The New Deal Illusion

What was the New Deal of the 1930s?  There are so many myths surrounding it, and to a large extent the Democratic Party’s credibility today is based on the assumption they were fundamental social innovators, progressive if you will, during the New Deal.

But the 1920s and 1930 was a very complex period and are best treated as one unified era because the administration of Herbert Hoover, the much-reviled president during the Great Depression that began in 1929 and lasted well into the 1930s, was also a part of the American “Progressive” tradition. As I have argued elsewhere, American “progressivism” was a part of a big business effort to attain protection from the unpredictability of too much competition. [See my book The Triumph of Conservatism: A reinterpretation of American History, 1900-1916, New York, 1962] In fact, the New Deal was many things, having numerous aspects: what was not made up on the spur of the moment was copied from earlier efforts.  The Democrats did not have a real economic strategy when they came to power. Most of what they said about the economy during the election campaign was, naturally, simply designed to get votes.  They certainly had no idea the day they came to office how to deal with the Depression.  Hoover had more ideas than they did.

Most historians know this; Hoover was far from being a bloodless conservative.  If he did not act decisively, his ostensible reason was usually that he needed more information.  Politics aside, Hoover’s alleged empiricism appealed to many Democrats, and both parties still retain a belief in the redeeming virtues, even the adequacy, of getting the facts first: on the assumptions reality or political exigencies can always wait for them.  Sometimes they will, sometimes they will not.

Roosevelt was wholly dependent on his advisers. The only thing the Democrats were nominally committed to was balancing the budget; Hoover ran a deficit so the Democrats used it against him: it was strictly an election ploy. The Democrats—like the Republicans before and after, were split, and some–Louis D. Brandeis and Felix Frankfurter were the most notable–wanted to follow Woodrow Wilson’s more classic liberal “New Freedom” plan. Louis Johnson and those who were on Wilson’s War Industries Board, wanted some form of centralized “planning.”

By April 1933 Roosevelt had so much conflicting advice before him that he decided not to do anything for the time being, but changed his mind quickly when the Senate threatened to pass the Black Bill for a 30-hour work week, which big business immediately opposed. Roosevelt and most of his advisers opposed it also.

The Democratic Senate and House seemed ready to enact a more “radical” set of proposals. He authorized his Secretary of Labor, Francis Perkins, to present Congress an alternative to the Black Bill that would not arouse the ire of business, and he asked his leading adviser, Raymond Moley, to come up with a recovery plan based on business-government cooperation.

Though Herbert Hoover was clearly Roosevelt’s intellectual superior, he was unlucky to have presided over an economic depression within eight months of taking office. The depression was the product of much larger forces in the world and the American economy rather than which party was in power. If the Democrats had been in the White House in 1929, there would have been an identical economic downturn.   And in many regards Hoover’s social thought was far more advanced than Franklin Roosevelt’s, “progressive“ in the sense that Theodore Roosevelt and Woodrow Wilson were.  A Quaker, Hoover was an entirely self-made man, a very successful mining engineer-entrepreneur who made a fortune; he mastered Latin to the point that he made the still-standard translation of Georgius Agricola’s De re metallica and knew Mandarin.  Roosevelt was born into privilege, went to Harvard, where he was a “C” student and a cheerleader. He was an ardent stamp collector.

In 1920, Roosevelt said of Hoover, “There could not be a finer one.” Wilson was alleged to want him to have the 1920 Democratic presidential nomination.  Hoover didn’t think the Democrats would win, and tied his star to the Republicans. But he was essentially an apolitical technocrat. There was always an empiricism about Hoover’s actions and this often transcended politics.  In 1947, President Harry Truman, Roosevelt’s successor and a Democratic politician par excellence, appointed Hoover as chairman of a commission to reform the executive branch of government. He never sought glory but it came to him because of his substantial abilities.  The Depression was more than a match for him, and it proved more than a match for Roosevelt. Basically, it was the Second World War that got the U. S. out of the Great Depression completely

There was both ambiguity and ambivalence in Hoover’s thinking, but there was in Roosevelt’s also.  Hoover regarded himself as part of the “progressive” continuum, and there were many things that he had in common with both the Democrats and Republicans who preceded him.  Hoover tried to combat the ensuing Great Depression with public works projects such as major dams, volunteer efforts, new tariffs and raises in individual and corporate taxes.  He created the Reconstruction Finance Corporation, mainly to give loans to weak banks. Roosevelt continued and expanded the RFC somewhat, also loaning the money to weak banks, railroads, and using it for work relief. Then the sums loaned dropped off in 1934 until World War Two, when the RFC began financing construction of munitions plants. Libertarians argued years later that Hoover’s economics were statist, and that he belonged in the continuum of government and business collaboration that began around the turn of the century.   I must agree with them.

