant, often packing courtrooms and even threatening judges bent on granting evictions.
Communists were crucially active in the southern Sharecroppers Union, an organization uniting poor African-American and white farm workers in the segregated South.
Clearly, anger and resistance to the hardships of the Depression and the callousness of the Hoover administration were growing dramatically. This judgment was expressed emphatically in the Presidential election of 1932.
The First New Deal
Many historians usefully divide the New Deal into two periods: the first beginning with the Roosevelt inauguration of 1933 and the second beginning in 1935 after the landslide electoral victory of the Democrats in the 1934 midterm elections.
Roosevelt’s career as governor of New York was suggestive of the kind of liberalism he favored (the term really only took on its contemporary meaning with the New Deal). In general, he had no principled objection to limited public ownership of some assets when he deemed it beneficial. In addition, he supported legislation, on different occasions, that would afford working people an opportunity to better their conditions. Whether this was because of the political climate in New York or because of some deeper ideological commitment is hard to determine. Clearly, however, Roosevelt understood the profound sentiment for change that was stirred by the misery of the Great Depression. He also appreciated the insurgency that was springing up around the country.
In the primary campaign leading to the Democratic Convention, Roosevelt defused the contentious Prohibition issue and emphasized farmers, relief to banks and homeowners, tariff policy and the “forgotten man.” The latter phrase struck a chord that led him to speak even more forcefully for working people: “The millions who are in want will not stand by silently forever while the things to satisfy their needs are in easy reach.” This statement clearly was presented as a reminder to the Democratic Party conservatives that the masses were in motion and needed to be heeded. An early clue to his policy approach was revealed by his unspecific endorsement of “bold, persistent experimentation.” Roosevelt won the nomination on the fourth ballot.
In the campaign against Hoover, Roosevelt supported the call for a repeal of Prohibition, a stance that would find favor with modern-day liberals advocating a live-and-let-live lifestyle. Conservatives attempted to force the issue to the center of the campaign, but Roosevelt had the good sense to subordinate the issue to economic policy.
To address the unemployment issue, Roosevelt called for greater relief. Paradoxically, he also endorsed the platform commitment to a balanced budget. His recovery program was a vague commitment to corporatism, the bringing together of all interests, all classes to cooperate under the banner of economic nationalism. To some on the left, this sounded dangerously like the program projected in fascist Italy and soon-to-be-fascist Germany. In hindsight, it may be difficult to understand this fear. But in 1932, many on the left saw the economic and political crisis of the time as intimately linked. Fascism was gaining ground in the world precisely as the world economy appeared to be spiraling towards disaster. It was not far-fetched to view fascism as a ruling class response to the growing economic disaster. Like the vague, early Roosevelt program, fascists advocated a strong state that would balance the interests of all classes under a nationalist banner. Some saw Roosevelt’s folksy, fatherly addresses to the nation as a New World version of the Old World charismatic leader.
One early left critic of the Roosevelt program was Lewis Corey, the pen name of one of the founders of the US Communist Party, Louis Fraina. Corey, an independent, eccentric, but sometimes insightful Marxist, saw state capitalism as the logical and necessary antidote to economic catastrophe. With this view, he was an early, prescient expositor of the theory of State Monopoly Capitalism. In his 1934 book, The Decline of American Capitalism, Corey sees the roots of fascism in the rise of state capitalism as a response to the Great Depression. He found state capitalism in Roosevelt’s vision and feared a desperate transition to fascism.
Nonetheless, Roosevelt’s promise of a new “economic constitutional order” proved popular with voters who wanted nothing if not change. Roosevelt won the election with nearly a seven million popular vote plurality, the largest majority since 1864, and all but five electoral votes. Such was the thirst for change.
It became clear during the transition that Roosevelt was determined to attack the Depression domestically, rather than pursue Hoover’s more often internationalist strategy. He saw the fundamental problem as a lack of domestic purchasing power to keep pace with domestic production Therefore, the key to recovery was to bring them in line. And recovery was the watchword of the first New Deal.
The notion of increasing mass purchasing power – increasing effective demand – to overcome a slumping economy has become associated with the thinking of economist John Maynard Keynes. Of course Keynes major work was not published until 1936, too late in the life of the New Deal to count as a major influence. Nonetheless many in the New Deal administration retrospectively embraced Keynes’ work as a further confirmation of the wisdom of their approach. Keynes’ views grew to dominate mainstream economics only to be overshadowed by neo-classic, liberal economics in the last thirty years. We shall see, however, how it remains a pillar of the post-war economy in the US.
Like most inaugural addresses, Roosevelt’s churned with rhetorical flourishes and vague, but suggestive proposals. His statement “[W]e must move as a trained and loyal army willing to sacrifice for the good of a common discipline… with a unity of duty hitherto evoked only in time of armed strife” further stoked the fear of fascism. His pronouncement that “The measure of the restoration lies in the extent in which we apply social values more noble than mere monetary profit” aroused those thirsting for social justice. And the “Good Neighbor” policy promised a peaceful, fair foreign policy.
