The New Deal: Capitalism Loses Its Hat


            The New Deal era in American political economic history, stretching from 1933 until at least the late 1960s, is often referred to as the beginning of modern “liberalism” in the U.S.  In fact, though, it may be just as accurate to emphasize the near-total lack of any kind of ideological consistency to that period of economic crisis.  Ideology, in fact, was basically ignored in favor of pragmatism: government officials needed programs that would move the country out of the severe economic depression through which it was suffering, and they were not particularly concerned from what ideological camp the ideas came.

            President Franklin Delano Roosevelt (FDR) and his New Deal team thus had a choice as they sought to restore the nation to economic health: they could side with business or they could attempt to forge a new, social-democratic coalition of workers, the poor and elderly, and racial minorities.  In fact, they did both, in succession.  At no time, however, was the country in danger of traveling too far down “the socialist path”.  Indeed, so deep ran the roots of our capitalist culture that even the unprecedented crisis that the New Deal represented could not move us beyond the distinction, established during the Progressive era, between the “deserving” poor (largely widows and their children) and the “undeserving” (just about anyone else, who were seen as being responsible for their own plights).

            The so-called First New Deal spanned only the years 1933-1934 and was more pro-business in orientation than its successor period.  In fairness, those early years were a time of extreme financial crisis, and attention was given over, for the most part, to alleviating the effects of the nation’s economic collapse.  If that meant giving businesses essentially free rein to right the economy as they saw fit, then that was the price that would be paid.

The Second New Deal commenced in 1935 and provided much of the institutional reform that gave permanence to the era.  Ostensibly more anti-business in outlook, much of that tone was more rhetorical than real.  While it is true that the latter period saw increased governmental attention to antitrust enforcement and greater efforts at overall business regulation, in the end the business community’s authority over fundamental decisions concerning investment, production, and pricing was left largely in place.  In fact, the government was interested in assisting industry by helping to limit the effects of too much competition. As Hugh Johnson, the head of Roosevelt’s National Recovery Administration, put it, the goal was to “eliminate eye-gouging and knee-groining and ear-chewing in business”.  Rather than attempt to cut business down to size, then, FDR and his New Dealers sought to build up the size and power of the government (particularly at the national level) so that it could act effectively as a counter-weight to the private sector.

Insofar as the major reforms of the era did not fundamentally diminish the authority of industry in the political economy, the New Deal can be seen as sharing some characteristics with the previous period of political-cultural change, the Progressive era.


Building on the Foundations of the Progressive Era


            Just as the potential for truly fundamental (“radical”) change had existed during the Progressive era, so too was the New Deal rife with potential for reshaping the political economy in truly elemental ways.  As happened during the earlier period, however, revolutionary change was circumvented and the corporate-capital order was maintained, even if in somewhat altered form.

            Fearing the possible consequences if government should confront business too strongly or too directly, New Deal reformers, like their Progressive predecessors, opted to increase the power of the state rather than attempt to diminish the clout of the private sector.  In fact, the anti-business rhetoric that had characterized a good bit of Progressive doctrine tended to be missing from much of the New Deal agenda.  At the same time, and somewhat paradoxically, government activity during the New Deal was less overtly supportive of the needs of the business community. 

Whereas the political-rhetorical stance of the Progressives frequently had obscured policies that actually promoted the productive capacities of big business, during the New Deal the emphasis of governmental actions shifted to a concern for augmenting the role of consumers in the economy.  Supply-side policies, in other words, gave way to demand-side strategies.  More concern with compensating families and individuals for suffering the effects of life under a new economic order was in; regularly attempting to impose heavy-handed regulations on business behavior was out.

By no means should that be taken as implying that business was given free rein to do as it pleased, however.  In fact, the New Deal was the greatest period of business 1st 100 days of the New Deal regulation in American history up to that point (the Great Society would see even more activity in this area).  One of the reasons that more reform was realized during the New Deal than had been seen during the Progressive era is that government power during the later era was concentrated more at the national level than among state governments, as had been the case during the earlier period.  Facing a single source of regulatory authority meant that businesses and industries could no longer play one government off against another—by threatening to pack their economic bags and move to a more business-friendly state—in seeking more lenient regulatory treatment. 

The long-term consequence was that the corporate community was forced to develop more sophisticated—and therefore, ultimately, more effective—techniques for dealing with governmental institutions; techniques such as direct lobbying capabilities.  As a result, business interests, while not enjoying complete autonomy during this second period of political-cultural reform, were able to maintain their independence and influence to a considerable degree.  As FDR himself once put it (only half in jest, we must assume) in defending his policies, he had managed to “save the drowning man” of capitalism, even if it had cost the man his “top hat”.  In other words, he was able to preserve the basic structure of our capitalist economy, but at the cost of a bit more regulation of the private sector.  In that sense, then, the New Deal can be seen as fundamentally conservative in nature.


