End of Reform: New Deal Liberalism in Recession and War Book

Introduction: The Concept of New Deal Liberalism

In Brinkley's account the state retains a good deal of its autonomy. Though Brinkley doesn't argue that society has no impact on the state, the process of change he examines in this book was a process conducted largely by white male elites. This is not a story of influences upon the administration, but rather an account of debates within the administration. His book is an attempt to get at the reasons why the New Deal liberalism which emerged from WWII was such a frail replica of the New Deal itself. This is an attempt to point liberals back to their roots.

To this larger end this book is the story of how the New Deal transformed itself from the inheritor of a reform tradition into the end of the line for that tradition. The end of activist reform in 1937 left liberals questioning where next ...

The new liberalism was not the result of a blinding revelation or a sudden decision. It emerged, rather, from innumerable small adaptations that gradually but decisively accumulated. It emerged because by the late 1930s it had become evident that the concrete achievements of the New Deal had ceased to bear any clear relation to the ideological rationales that had supported their creation, and thus that liberals needed new rationales to explain and justify them. (p. 3)

The tradition of reform that the New Deal abandoned after 1937 was one stretching back into the 1890s, to the populists and into the 20th C with the progressives. The reform tradition held

The belief that something was wrong with capitalism and that government should find a way to repair it was, therefore, a central element of liberal thought throughout much of the 1930s. (p. 5)

Through the responses to recession 1937-8 and then in the cauldron of war, New Deal liberalism was transformed.

A decade later, in 1945, the ideology of American liberalism looked strikingly different. The critique of modern capitalism that had been so important in the early 1930s (and, indeed, for several decades before that) was largely gone, or at least so attenuated as to be of little more than rhetorical significance. In its place was a set of liberal ideas essentially reconciled to the existing structure of the economy and committed to using the state to compensate for capitalism's inevitable flaws -- a philosophy that signaled, implicitly at least, a resolution of some of the most divisive political controversies of the industrial era. (p. 6)

Making peace with industrial capitalism, declaring it fundamentally sound, the liberals of the New Deal either betrayed the reform tradition. Or perhaps they represented the next stage of evolution in the ideology of liberalism.

Among the ways in which progressives distinguished themselves from laissez faire liberals was their belief in the interconnectedness of society, and thus in the need to protect individuals, communities, and the government itself from excessive corporate power, the need to ensure the citizenry a basic level of subsistence and dignity, usually through some form of state intervention. (p. 9)

The new liberalism which emerged from WWII was a rights-based liberalism. No longer focused on reshaping relations of production, rights-based liberalism seeks to enlarge the pie to provide enough plenty to assure everyone a seat at the table. The New Deal, as the "culmination of" and "end of a long tradition of reform," represents a critical turning away from fundamental issues in industrial capitalism.

The Crisis of New Deal Liberalism

Emerging with a landslide victory in 1936, FDR's New Deal had been vindicated by popular mandate, or at leas so he thought. There were, however, countervailing forces at work.

As on other occasions both before and after the Great Depression, much of the American electorate welcomed (even expected) assistance from the government in solving their own problems but nonetheless remained skeptical of state power and particularly of efforts to expand and concentrate it. (p. 17)

Southerners, Westerners and conservatives in general girded themselves to resist the new attempts by FDR to establish what they saw as his "dictatorship." The first effort FDR made to shore up the progress of the New Deal was his attempt to pack the supreme court by proposing a bill that would have allowed him to add 6 justices to the court. By invalidating the NIRA of 1933, conservative justices had called into question the fundamental constitutionality of the entire New Deal in the Schechter decision in 1935. Congressional resistance was swift and strong. The pressure created by the President's efforts seem to have caused the court to think twice, upholding the New Deal in subsequent rulings.

Simply by proposing the reform of the Court, the President had accelerated something close to a revolution in constitutional law -- a movement away from fixed principles and toward a more fluid view of the Constitution, a movement already in progress before 1937. (p. 20)

The political damage had been done however. Congress defeated the measure and Presidential prestige was irreparably damaged. Add to this the economic crisis of the Fall of 1937 and there arose an anxiety in the government matched only by FDR's depression and indecision. During the winter of 37-38 an intense ideological struggle took place inside the New Deal that would define the future direction of reform.

An Ordered Economic World

Many within the New Deal, Henry Morganthau among them, believed that it was a lack of business confidence that brought on the recession, as it had the depression of 29. With critics of the administration from corporate America arguing that the anti-business bent of the new deal had caused the weakening of confidence, some in the administration (here Adolph Berle) arose to offer solutions to the lack of confidence.

The best way to create "business confidence" and encourage more investment, they argued, was to create a stable concert of interests among the state, business, and labor -- an effort, often described as "associationalism" or (less charitably) "corporatism". (p. 32)

The associational ideal gained increasing acceptance during the winter of 37-38.

