Keynes & The New Deal

FDR and the Limits of the New Deal

New Deal Programs

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

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

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

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

The Working Class Moves Into Action

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

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

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

The Second New Deal and Brief Respite

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

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

Further Recession

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

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

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

World War II and the End of the Great Depression

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

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

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

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

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

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