Savior of Capitalism

Roosevelt’s New Deal brought an array of acronyms for new government agencies to the attention of the American public:  NRA, WPA, CCC, TVA et al. The only one absent was capitalism’s SOS.

There is no doubting that many of the projects initiated by the New Deal were indeed beneficial to America’s infrastructure and were a success. It was said that the capitalists had acquired a social conscience. Roosevelt’s election was engineered by a group of individuals whose economic interests required urgent governmental aid. The Crash of 1929 was so devastating that it left the capitalists traumatized. Their profit system was shaken to its core. They looked desperately around for any solution to get the system functioning again. Roosevelt was selected to lead America out of economic chaos. Private capital could hardly finance the costs involved and thus the New Deal passed a wide range of new laws the country had ever seen. These included certain measures that resembled corporatism of fascist Italy, but they also included social-welfare legislation that enabled some critics to denounce the New Deal as a socialist plot. Others claimed for FDR the foundation of the welfare state, ignoring that it actually emerged in the 19th Century from Germany’s “Iron Chancellor”, Otto von Bismarck.

Today we have many liberals and progressives who wish to revive the idea of the New Deal, judging it to have been a success in the past, believing Roosevelt did end the Great Depression. That is simply not true.  His policies did not work and it is particularly apparent by a study of the rich treasure trove of contemporary sources available using the Marxist Internet Archive. Yet there still exists a strong sentiment who see in Sanders and Biden the spirit of Roosevelt. The New Deal legislation was neither radical nor particularly liberal. It was only an example of the fact that United States capitalism had finally reached the level of European capitalism which had supported social security schemes for decades.

It was the coming of war that revived production demand and restored profits to business. On the eve of war the United States was in a state of economic stagnation. Unemployment fell because American economy started to prepare for war. From 1933 into 1937, unemployment did fall, from 15 million to under eight. Then came the 1937 slump. Despite all those governmental projects the new depression could not be prevented. Suddenly, the unemployment figures rose to eleven million. It did drop a little in 1938.  It dropped but only to rise once more to 11.5 millions. And it remained around 11 million until war broke out in Europe. For most of 1940 it stayed above 10 million. It did not drop below that level until production had started for the United States’ own war production.

So how successful was the New Deal? Unemployment in America was 24.1 percent in 1932, the year when Roosevelt became President, and 25.2 percent in 1933. By 1937 it was down to 14.3 percent, though it rose again in 1938 to 19.1 percent. The New Deal was to be so much more than putting unemployed labor on relief or into work camps. It was to salvage capitalism and create a recovery. It failed. War turned America into the lucrative “arsenal of democracy.” With war looming, Roosevelt’s New Deal had a new purpose. In October of 1937, FDR announced, “Steer toward the coming war and make all preparations accordingly.”

The national income per capita in 1938 was only 76 percent of that in 1929 because there was another economic slump in 1937 which caused the industrial index to plunge.  The 1937 depression was halted and reversed, not by any normal upswing of the economic cycle, but by the speeding up of war preparations not only in America but throughout the world. It was not until the US entered the Second World War four years later that the slump finally came to an end.

At the end of 1935, the President announced that he was going to  drastically reduce the relief program in order “to restore business confidence.” In early 1936, he submitted a budget to Congress which called for cutting-in-half the total expenditures for relief. The drive to cut relief appropriations continued throughout 1936 and 1937. It was momentarily stopped by an economic down-swing in the late fall of 1937. A temporary rise in relief funds was voted in early 1938, but the slightest sign of recovery later in the year, led to further administration-sponsored relief cuts. Even before the effect of defense spending was felt in late 1939 and early 1940, the relief budget had been slashed from two-and-a-half billion dollars for the fiscal year ending June 30, 1938 to one-and-three-quarter- billion dollars for the year ending June 30, 1939.

The New Deal federal spending was largely limited to projects which did not compete with private enterprise. This meant building roads, schools, hospitals, etc. which after completion had to be maintained by the local governments. But the latter, with their limited means of taxation, found it increasingly difficult to maintain the completed projects turned over to them. They were already cutting back on their education, highway and welfare budgets. For example, in 1938 the WPA revealed that Philadelphia was refusing to accept projects which would put forty thousand men to work immediately. Other cities followed suit. Continuation of government spending on peacetime projects would have had to move increasingly into areas where it would compete with private industry. But this would come up against resistance from the capitalists. 