The dream of an ordered economic world was, in the late New Deal as throughout its long history, alluring to almost all liberals in the abstract ... Translating the dream into practice, however, seemed usually to involve placing restrictions on competition -- either through comprehensive public planning or, more often, through private cartelization -- a prospect that inspired considerably less enthusiasm. (p. 46)

The earlier attempt at harmonizing business and labor under the NRA had left many in the administration embittered, however. They interpreted their experiences with business as yet another example where the greed of individuals destroyed the harmony of interests so essential to associationalism. Instead of "corporatism" they urged regulation for business. But this would have to take place in a manner that did not come across in a way that offended or alienated business interests. But how to make nice to business while reighing in its inherent greed?

The 'New Dealers' and the Regulatory Impulse

Speaking of the resistance to "bigness," Brinkley describes another crucial legacy of the reform tradition:

This attitude toward monopoly had deep roots both in American history and in contemporary politics. For as long as large-scope economic organizations and great concentrations of wealth had existed in America, they had produced fear and resentment among workers, farmers, artisans, small merchants and entrepreneurs, and many others. (p. p. 59)

In the 19th C, the aversion to economic concentration created

Greenback Movement
Grange
Knights of Labor
Populist Movement of the 1890s
Early 20th C, we saw

American socialist party
anti-chain store movement
1930s, fear of economic concentration was responsible for

Huey Long's Share-our-Wealth Movement
Father Charles Coughlin's National Union for Social Justice
Milo Reno's Farmers' Holiday Association
Floyd Olson's Farmer-Labor Party in Minnesota
La Follette's Progressive Party in Wisconsin
From within the New Deal, Robert Jackson defended antimonopoly in 1938 in a radio debate with Wendell Willkie by referring to Americans as a "proud people" who "don't like to be bossed too much". For the Roosevelt Administration, the New Deal had started with the belief that "The struggle against monopoly was a struggle for the preservation of individual freedom -- both freedom from monopoly power and freedom from the state." (p. 61) Over time, however, it shifted to the place where

The proper approach to monopoly, therefore, was not to oppose bigness for its own sake. On the contrary, most liberals argued, large-scale enterprises brought welcome efficiencies to economic life; to talk of abolishing them was nostalgic nonsense ... The task was, rather, to identify those business practices that limited competition and stop them. (p. 62)

By the late 30s the idea of the regulatory state periodically stepping in to break up monopolies was dangerous. Through the regulatory state, the federal government would take a more permanent role in regulating the competition of the marketplace. In 1933, there were only two federal regulatory bodies ICC and FTC. By the end of the 30s, there was also the SEC, FCC, NLRB, CAA, and many other means of enforcing regulation. "The state could not, liberals had come to believe, in any fundamental way 'solve' the problems of the economy. But the very limits of their ultimate ambitions made their vision of government more aggressive and assertive than of many of the progressive predecessors. The inevitability of of constant conflict and instability in a modern capitalist economy was all the more reason for government to become an active regulatory force." (p. 63) Henceforth, government experts in the Executive Branch would regulate the economy and ensure the future health and survival of the American way of life.

Spending and Consumption

The challenge to orthodoxy, then, was the argument that consumption was relatively more important to the success of the economy than investment; that consumption drove production and not the other way around; that increased consumption, not increased saving, was the best route to prosperity and growth. (p. 71) By the recession of 1937, New Dealers like Mariner Eccles and Leon Herndon were successfully advocating increased spending to stimulate consumption, priming the pump in a serious way rather than with an "eye dropper." By early 1938 a consensus had developed within the New Deal circles that spending was the solution. Egged on by the CIO, farm organizations, dissident consumer advocated and grass-roots organizations throughout the country, the policy shifted.

The Struggle for a Program

In his fireside chat of April 14, 1938, FDR presented spending to deal with particular social problems in a new light. No longer reticent about spending, he offered spending as a way to "help our system of private enterprise to function." He had taken the first steps toward compensatory fiscal policy. Urged forward toward ever stronger compensatory fiscal polices by Mariner Eccles and Laughlin Currie, FDR's advisors still remained divided as conservative voices remained unconvinced of the value of this approach.

The Anti-monopoly Moment

FDR appointed an ardent critic of anti-trust, Thurman Arnold, to run the antitrust division. Author of Folklore of Capitalism, he believed in the positive value of the state in regulating enterprise. His enforcement of the Sherman Anti-Trust act resulted in a great increase in prosecutions. He took on the housing industry, to include manufacturers and unions. He also took on monopolistic practices in the food, transportation, automobile, aluminum, prescription drug, and insurance industries.