Hoover’s initiatives did not produce economic recovery, but served as the groundwork for various policies laid out in Franklin D. Roosevelt’s “New Deal.”  As Secretary of Commerce under the preceding Republican presidents, he had been particularly active in creating trade associations in hundreds of industries, and these associations were to become the backbone of the National Recovery Administration, the first New Deal.

When the Democrats won in 1933 they favored business and government cooperation.  Moley was joined by a group, including Hugh Johnson, who had served on Wilson’s War Industries Board, Chamber of Commerce representatives, assorted trade association lawyers, bankers, and academics.  Many people helped formulate the first phase of the New Deal. They were certainly not radicals nor did they want to be.  The trade association movement was the heart of the first New Deal, but the Supreme Court outlawed the NRA in May 1935 as unconstitutional.

The NRA’s trade association provisions actually consisted of nearly 600 associations codes, and appears very complex because businesses are naturally divided by their different labor overhead, regional cost differences are often very great, and expenses vary.  Whenever some firm has an advantage that produces profits they want to keep it and make money.  That means that trade association codes, which deal with labor pay, output allowed, and the like, were often hotly contested by the various businesses in an industry–divided generally by region and size. The result was a mess of conflicts, but historians like Ellis Hawley, who have studied this period in great detail, concluded that big business was the major winner in the entire process of fixing the many codes. They were helped immensely because many key government officials were drawn themselves from business and industry, and Johnson, the head of the NRA, was sympathetic to business.   Given the fact there were many codes there were many exceptions, but labor was generally very under-represented in the code authorities.

Roosevelt himself contributed little, perhaps nothing, to the formulation of the New Deal, most of which had existed in an early form in the trade associations.  Trade associations wanted federal governmental protection from other members of the industry who competed too energetically—which classical economic theory declared was a good thing.  Labor costs are equalized when labor is organized or child-labor outlawed; this became an issue when some codes, particularly in textiles, were formulated.

All this just shows what has been known for a long time: there is no difference between the parties and firms’ use of federal regulations to make money.  Labor unions can therefore emerge as many things, including as a form of intra-industry struggle. The coal, apparel, and textiles industries are good examples: Northern textiles were for limits on child labor, the Southern textile industry (which used children as cheap factory hands), against federal control of it.

Reform in the United States, beginning with the Interstate Commerce Commission of 1887 (which eventually regulated the trucking industry also), has embodied the principle that government sanctions are used to back private power in specific industries, meaning generally the biggest firms in the industries involved.  The Democratic Administration under Roosevelt was explicitly for this principle, and the new Securities and Exchange Commission under Joseph P. Kennedy (the later President’s father), a former speculator, made it explicit that the new SEC was intended to be the bankers’ friend. And it was.

All the banking and financial legislation the Democrats passed proved very useful to at least some–generally the biggest–firms in the industry.

There were critics of whatever the Roosevelt Administration did: Some were ideological, some were regional—fearing that too much power would move to New York or Washington and damage their interests (Amadeo Giannini’s  Bank of America, which was then largely California- based), small business interests in the South, some coal mine operators, who detested high wage unions but were in fact often marginally economically whether or not they had unions.  But the depression had shaken up many businessmen, financially and psychologically. They conceded change was needed, inevitable, or both. The Roosevelt Administration was ready to cooperate with them, and it did.  Unions grew under the New Deal but largely because of the willingness of workers to strike and organize.  Code rules sometimes helped them, especially in garments and highly competitive industries, but they were not the primary reason for their growth.

Roosevelt the Presidential candidate blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs and blocking trade, as well as placing millions on the government dole. Roosevelt attacked Hoover for “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible.”  Roosevelt’s running mate, John Nance Garner, accused the Republicans of “leading the country down the path of socialism”. Hoover believed the government should spend more money on dams and public works during business downturns, a kind of early Keynesism.

There was a complexity in Hoover and Roosevelt’s responses to the Great Depression that makes very misleading their historical reputations that have survived in the common political rhetoric until now.  Historians who have studied Hoover and Roosevelt in much greater detail, have come away with far better informed, nuanced, essentially critical judgments.  The problem–among others– is that the general political community rarely reads their rather detailed academic monographs.  But the persistence of the notion that somehow the Democrats are somehow better than Republicans is also related to the fact that the GOP more often falls under the sway of yahoos, making the Democrats seem less objectionable.