But the first New Deal was about action and Roosevelt quickly called a bank holiday and an embargo on gold before meeting with some of the nation’s leading bankers. The crisis was so demoralizing that they were in no mood to resist government action. As a historian of the New Deal notes: “If the administration had been bent upon achieving radical reforms as a condition of recovery, it could have had them… including nationalization of the nation’s banks. As it was, a conservative solution, highly acceptable to bankers and businessmen, and symptomatic of the First New Deal, was decided upon.” (Basil Rauch The History of the New Deal, p. 63-64).
The Roosevelt Emergency Banking Bill was seen by many as a move strengthening the hand of big bankers. Swift action to balance the budget came at the expense of veterans’ benefits and federal salaries. For the most part, business was pleased, resulting in a fifteen per cent jump in the stock market. Agricultural policies were largely shaped by conservative George Peek who was appointed to administer the program. The National Farmers Union and the Farm Holiday Association vigorously opposed them, calling a farmers' strike which was only postponed when the President intervened.
Roosevelt’s unemployment relief initiative was threefold: a Civilian Conservation Corps to employ 250,000 young workers in the national forests at subsistence wages, grants under the Federal Emergency Relief Administration that supplied states with monies in contrast to the Hoover administration’s loans, and the Public Works Administration, providing employment on federal infrastructure – an expansion of Hoover’s earlier program.
For industrial policy, Roosevelt hoped to achieve a compromise between labor’s demand for minimum wages and reduced hours (a thirty-hour work week) and management’s demand for a relaxation of anti-trust restraints and the tolerance of price-fixing. Labor’s gain in the resultant National Industrial Recovery Act was the famous Section 7a which promised that industrial codes would guarantee unspecified minimum wages and maximum hours along with collective bargaining rights. The NIRA was to be administered by General Hugh S. Johnson famed for organizing war production in World War I – a man not noted for liberal ideas. Roosevelt expressed the goal of NIRA as “…the assurance of a reasonable profit for industry and living wages for labor.”
In addition, the first New Deal brought the Tennessee Valley Authority into being, a project that established public ownership, if only in this exceptional instance, and brought affordable, rural electrification to a large sector of the South.
A Securities Act was passed in late May 1933 to protect the public from fraud and misrepresentation in the sales of financial instruments. And in June, the Glass-Steagall Act was passed separating investment banking from commercial banking, FDIC was established to minimally protect designated accounts from loss, and the Federal Reserve was given powers to influence interest rates and to restrain speculation. The Glass-Steagall Act was repealed late in the Clinton administration, contributing greatly to the financial chaos now afflicting the economy.
In foreign policy, the Roosevelt administration recognized the Soviet Union, but gave questionable support to the London Economic Conference, the last effort to apply an internationalist solution to the Great Depression.
For workers, the centerpiece of New Deal action was Section 7a of NIRA. The remainder of NIRA fostered the recovery of business, allowing enterprises to regulate themselves to restore prices and profits. Throughout 1933 that was precisely what the capitalists did with the encouragement of General Johnson, the administrator.
Section 7a was inspirational to labor, but in fact it was relatively toothless. Under pressure, Roosevelt urged business in June 1933 to voluntarily accept a thirty cents per hour minimum wage and a thirty-five hour work week. To further assuage labor, the Blue Eagle campaign – allowing compliant businesses to display the Blue Eagle insignia – was mounted. Neither changed the existing relationship between capital and labor. In early 1934, General Johnson conceded that that big business had accrued all the benefits of NIRA at the expense of small business, labor, and the consumer.
Nonetheless, despite the weak Section 7a and a nearly moribund AFL, workers took the spirit of 7a into their own hands, often prodded by Communists and the left. As Boyer and Morais recount in Labor’s Untold Story:
The law said that an employer had to bargain collectively with unions and millions of workers were suddenly becoming fanatically determined that employers would do just that. It became more imperative to them when the gains of NIRA as to wages and hours proved in the overwhelming majority of cases to be unsatisfactory. And when company unions were set up, their members often determined to capture them and transform them into real unions.
And it was on the picket lines that the workers struggled with their employers to make Section 7(A) of the NIRA mean something. In 1933 more than 900,000 workers went on strike for union recognition and wage increases, three times more than the previous year. Trade union membership zoomed as 775,000 workers flocked into labor organizations, 500,000 into the AFL, 150,000 into independent unions, and 125,000 into the Communist-led Trade Union Unity League. The latter organization led strikes in steel, auto, coal mining, meatpacking and the beet sugar industry. In 1933 alone the TUUL conducted strikes of 16,000 autoworkers in Detroit, 5,000 to 6,000 steel workers in Ambridge, Pennsylvania and 2,700 meat packers in Pittsburgh. (p. 276)
Thus, the gains of workers from the first New Deal were won on the mass action front and not in the legislative chambers. As Basil Rauch recounts in The History of the First New Deal: “A wave of company union organizing swept the country when NRA was launched. Under these circumstances it became possible for businessmen to observe the child-labor and hours-and-wages provisions of the codes and at the same time reduce labor costs…
Similarly, agricultural workers and farmers saw no gains from the first New Deal. Again Basil Rauch paints a bleak picture: “Dissatisfaction with the AAA (Agricultural Adjustment Administration) became widespread… the farm products which were benefited were raised chiefly by large landowners, farming corporations, and banks and insurance companies which had become large owners of farm lands through foreclosures… Farm laborers, who were excluded from the provisions of the NRA, sharecroppers, and tenants usually received no share of AAA checks or found themselves put off the land as a consequence of the landowners’ reduction of acreage.” (p.102) Both the National Farmers Union and the Farm Holiday Association resisted these results.