The Civil Conservation Corps (CCC) came into being to put the 18-to-25 year-old men into labor camps and in exchange for room, board, and some pocket money, they were put to work planting trees, building roads, tracks, and dams. Although the CCC form of relief was the most expensive, it was the only one that found general approval, for as its director, Robert Fechner, pointed out in 1938:  “The 2,300,000 youths trained in CCC camps since its inception in March 1933, were about 85 percent prepared for military life and could be turned into first-class fighting men at almost an instant’s notice.”

Relief there had been, but little more than to keep the population looked after at subsistence levels. Reform there had been, but the great problems of the country had hardly been touched. It was not the redistributive policies of the New Deal that had ended the slump of the 1930s.

Certainly, FDR did not plan for the European war to break out and America’s eventual entry, but it was those events that brought a halt to the capitalist depression which the New Deal policies had failed to end. And it was the consequent post-war economic boom of the re-construction of the destruction which helped to prolong the 1950’s period of economic prosperity. But once accomplished, eventually the series of capitalist recessions resumed.

At the core of Marx’s ideas is that capitalism is inflicted with inherent economic contradictions which mean recurring recessions. And regardless of whether the policies are Keynesian or Neo-liberalism, those are unavoidable. Temporary respite may be possible but in the end capitalism’s instability prevails. Socialists accept Marx and his understanding that economic periodic crises cannot be prevented, only perhaps, on some occasions, temporarily postponed or shortened or even exacerbated by some government interventions.

The Great Depression forced the American capitalists and their politicians to try out new ways to improve the profits of capital and reduce the costs as much as possible. The depression obliged the federal government to intercede to a greater extent than before with the nation’s business activities. It had to deny some capitalists in order to serve others. It had to pressure reluctant sections of industry into accepting the general plan so as to bring about an overall improvement of conditions. Roosevelt had to sacrifice the interests of some capitalists in order to satisfy the rest of capitalist society. To carry through such a course of action it was deemed necessary to appeal for mass support of the population to enforce the government’s will against stubborn opposition from some capitalists. Peaceful class relations would be the main prerequisite, a pacified workers’ movement. In order to get the workers and the unions behind it, Roosevelt flattered them with honeyed words. He appealed to their patriotism and for national unity. He offered palliatives to their problems.

For instance, the Farm Credit Administration allowed farmers loans at low interest to pay off their existing mortgages. Yet this Act had no benefits for the thirteen million people in tenant farm families or the three million in share-cropping families. The Act only helped the owners of land. In fact, it brought about a greater concentration of ownership and reduced many of the tenant farmers to mere wage-labourers.

We are not faulting FDR for following his class interests for we fully expect politicians of pro-capitalist political parties to represent their masters, even if they do couch it in conciliatory tones. FDR was attempting to save capitalism and divert workers from a socialist revolution. He managed to convince labor union leaders to soften their demands with his sophistry.

Learn from history. Don’t go repeating its mistakes because of the colored perspective of today’s bourgeois economists and the romantic nostalgia of politicians. The New Deal was no harbinger of a new social order. Victory in 1945 meant that the American capitalist class could now afford to end the concept of any New Deal. Corporations were bloated with war profits and were more powerful than ever before. Henry Wallace, Roosevelt’s earlier Vice-President, a New Dealer candidate, was resoundingly beaten in the post-war election.

The main illusion of the modern-day New Dealers is their misunderstanding that any capitalist party or pro-capitalist politicians, or any capitalist government, can operate on behalf of the working people. They are all, in their own way, servants of boss class regardless of how left-wing they may sound in their speeches.

As the Workers Socialist Party of the United States (now the World Socialist Party) explained at the time in 1934:

…The Socialist does not say that the trends of capitalism cannot be hastened or slowed down by legislative measures, but he does emphatically declare that such modifications are slight and that the general problems of the system can neither be overcome nor circumvented by such methods…One thing can certainly be said of future developments — that, whatever they may bring, the workers will continue to get the worst of the bargain until they cease to be deluded by the red herring of reform, by attempts to patch up capitalism, and until they unite for the only program that can solve their problems — the abolition of the whole rotten system itself and the establishment of Socialism.

• Images by 1930’s cartoonist, Carlo, from Marxist Internet Archive

Alan Johnstone is a member of the Socialist Party of Great Britain, a companion party of the World Socialist Movement. He contributes to the blogs: Socialism or Your Money Back and Socialist Courier. Alan can be reached at: Read other articles by Alan.