These simplifications have benefited the Democrats most, allowing them to portray themselves as somehow most able to meet the U.S.’ social problems both then and thereafter.  The interwar period was far more complex and does not lend itself to easy generalizations: it is a nuanced time and makes easy generalizations impossible.

Suffice it to say, unemployment went from 4.2 percent of the labor force in 1928 to 23.6 percent in 1932, the worst point in the Depression, fell back down to 16.0 percent in 1936 and shot back up to 19.0 in 1938. The Roosevelt Administration also introduced the Works Projects Administration (WPA), and while it employed some labor up to 30-hours a week, it could not teach these men and women skills until 1940 because some unions opposed doing so. Until the war had begun. WPA or not, unemployment remained very high.  By 1939 the New Deal’s social technology was exhausted and there was only a confused debate between Democrats about the virtues–or lack of them–of laissez faire and competition versus the panoply of ideas behind “planning“ and control of competition.   Only the Second World War, not the New Deal or Hoover’s efforts, ended the depression.  As the former NRA research director, Charles F. Roos, concluded, the “…NRA must, as a whole, be regarded as a sincere but ineffective effort to alleviate depression.”

In the end, Hoover and Roosevelt had much in common programmatically; both failed to reverse the depression, and many of the measures they adopted in the effort to do so were very similar.  There is certainly a continuity in the American “reform” tradition, such as it is, across the entire twentieth century.  Both Hoover and Roosevelt were integral parts of it. Years later, one of Roosevelt’s closest advisers, Rexford Tugwell, admitted that “practically the whole New Deal was extrapolated from programs that Hoover started.” But Hoover had not started anything himself; he had only taken over efforts of a faction of the trade association movement to protect elements of specific industries–there were 100s–from poorer. smaller firms, generally but not always in the South—from the price-cutting and overproduction that some businessmen detested.

Americans are pragmatic and all-too-many dislike theoretical thinking.  Sometimes they are simply unable, unwilling, or both, to generalize about their actions.  Looking reality straight in the face can shatter myths that are politically useful.  The “New Deal” is such a case, which the Democrats foster as if there is something uniquely pro-people about their party.  But the so-called New Deal is an integral part of a movement in modern American history, one that largely reflected the business world’s response to the complexities of the American economy after the late 1890s.

State intervention is used to resolve disputes or conflicting interests within specific industries that cannot be settled by competing firms by voluntary means. The problem is that these efforts to regulate the economy fail so often. leaving the American economy devoid of an effective social technology to deal with crises.  Wars–real and cold–have rescued it. But this  intriguing enigma is a separate topic that would require too much time and space for me to deal with adequately here.

By 1936 the New Deal was at an analytic and programmatic impasse.  It cobbled together new legislation that retained some of provisions of the old NRA—the Wagner Act on labor, explicitly allowing unions, but it could not legislate the end of unemployment. But while it had strong business opposition, the history of trade associations had revealed that there were also business elements that were pro-union because the equalization of labor costs proved vital to their interests.  This was a major objective of many trade association codes. It can be debated whether businesses are pro-union but unions can be and are useful to the extent that they often eliminate labor cost differentials.  Many of the so-called pro-labor provisions of the Wagner Act simply gave workers explicit rights they should have had earlier.  Anyway, it sealed even more tightly the unions’ bond with the Democratic Party and what are called liberals.

Anyone who looks at recent American history, the statements and policies of the Democrats and Republicans, will conclude that there is a much greater consensus between the parties than differences, and always has been. They frequently try to accentuate the differences, and sustaining political myths are often necessary to winning elections.  The New Deal is one such myth that the Democrats gain from.

The New Deal illusion survives because it is a very useful to today’s Democratic Party.  It needs myths, but if one knows the truth about it then we have the basis for understanding the essentially conservative nature of today’s Democratic Party.

GABRIEL KOLKO is the leading historian of modern warfare. He is the author of the classic Century of War: Politics, Conflicts and Society Since 1914 and Another Century of War?. He has also written the best history of the Vietnam War, Anatomy of a War: Vietnam, the US and the Modern Historical Experience


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GABRIEL KOLKO is the leading historian of modern warfare. He is the author of the classic Century of War: Politics, Conflicts and Society Since 1914 and Another Century of War?. He has also written the best history of the Vietnam War, Anatomy of a War: Vietnam, the US and the Modern Historical Experience

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