Towards the end of 1933, the administration succumbed to public pressure and empowered the Civil Works Administration thereby staving off mass dissatisfaction by employing four million workers on various civil tasks, but the program was ended, nevertheless, the following April 1.
The year 1934 was a watershed – a year of aggression on the part of capital and ferocious fight back from labor. Capital organized under the banner of the viciously anti-labor Liberty League, spent vast sums on labor spies and security services, and cracked down hard on labor organizing. The KKK, the Black Legions, and the Sentinels of the Republic were unleashed to sow discord, ethnic intimidation and anti-Communism. The Smedley Butler affair – overtures to General Butler with the hope of staging a coup – occurred in 1934.
Perhaps no event signaled labor’s determination to meet these threats than the San Francisco general strike in May of 1934. Nearly 127,000 workers shut the city down in solidarity with striking seamen. The militancy of that action both inspired and foretold the mass uprisings to come.
The Roosevelt administration suffered a self-inflicted wound when it established the National Recovery Review Board in March of 1934. The independent Board was to review business practices during Roosevelt’s presidency. Chaired by Clarence Darrow, the Board delivered a scathing indictment of the advantages gained by capital under the NIRA. Darrow’s references to the advantages of socialism embarrassed the administration which never published the three reports.
The pro-business NIRA brought rising prices in 1934 coupled with falling production, employment and payrolls. At the same time, the administration witnessed a wave of strikes unprecedented since 1922 with militia called out in 19 states and 46 workers killed resisting. In general, Roosevelt was hostile to these labor actions.
Nonetheless, labor stood by Roosevelt in the interim election producing what historian Charles A. Beard called “thunder on the left.” A new, more radical Congress came to be, with the Republicans losing 10 Senators and 10 Representatives.
At the end of 1934, the first two years of the Roosevelt administration were characterized by intense, widespread and often violent class struggle between capital and labor. At best, the administration stood aloof. At worst, it demonstrated a partisanship for capital despite rhetorical disclaim. The unusual shift in a midterm election in a leftward direction was to redirect that trend.
The Second New Deal
Roosevelt fully understood the meaning of the 1934 elections. He spoke, in his January, 1935 State of the Union address, of the “clear mandate” given. Nonetheless, he offered a tortured explanation of that mandate: “We continue to recognize the greater ability of some to earn more than others. But we do assert that the ambition of the individual to obtain for him and his a proper security, a reasonable leisure, and a decent living throughout life is an ambition to be preferred to the appetite for great wealth and great power.” It should be noted that despite these high sounding words, the administration opposed, early on, the Wagner Labor Relations Act and the Fair Labor Standards Act advocated by the new Congress.
On January 17, 1935, the Social Security Act was placed before Congress addressing unemployment and retirement benefits. The debate on and evolution of this bill serves as a pattern for much of later New Deal legislation. For the most part, critics saw it as too limited in scope. The AFL leadership objected to its reliance for funding upon payroll taxes instead of income taxes. Earl Browder, speaking for the Communist Party, went further. He argued that funding should come from taxes on the wealthy and capital. The bill passed in August, amended to block the administration’s desire to allow private insurance companies to offer larger annuities outside of the system.
One can say that the second New Deal was a response to the recognition that “seep down” (“trickle down” in the Reagan-era jargon) policies of stabilizing prices and offering assistance and encouragement to capital had failed. Instead, the administration accepted that only by directly increasing the economic means of the masses could the economy recover. The Keynesian notion of the necessity of massive public spending on jobs and relief was largely adopted. In the view of Roosevelt’s team, increasing effective demand by putting cash into the hands of under and unemployed workers would stimulate the economy where business incentives had failed. Payrolls in December of 1934 were only 60% of those in 1926 while dividends and interest were 150% of their level in that year.
Thus the alphabet soup of New Deal programs increased and enlarged through 1935. Four billion dollars were allocated to state relief programs. The Works Project Administration (WPA) was established in May which in the next two years accounted for 1600 new schools, 105 airport landing fields, 1600 clinics, 36,000 miles of rural roads, dams, traveling libraries, millions of school lunches and medical home visits, and the well-known arts projects. Wages were below prevailing levels, but above welfare payments. An unforeseen (and likely unwelcome) consequence of this program was stirrings among the WPA workers for union representation.
The administration’s agricultural program, AAA, had only added to the process of reducing farmers to tenancy. As a result, over 40% of all farmers were saddled with tenancy. To address this, the administration established the Resettlement Administration which offered tenants farm ownership on easy terms and cooperative farm equipment. Little distribution of new farm acreage was achieved and Southern sharecroppers and migrant workers were essential ignored.