Paths Not Taken During the New Deal


As was mentioned earlier, the New Deal certainly was not about the kind of collective effort or forced choice that social-democrat, socialist, or communist governments in Western Europe employed.  Roosevelt was determined, in fact, that the government’s role in the economy would remain relatively limited.  He wanted neither large corporations nor rapidly growing labor unions to become arms of the state.  That free-market orientation was all the more noteworthy in light of the huge margins that the Democrat party enjoyed in Congress at the time.


Economic policies pursued; economic policies rejected


Thus, rather than establish the principle of a universal “right to work”, as was being done in European nations, action in the U.S. was limited to establishing a program of temporary relief for the unemployed.  And despite the trend toward centralizing governmental power at the national level, the states still were granted considerable discretion in implementing relief efforts.  In fact, only old-age assistance (most notably in the form of the newly established Social Security system) was clearly nationalized.

More broadly, the overall tone of the New Deal was economically conservative when compared to the efforts taking place in other nations.  Social-welfare programs were harder to come by in America because the revenues needed to finance them would have required a heavier tax burden than the “liberal” New Dealers—FDR most particularly—were willing to impose on the American electorate.  And when taxes were imposed they tended to be of the more regressive payroll and sales variety, rather than the more progressive individual- or corporate-income type.


No social democracy for us, please—we’re Americans


And so it was that even with control of the White House and overwhelming majorities in both houses of Congress, and despite the unprecedented crisis of the Great Depression, the New Dealers failed to deliver for the American public the kind of welfare state that European citizens were coming to take for granted.  Instead, the American system remained “less national, less comprehensive, less capable of promoting employment security”.[i]

To a considerable degree, that “American exceptionalism” can be attributed to the comparatively much weaker position of organized labor in this country.  Despite the considerable successes realized by the labor unions in their quest to organize workers—by 1945, for example, nearly a third of the work force belonged to unions—the kind of solidarity that translated into pro-worker policies in Europe failed to materialize here, for the most part—this despite several major pieces of pro-labor National Recovery Administration legislation that were enacted during the height of New Deal activity.  A number of factors account for this seeming anomaly:

·        As had been true of the previous era of labor activism (i.e., Progressivism), workers continued to be divided amongst themselves along ethnic, religious, racial, and trade-based lines.

·        Following the Second World War, labor was met with a reconstituted, united business front, which had the effect of putting labor on the defensive.

·        Postwar gains in Congress by Republicans and conservative (anti-union) Democrats reduced labor’s influence in the legislative process.

·        The “Red Scare” era of McCarthyism had as one of its primary targets the collectivist activities of labor unions, thus making union membership a much less attractive option for millions of workers.


As a result of those obstacles, organized labor lowered its sights and reined in its ambitions, gradually abandoning militant demands for egalitarian social-welfare policies and workplace democracy, and settling for an agenda focused on guaranteeing greater material gains for its members through collective bargaining within the confines of the private sector.  Thus was realized a seemingly contradictory outcome of the New Deal: the ascendancy of organized labor at the same time that the “labor question”—i.e., the place of labor in the political economic order—faded in national importance.


The struggle over power and property, which had supplied the friction and frisson of politics since at least the Gilded Age, was superseded by the universal quest for more—ghoulash capitalism.  Mass politics replaced class politics.  Labor ceased to be a great question or even a mass movement containing within it the seeds of a whole new future.  As an institutionalized interest group it had become part of the answer, contributing to and drawing its just deserts from the cornucopia of American mass production and consumption.[ii]


Technocrats over democrats


If labor unions saw their influence wane as the New Deal progressed, so too did the political parties, representing the mass of citizen-voters, find themselves in a diminished position as time went on.  Gradually, their role would be supplanted in the policy process by professional administrators and/or political appointees accountable only to the President.  In the interest of achieving democratic ends, paradoxically, democratic means would have to be sacrificed.

The crux of the problem, as far as President Roosevelt and his New Deal braintrust were concerned, was that the party system was time-bound.  They saw it as a relic of a time long past, when politics was largely a local—or at most a state—matter; and when those politics largely served the interests of an entrenched, economic (business) elite.  Thus, party-based localism was seen as an obstacle to the New Dealers’ goal of establishing a national brand of politics that would deliver needed, economic relief to all its citizens regardless of their place of residence or station in life.  To realize their aspirations, then, FDR and his administration would have to find a way to eliminate the impediment of the congressional parties’ stranglehold on the policy process.  To do that, they would have to wrest power from the legislative branch and install it in the executive.