Amongst the many theoretical underpinnings for the simultaneous moves to both greater government regulation and greater spending to increase consumption was the mature economy thesis. The idea was that the American economy had reached a point of maturity and thus stasis. It was up to the government to intervene now and manage the economy in its advanced stage.

To some liberals, the mature-economy idea seemed to support arguments for increasing the regulatory functions of the state. An economic climate in which private industry was incapable of creating dynamic growth would place nearly unbearable pressures on capitalists to avoid risks, to collude in raising (or "administering") prices, and hence to produce further stagnation. Only a strong regulatory state could combat this danger. (p. 134)

As evidenced in the writings of Alvin Hansen, New Dealers were beginning to see that the solution to the solution to the mature-economy problem was a vast increase in the power of the nation to consume. If the lack of consumption caused the Depression, as the New Dealers had come to believe, then only a combination of government spending and regulation would prevent its recurrence.

Liberals Embattled

Despite the hopes raised in liberal circles at the outbreak of the War at Pearl Harbor in Dec. of 1941 that the war would provide progressive change, what it actually would accomplish was the triumph of "compensatory" fiscal policy. The government would not try to change the way the economy worked. The experience of the war production boom proved to liberals that capitalism was basically sound. The corporate world proved to be a reliable partner of government and business warmed to many of the New Deal's wartime programs. Businessmen, who would later be called "corporate liberals" emerged from the war believing that the overall health of the economy was more important than narrow gain for a particular sector.

Mobilizing for War

In mobilizing for war the New Deal liberals thought that they could use the new mechanism of the state to control the military, but the War Production Board produced a disappointing experience for many in wartime. The inability for the civilians to wrest control of purchasing from the military during the war laid the foundation for the military industrial complex in the post-war period. At the same time, the failures of the WPB to provided a warning to liberals against the possibility of large scale planning. Hence it urged them toward compensatory fiscal policies at the same time.

The New Unionism and the New Liberalism

The New Deal had already strengthened to position of the CIO and lead to the development of a process of labor mediation under the Wagner Act and NLRB in which the need of labor were in part satisfied and yet restricted and frustrated in many other ways. The war held out the potential for destroying labor's fragile gains, but it also could mean a vast boon for workers in a high production wartime economy. The end result of the wartime experience was indeed great gains for the worker, better pay, better hours, better working conditions. it was also a period of transition for unions which emerged from the war as another interest group (often corrupt) bereft of any home of creating a "genuine industrial democracy." Co-opted by the Roosevelt administration, the unions emerged from the war into the conservative hostility of the cold war. The hope for industrial democracy looked even more remote. Unions were headed for bleak times. But the trade unions were not alone in this transformation:

In any case, the trade union movement during World War II, like American liberalism as a whole, was beginning to shed its commitment to structural economic reforms and to a redistribution of wealth, and power. Instead, it was, slowly embracing the emerging liberal belief that the key to a successful society was economic growth through high levels of consumption. The working-class agenda, at least as expressed by the principal labor organizations, was beginning to resemble the liberal agenda of what remained of the New Deal: a belief in the capacity of American abundance to smooth over questions of class and power by creating a nation of consumers. (p. 226)

Planning for Full Employment

The war also had the effect of narrowing the range of opinion in the administration. Emerging from the war, the New Dealers still disagreed amongst themselves. But the disagreements took place over a more narrow band of opinion. Unified by a belief in full employment, the limited vision of social insurance which had emerged around social security was not expanded with Veterans' benefits which continued to reinforce the distinction between deserving and undeserving recipients of governmental support. The full employment bill proposed by Roosevelt in 1944 encountered stiff resistance in the Congress. Business leaders feared that full employment would undermine cheap labor and conservatives backed it on principal. The final employment act called instead for "maximum" employment. The compromise bill became the Employment Act of 1946, and created the president's council of economic advisors. The fate of this compromise bill was symptomatic of the fate of liberalism after the war.

Epilogue: The Reconstruction of New Deal Liberalism

It was a compromised liberalism that emerged from WWII, a liberalism that had reached an accommodation with capitalism and abjured the reformer's responsibility to speak to fundamental issues of production. But the problems of capitalism that they thought they had solved by focusing on consumption, were to prove less tractable over the long run and less amenable to compensatory fiscal manipulation. The real problems of capitalism, after all, are problems of both consumption AND production. By compromising its tradition of reform, liberalism ceded the ground of debates about production to the right. The Reagan administration could talk about "trickle down" theories or supply side economics from the ground of production which the liberals had ceded. Compensatory policies can only take you so far when you to not address the underlying structural causes for the problems created by capitalism. It remains for liberalism to recapture the reform tradition in the 21st century and deal with the fundamental issues of power and wealth in a post-industrial age.