Under pressure from leftist youth organizations and massive youth unemployment and poverty, the administration created the National Youth Administration which spurred a national organization, the American Youth Congress. The organization proved to be a seedbed for left, radical recruits and an embarrassment to the administration (except Eleanor Roosevelt!). Redbaiters attacked the organization vociferously.
Under pressure from the crackpot Townsendites, the legitimately populist ideas of Huey Long, the labor movement and Communists, Roosevelt sought to revise tax policies. Like the Social Security Act, the Wealth Tax Bill was a minimalist program designed to add purchasing power to the masses without a shock to the basic mechanism of capitalism. As it passed in August 1935, corporate taxes were lowered slightly for small businesses and raised slightly for large corporations. Taxes on individuals with earnings over $1,000,000 were graduated steeply to 75% on incomes over $5,000,000. An excess profits tax was also passed.
Probably the most important legislative action of 1935 was not initially supported by the administration. Though the Wagner-Connery Labor Relations Act was overwhelmingly passed by Congress, the administration feared the hostility of capital and leaned towards extending NIRA and Section 7(a) instead – recovery was one thing, social justice another. The bill outlawed company unions and guaranteed exclusive union recognition by majority assent. NRA’s General Johnson fought the measure to the end, arguing for “minority” rights for workers who did not support the majority decision. While the AFL strongly supported the bill, President William Green made the curiously conservative argument: “We cannot and will not continue to urge workers to have patience, unless the Wagner bill is made law, and unless it is enforced, once it becomes law.” But while
Green was flaunting his restraint, a maverick group of AFL dissidents, leftists, and Communists was moving to take the labor movement in a different, more radical direction, a direction that would militantly and successfully confront capital and shift the balance between capital and labor for many years.
Led by Mineworkers’ John L. Lewis, the Committee for Industrial Organization (later the Congress of Industrial Organizations) was founded on November 10, 1935. The event was electrifying, releasing all the pent-up frustration and determination of unorganized, super-exploited industrial workers. A massive strike wave swept through industrial plants through the remainder of 1935 and throughout 1936. Rubber workers, autoworkers, steelworkers, electrical workers and other industrial workers, organized and encouraged by selfless, often Communist, CIO organizers, took to picket lines, frequently resorting to the militant and effective tactic of the sit-down strike. Despite hostility and red-baiting by the AFL leadership, despite violent, organized resistance on the part of capital, despite brutal, anti-labor actions by police and militia and a hysterical media, they succeeded in organizing millions of workers into new industrial unions. Unlike their AFL counterparts, these new, fighting unions embraced democratic principles, anti-racist policies, and, most importantly, class struggle. By 1940, the CIO had organized 3.8 million members into the CIO unions.
This historic movement had two consequences seldom acknowledged in standard accounts of the New Deal. Firstly, the wage gains added much buying power to the New Deal effort to stimulate economic activity. The shift in the balance of forces between capital and labor corrected some of the crisis-inducing inequalities of the “prosperity” of the twenties. In his address to the 1939 CIO Convention, Phillip Murray noted: “[We] have increased the national purchasing power of the workers in the United States approximately $5,000,000,000 per year.”
Secondly, the organizing campaign also marshaled enormous influence over the 1936 elections, benefiting both Roosevelt and the Congress. The landslide victory of the Democrats owed much to the sympathies stirred by this powerful struggle. Despite demons concocted by the capitalist media, most voters identified with the fighting workers.
Notwithstanding the Supreme Court’s attempt to derail the New Deal in 1935-1936, the legislative agenda continued, led by a Congress generally more aggressive than the administration. To his credit, Roosevelt chose to ride the wave of change and economic justice unleashed by the CIO in his 1936 election campaign. Unlike modern “triangulators,” he spoke to and for the masses of workers and farmers. Some of his most militant rhetoric came forth in the 1936 campaign such as his oft-cited attack upon “economic royalists”. Roosevelt spoke of 200 corporations controlling half of the nation’s wealth: “This concentration of wealth and power… has been a menace to the social system as well as to the economic system which we call American democracy.” He took this message vigorously to all reaches of the country.
The 1936 election was a landslide victory for the Democrats and New Deal policies. Roosevelt received 60.8% of the votes and the new congress was overwhelmingly Democratic (3/4 of the Senate, nearly 4/5 of the House). Even the “independent” Supreme Court felt the wave and softened its opposition to the New Deal.
The Communists ran Earl Browder and James Ford in the presidential election. Though placing the dangers of fascism and reaction at the center of their campaign, they sought to raise issues that would, in fact, strengthen the popular base of the New Deal. Where the Democrats were weakest – on racial equality – the candidacy of Ford, an African-American, brought greater awareness to the forefront.
Armed with this powerful mandate, the administration curiously emphasized organizational issues over social justice. It used the early part of 1937 to advocate Supreme Court reorganization – despite the Court’s newfound spirit of cooperation – and an Executive Reorganization Bill which sought to make changes in the executive branch of the government. While Roosevelt argued that these moves would be both democratically and managerially sound, mistrust fractured the unity of the New Deal coalition. The component designed to expand civil service was clearly democratic in character, but the other elements were not nearly as unambiguous. Many wondered why a President with unprecedented power and an overwhelming mandate pressed so hard for mere formal shifts in power, for example by trying to weaken the judicial branch.