What Roosevelt sought was nothing less than an institutional revolution in American politics: the establishment of a national society, represented most directly and effectively by the President himself.  No longer would the United States be just a collection of isolated villages, towns, and cities; henceforth, we would be a nation.  Further, the popular branch of the federal government (Congress) would be overshadowed in the policy process by the administrative branch (the Executive).  The goal, again, was to bring about democratic policies, even if that meant circumventing democratic politics.  The ends, in a sense, would justify the means: politics and policy henceforth would be driven not by the democratic leaders of the political parties but rather by the technocratic leaders of a newly constructed administrative state. 

In doing so, FDR and the New Dealers sought to build their reform initiatives directly into the structure of the government, so that they would be immune to the fluctuations of electoral politics (i.e., to the fluctuating control of Democrats and Republicans).  Politically speaking, this institutional innovation—and the responses it elicited from the other branches of government—can be seen as arguably the most important legacy of the New Deal: as important in its own way as the more obvious, programmatic innovations of Social Security, organizing rights for labor, and agricultural and public-works initiatives.


The creation of the modern presidency … did no lead to a complete centralization of administrative power.  The discretion of the executive and administrative agencies has been greatly reduced by legislative and judicial action, since the excesses of the modern presidency became drastically apparent during the Johnson and Nixon administrations.  Yet the renewal of congressional and judicial activism has not really restored legislation and adjudication; rather, the reforms designed to curb the modern presidency have involved Congress and the courts in the details of administration.  As a result, the pluralism celebrated by James Madison in The Federalist, No. 10, envisioning a multitude of political interests acting as a system of mutual restraints, has been supplanted by a labyrinthine administrative politics that has insulated the affairs of state from the regular channels of American politics, as well as the understanding and control of the rank and file citizenry.[iii]


New Deal Issues and Interests for the Next Reform Era


            Given the depth of the economic problems that resulted from the Great Depression and the breadth of governmental policies that were addressed to those difficulties, it should come as little surprise that the New Deal was unable to alleviate all of the problems of that era.  In fact, it was largely due to the all-encompassing war effort to defeat the Axis powers that the American economy finally was put onto firm footing.  Until that undertaking, all of the New Deal programs together, no matter how well-intended they were, were insufficient to free the nation from its economic quagmire.  President Franklin Roosevelt, the spiritual and political force behind the New Deal, died before completing his fourth term in office—and before delivering on many of the promises he associated with his legislative agenda.

Thus it was left to his successor, Harry Truman, to attempt to complete the work of the “Third” New Deal.  (Recall from before that there had been two, distinct phases to the New Deal prior to the Second World War.)  Adopting the label “Fair Deal”, Truman’s time in office marked a fundamental turning point for American social-welfare policy.  Plans were proposed for a comprehensive, European-style welfare state, including national health and disability insurance, revisions to social security, the nationalization of unemployment insurance, public housing legislation, federal aid to education, and increases in the minimum wage.  What came of all those plans was a jumble of approaches and programs at different levels of government:


·        Of the federal goals, only increased benefits for social security recipients, public housing, and an increased minimum wage were delivered.

·        Unemployment compensation was left to the states to deal with and became largely a temporary program, one aimed in limited fashion at only specific groups (e.g., war veterans).

·        Health and pension benefits were largely left to the private sector, subject to collective bargaining.


Not again would the promise of a universal (European-style) welfare state be raised as a realistic goal for the nation.  The political realities of a Congress divided into three ideological camps of roughly equal power—Republicans, Southern (conservative) Democrats, and Northern (liberal) Democrats—meant that agreement on large-scale undertakings would be increasingly difficult to come by.

And then there was the problem of the greatly increased authority of corporate America, arising from its role in helping to bring the Second World War to a successful conclusion.  Although not unified across all sectors of the business community—more and more, the interests of small businesses would diverge from those of the large-scale, increasingly international financial and manufacturing concerns—the various camps within the business community would find, in the years following the war, their respective allies among the three congressional groups mentioned in the previous paragraph.  What was good for General Motors, as a saying of the time had it, would come to be seen as what was also good for America.  It would not be until the cultural revolts and social upheaval of the 1960s that the dominant place of business in the political economic order would be questioned again.


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[i] Charles Noble, Welfare As We Know It (Oxford University Press, 1997), p. 54.

[ii] Steve Fraser, “The ‘labor question’”, in Steve Fraser and Gary Gerstle, eds., The Rise and Fall of the New Deal Order, 1930-1980 (Princeton University Press, 1989), p. 57.

[iii] Sidney Milkis, “New Deal party politics, administrative reform, and the transformation of the American Constitution”, in Robert Eden, ed., The New Deal and Its Legacy (Greenwood Press, 1989), pp. 147-148.