No satisfactory explanation of Roosevelt’s path is available, but clearly it was a setback for both the quest for social justice and a deepening of progressive reforms. We can only speculate that Roosevelt lacked a confidence in the support of the masses or, more likely, felt a fear of unleashing further radical change, choosing institutional changes over stoking the democratic upsurge that propelled him to unprecedented popularity. Perhaps, there are some similarities with the recent institutional changes urged by President Hugo Chavez in Venezuela. Like the Roosevelt administration, the Chavistas lost some of the momentum won by enormous electoral victories by choosing institutional change over engaging the masses more directly in the pursuit of change.
The Administration lost further steam by aggressively attempting to balance the budget in 1937. With the economy sharply rebounding, administration officials began to sound the fear of inflation, urging budgetary restraint. Federal spending was cut drastically, with the WPA nearly shut down. Consequently, the economy quickly sank into decline. Industrial production fell drastically (35% in 9 months), prices fell and unemployment jumped dramatically.
Through the first months of 1938 Roosevelt stayed firmly with the policy of fiscal restraint urged by capital. This appeasement of business only deepened the crisis. In April, Roosevelt reversed his policies, reviving WPA with $1. 25 billion for employment and further funding other programs to the total of $3 billion. The Congress overwhelming approved these moves.
The turnabout of policy led to a turnabout in economic activity. Almost immediately, industrial production, employment, prices, and payrolls begin to climb. Nonetheless, the US economy never reached pre-Depression levels of employment and industrial production until 1939, seven years after their lows. By then, the mandate of 1936 was gone, eroded and crippled by the retreat of 1937 and the fresh economic slump of 1937-1938. The momentum of New Deal progressive legislation was lost without achieving the goals of full recovery or social justice.
The Roosevelt administration passed only one important New Deal policy in 1938, the Fair Labor Standards Act. It gave minimum wage and maximum hours protection to non-union workers and restricted the use of child labor. The administration’s interest started shifting to the looming European War and managing the US attitude towards it. Defense spending began to rise and war fears were stoked, diverting attention from domestic problems. Right-wing legislators successfully exploited these fears, warning of “un-American” activities. A new red scare emerged, fueling intense red-baiting extending even to unions and the more progressive New Dealers. The attack on labor reached absurd heights: Eighty-five unions faced indictment in 1940 under the Sherman Anti-Trust Act.
Recovery came only with the massive war spending of the Second World War. The ruling class found a new economic stimulus with military employment and the Federal government pumping massive revenues into war industries. Military Keynesianism brought high productivity and labor cooperation through patriotic sacrifice and effort. Military pump priming brought huge profits through government contracts tolerant of waste and cost-escalation. The destructiveness of war and the race for more lethal weapons promised an endless growth of demand. Thus, capital found, for that moment, the answer to the challenge of the Great Depression without conceding much ground to the people.
The New Deal Balance Sheet
We have in no way offered a complete or thorough history of the New Deal. We have, however, unlike most histories of this period, presented these six or seven years as a history of class struggle. Where most accounts stress the political maneuvers of the two parties or the legislative agenda of the Roosevelt team, we have attempted to show the impact of mass action upon the policies of the ruling class. Faced with a groundswell of dissatisfaction backed with organized opposition, desperate elites sought to treat a wounded capitalism while restraining the radically democratic expectations of those participating in this struggle.
Writers stress the two-fold goals of the New Deal as recovery and reform. In fact, the Roosevelt administration sought to stabilize a system that had, by the resounding dominance of capital over working people, run aground. As the Labor Research Association publication Trends in American Capitalism shows the average industrial worker gained only 15% in real annual earnings between 1919 and 1929 while producing 53% more than in 1919. Thus, the so-called “golden age” of capitalism was only golden for those who reaped the fruits of this increase in production and not the workers producing the “gold.” Moreover, workers were in no position to absorb the commodities generated by this rapid growth in production. The authors of Trends in American Capitalism concluded, “It was this very sharp disparity between the expanded volume of production and the relatively restricted incomes of the workers that helped bring on the violent crash of 1929 and the ensuing great crisis and depression.”
Leading up to the 1932 election, the only certainty was that Hoover had failed and change was desired. Entering office with these strong winds behind him, Roosevelt set out on a deliberately cautious and experimental course. Like Hoover, he hoped that incentives to capital would produce a growth in employment and prices which would “jump start” the economy and “seep down,” increasing the buying power of the masses. These quaint, shallow metaphors still serve conventional bourgeois economics in our time.
Unemployment remained stubbornly high and wages desperately low. But capital fared rather better after 1933. Small businesses were devastated between 1929 and 1932 (50% more failures in 1932 than 1929), a time of survival of only the fittest (and biggest) enterprises. From 1933 on, business failures and annual liabilities dropped precipitously. By 1936 failures were 40% of the failures reported in 1928 with liabilities reduced almost as much. Clearly the New Deal was successful in stabilizing the business community!
Real gross private domestic product per man hour (productivity) grew consistently from 1933 through 1939 with only a pause for the 1937 relapse. The level of productivity rose by 28% between 1933 and 1939 with the productivity level of 1929 surpassed in 1934. At a time of mass unemployment and a deteriorating standard of living, those lucky enough to have jobs were squeezed even harder – labor exploitation increased steadily during the New Deal. Likewise, farm labor failed to recover until 1942. The wage rate per day without room and board stood at $2.30 in 1928. In 1940 it was only $1.60.
The only counterforce to this trend was the intense struggle on the part of labor.
But even with the mass militancy, consumer price-adjusted spending per capita only surpassed 1929 levels in 1940! The New Deal achieved little in improving the standard of living of the masses.
Thus, contrary to the conventional liberal view, the New Deal generated a business recovery without a concomitant recovery for the working class. Despite an intense, militant class struggle bringing millions into confrontation with capital, the numbers show that the Roosevelt administration betrayed their hopes in fact.
Popular accounts view the second New Deal as an era of the reform of capitalism. While the number of programs grew dramatically, the figures cited above challenge the performance of the second New Deal if not the actual merit of the reform claim. Undoubtedly, the second New Deal brought relief, some institutional relief, like Social Security and a legal minimum wage and restrictions on child labor. But even in this arena, the record shows a measured, cautious commitment. During the Hoover years of the Great Depression, social welfare expenditures grew from 3.9% of GDP to 7.9% of GDP, an increase of over 100%. Social welfare expenditures rose even more under Roosevelt, peaking at 13.2% of GDP in 1936, the year of Roosevelt’s greatest electoral mandate. But spending dropped dramatically in the next two years to 9% of GDP, only to spike again in 1939 in response to the mini-depression of 1937-38. Even at its peak in 1936, nearly 40% of the relief total was veteran’s benefits of the long denied World War I bonus provided in the form of US bonds One might be cynically tempted to see the administration as using veterans’ relief as an election year ploy.
Where the dominance of capital was actually challenged – the Wagner/Connery Bill – the Roosevelt administration was at best neutral, at worst in opposition.
The acronymic expansion of New Deal programs brought an accompanying explosion of government employees. Paid civilian government employees rose from 603,587 in 1933 to 953,891 in 1939, topping a million the following year. Thus, the New Deal did succeed in increasing Federal employment at a much faster rate than in the private sector.
Further evidence of this failure to restore employment is demonstrated by WPA figures: Works Project Administration Employment numbers marched steadily forward, peaking in 1939 at 2,911,000. Even in 1941 1,638,000 workers were employed by WPA. Similarly, Civilian Conservation Camp employment expanded consistently to a high of 919,000 in 1941. Thus, on the eve of World War II, there was a surplus of employable citizens totally 8,117,000 engaged in WPA, CCC, or without work - roughly 8% of the entire adult population. This reserve army of workers, workers desperate for real employment, makes the successes of union organizing in the New Deal period even more impressive and the plight of the unorganized even more tragic.
Apart from the liberal myths surrounding the achievements of the New Deal, a look at the statistics regarding civilian consumption between 1933 and 1937 – the most intense period of government intervention – reveal a mixed, but significant decline. While beef, fish, fresh vegetable, and egg consumption were up, pork, chicken, turkey and – staples of the working class diet – lard, milk, potatoes, wheat flour, corn flour and meal were down. In the same period, gross national product grew by 62.6%. The fruits of the New Deal were not “seeping down” to the masses. After a decade of government intervention, earnings in key industries still trailed their 1929 levels: by 12% in manufacturing, 10% in mining, and 24% in construction.
Roosevelt’s “Good Neighbor” foreign policy proved to be neither always neighborly nor always virtuous. When fascist Italy invaded Ethiopia, the administration invoked the Neutrality Act of 1935 to deny weapons shipments to either party. This course flaunted the fact that Italy was the aggressor and Ethiopia desperately needed assistance against this unprovoked attack. And when Franco and his fascist allies attempted to destroy the legitimate government of Spain the following year, millions everywhere saw the struggle as a bulwark against the further military aggression of the extreme right militarists. The US response was to again invoke the Neutrality Act, effectively blocking any but the most determined assistance to the Republic. At the same time little effort was made to restrain the insurgents and their German and Italian allies.
Similarly, the Neutrality Act thwarted needed aid to the Chinese when the Japanese invaded China in 1937. Even the sinking of an American gunboat by the Japanese failed to change this false neutrality that, in fact, encouraged aggression and fascist audacity. Good neighbors should be able to distinguish between friendly visitors and brutal intruders.
The Roosevelt administration showed a more aggressive side to its neighbors to the south. When Mexico nationalized oil in 1938, reprisals came quickly, including a boycott of Mexican oil. Basil Rauch notes “[t]he suspicions [at the time] that the Good Neighbor policy was merely a new mask for economic imperialism…”(p. 336).
The Real Lesson of the New Deal
Howard Zinn wrote of the New Deal: “The Roosevelt reforms went far beyond previous legislation. They had to meet two pressing needs: to reorganize capitalism in such a way to overcome the crisis and stabilize the system; also, to head off the alarming growth of spontaneous rebellion in the early years of the Roosevelt administration – organization of tenants and the unemployed, movements of self help, general strikes in several cities.” (A People’s History of the United States, p. 383)
Zinn gets many things right: he understands the undercurrent of class struggle that fundamentally shaped the populist aspects of the New Deal, he appreciates the imperative of stabilizing and recharging a stagnant capitalist system, and he recognizes that the Roosevelt administration brought something new to the state’s relationship with capital. But he gets some important things wrong as well.
But Zinn is not alone in misunderstanding the meaning of the period between the onset of economic decline and the beginnings of the US engagement in World War II.
Today liberal Democrats and social democrats point to the New Deal as a model for a humane and democratic society. Undoubtedly, there was a massive effort to bring relief to those harmed most by capitalism’s stumble. But the facts show how this effort was forced by the organized resistance and near rebellion of millions of working people and farmers. The ever-growing electoral mandate for more radical change was pacified by both relief efforts and moralistic rhetoric. Yet the Roosevelt administration neither proposed nor wholeheartedly accepted any change that fundamentally altered the relationship between capital and labor to the benefit of the people. There was no nationalization and little expansion of public ownership outside of the TVA. Government employment in such agencies as the Works Progress Administration and the Civilian Conservation Corps was always assumed to be temporary with the exception of a swollen Federal bureaucracy. True, hitherto untried government regulation expanded enormously, but all in the interest of establishing rules that would smooth the way for a more viable capitalism. A majority of an occasionally divided ruling class recognized from harsh experience that slash-and-burn capitalism threatened the continued existence of the system. That was the thrust of the first sentence of NIRA Title I: “A national emergency productive of widespread unemployment and disorganization of industry, which burdens interstate and foreign commerce, affects the public welfare, and undermines the standards of living of the American people, is hereby declared to exist.” Thus, NIRA was both an emergency and a temporary ameliorative to be entrusted to the administration of a conservative, business-friendly General Johnson.
Liberals see the New Deal as a forbearer of the welfare state that bloomed in Europe after the Second World War and less vigorously in the US. There is some truth to this, though the trend to offer relief began during the Hoover administration in the US and with mass pressure and popular front and labor governments in Europe (Social insurance was established in France in 1930, family assistance in 1932. The US was among the last industrial countries to adopt a national pension system.). Clearly what has come to be viewed as a feature of mature capitalism was directly and proportionally based upon the relative strength and organization of the workers’ movements in their respective countries. Its continuance after the War was thanks to a militant left and the necessity on the part of ruling circles to present a humane face against the appeal of socialism throughout most of the world. This is apparent from the mounting efforts to dismantle the welfare state after the fall of the Soviet Union and the simultaneous decline and confusion of the left. As neo-liberalism spread in the 1980’s and 1990’s as the dominant and pervasive ideology in capitalist countries, much of organized labor shifted from pressing labor’s interests to defending and promoting their national industries and enterprises against borderless competition. The attempted destruction of the welfare state further sapped the strength of labor, creating a larger pool of impoverished, unorganized, desperate workers forced by the market to settle for lower wages. The labor movement’s less than effective defense of the welfare state did not forestall releasing what Marx called the “Reserve Army of the Unemployed” from the bondage of relief.
Another shamefully ignored lesson from the New Deal era is the relationship between crime, poverty, and economic desperation. As in every period since industrialization, crime and incarceration are guides to the true status of the working class. Over a twenty year span, the suicide rate peaked in 1932 and the homicide rate in 1933, the crest of unemployment. Incarceration, as one might expect, reached its zenith a few years later. With more US citizens incarcerated today than anywhere else in the world, one looks in vain for a mainstream leader who makes the connection.
While welfare economics was often seen as offering a stimulus to capitalism, the capitalists found an even better, more agreeable mechanism during the Roosevelt administration. If we were to pretend that 1941-45 was not a period of unparalleled, devastating international bloodshed, we would credit Roosevelt with achieving his goals in this period: the economy recovered and grew enormously, unemployment was virtually eliminated, and there was relative peace between capital and labor. But, of course, we know that was because conscription absorbed the unemployed, war production boomed, and patriotism brought unity in place of class struggle. And this would prove to be a profound lesson for the ruling class. Even as early as 1938, with war in Europe and even greater war looming, military orders for home and abroad were accounting for more and more of the economy’s recovery. With the full hitching of the economy to military needs, unemployment was statistically non-existent by the end of 1942, wages and industrial growth rocketed past pre-depression levels, and the trend continued until the post-war recession. And the war brought an important moral reminder to the ruling class: depravation and sacrifice on the part of the working class is more palatable when clothed in nationalism and accompanied by patriotic music. An unspoken truth about the Great Depression is that it was overcome by a partly planned, “command,” non-market war economy – the economic mechanism often associated with socialism. But this was not socialism of the people, but a “socialism” of capital.
One can see the scope of this war-induced road to recovery by comparing the public debt incurred during the New Deal with the public debt accumulated during wartime. At its peak, the New Deal public debt never exceeded $59 billion (1939). At the end of World War Two, the public debt stood at $265.9 billion. From 1933 to 1939 New Deal reform and recovery grew public indebtedness by $18.4 billion. From 1939 to 1945, the debt grew by $206.9 billion! Imagine the US if the “sainted” Roosevelt and the New Deal politicians had made a similar commitment to the people’s needs, a commitment to education, public health, infrastructure, leisure, incomes, etc. But it was not to be.
The war against fascism and Japanese imperialism was justified; the elimination of Nazism, fascism, and Japanese imperialism was a costly, but necessary calling. The sacrifices were great, but not for capital. Wartime profit well exceeded historic rates.
Perhaps Roosevelt’s greatest legacy is the establishment of a war economy as the basis for expanding economic activity. Absent a world conflagration of the tragic dimensions of World War II, US ruling circles have nonetheless chosen to pursue a perpetual war economy over developing public assets, encouraging productive employment, or expanding equitably the consumption of the masses. They have created threats where little or none exists to demoralize a public that succumbs to a manipulated, media-driven trade off between the common good and bogus security. The Cold War and the current “Global War on Terror” serve as a constant, never-ending framework for imperial adventures on behalf of a state which serves monopoly capital. From covert activities, military interventions and surrogate wars in Greece, Indo-china, Iran, Guatemala and Korea to the interventions in Grenada, Afghanistan, and Nicaragua at the end of the Cold War, anti-Communism served as a handy excuse for maintaining a war footing. Those who foolishly thought that the Soviet Union’s demise would slow the tempo of military spending were rudely presented with an international “liberation mission” in Iraq and “humanitarian intervention” in the purposely dismantled Yugoslavia. Today, of course, the excuse for war comes from a new set of imaginary adversaries: the comic book “axis of evil,” “Islamo-fascists,” and exotic “terrorist cells.” The very words conjure bigotry-laced images of fanatical, childhood bad guys.
This devotion to military spending affords many opportunities for capital: nearly all of the corporate world can participate in this enormously wasteful enterprise – weapons manufacturers, construction companies, myriad services, technology firms, transportation, etc, etc; demand emanates from government orders and is predictable, precise, and ever growing; competition is minimal or non-existent; payment is guaranteed; there is little pressure for cost containment. Where once these were presented as the supposedly fatal inefficiencies of a Soviet-style planned economy, they are today wholly embraced by the titans of monopoly capital. And they are extraordinarily profitable.
Chalmers Johnson, an always insightful progressive, estimates that military spending from 1947 to 1990 added up to an astounding $8.7 trillion. Add several trillion to get us to 2008 and one gets some rough idea of the enormous opportunity lost by what Johnson calls “military Keynesianism” (Of course the costs of a war economy far exceeds the annual official budget). One cannot calculate how many lives were adversely affected by establishing this priority over a war on cancer, poverty, mental illness, environmental hazards, etc, etc.
Sixty years before Chalmers Johnson’s condemnation of “military Keynesianism”, Communist leader William Z. Foster anticipated his point by describing “big capital” Keynesianism. In a speech in 1948, he said: “Building a war economy has many political advantages for the reactionary capitalist Keynesians… Armament expenditures by the government are incomparably more favorable from a profit standpoint to the capitalists… in contrast to the less profitable reformist program of public works and the strengthening of the workers’ buying power and social security systems. Moreover, gigantic munitions orders can easily be secured under the cover of hysterical war scares, and besides this, the resultant militarization greatly facilitates big capital’s drive toward fascism… At the same time that the big capitalists readily agree to have the government spend billions yearly for the war economy, they also fill the air with strident cries for government “economy”. It will be seen, however, that their ideas of economy in government sum up pretty much to reducing the outlay of all sorts of social services and to the securing of lower taxes for themselves.”
And so it came to pass. This too is the legacy of the New Deal.
Soviet writers correctly saw the New Deal as the beginnings of the fundamental shift from monopoly capitalism to state-monopoly capitalism in the US. They perceptively note that: “American historians tend to ignore the objective fact that statist processes underlay FDR’s reforms, and exaggerate the importance of FDR himself while underestimating the working class struggle for progressive reforms” (The US Two-Party System: Past and Present, unidentified authors, p. 242) Born with the New Deal was the notion that the state had a right – more a duty – to steer the economic ship of capitalism over rough shoals. Of course government was never the neutral arbiter of bourgeois fiction. States are captured by classes and require revolutionary restructuring to serve a different class. But before the New Deal, the affairs of business were the affairs of business alone. The New Deal brought a blending of government and monopoly. Insofar as mass action may press militantly for reforms, the state will accommodate this pressure in ways that will protect monopoly capital and disarm the challenge of radical change. Otherwise, the state will oversee the workings of monopoly capital in ways that will promote its growth and dominance. This new, enlarged role for the state was necessitated by the failings of laissez-faire capitalism prior to the Great Depression. Ironically, as state-monopoly capitalism has matured, both its corporate and state managers have arrogantly assumed that there are no