New Deal Capitalism

In 1933, Franklin Delano Roosevelt referred to a ‘New Deal’ for the American people, which instigated a series of economic countermeasures to promote relief, recovery and reform in The Unites States. His ‘New Deal’ was moderately successful in allowing The United States to emerge from The Great Depression; and, in turn, it addressed the flaws inherent to Capitalism. In the 1920s, the form of Financial Capitalism that operated was unsustainable. The Republican government preceding Roosevelt, through taking action, proved itself to be deficient in handling the crisis of The Great Depression. Further, ‘The New Deal’ attempted to alter the operation of Capitalism with immediate success. This process was further abetted by external, influential
factors, such as the rise of globalism. Whilst, to an extent, successful in achieving the aims, it is perceivable that “The New Deal’ had the potential to effect a far superior outcome. Nevertheless, did expedite the recovery process, and attend to the flaws in Capitalism.
In the United States in the 1920s, after successive Republican governments, Financial Capitalism had proven to be unsustainable.
In his treatise, “An Inquiry into the Nature and Causes of the Wealth of Nations,” Adam Smith defined the role of government as ‘Laissez-Faire.’ The chief proponent of this approach, the ‘Invisible Hand’ would, according to Smith, ensure self-regulation of the market. Republican president Calvin Coolidge, advocated Smith’s theory: “If you see ten troubles coming down the road, you can be sure that nine will run into the ditch and you will only have to battle with one.” (Clements, 2001, p. 132). Coolidge’s perspective represents a typical conservative viewpoint from the era; and in light of the prosperity, these views on the role of the president were persuasive. This implies that the majority of problems would be eradicated by self-regulation of the economy. Coolidge’s reliance upon regulatory market-mechanisms and unpreparedness to deal with difficulties can be seen in Hoover’s response, “… when the tenth trouble reached him he was wholly unprepared, and it had by that time acquired such momentum it spelled disaster,” (Sobel, 1998, p. 242). Hoover’s perspective is a far more moderate interpretation of Smith’s theories, in comparison with Coolidge. He explains that if problems in the economy were not countered promptly, they would be exacerbated. Under Coolidge, four problems emerged in Capitalism, but were not addressed: inequality of income
distribution, foreign inability to pay loans, the formation of trusts, and stock-market speculation (Galbraith, 1958, p.297). These factors created a volatile economy dependant upon consumer confidence. Jonathan Leonard’s recount of The Great Crash highlights this: “Horrified brokers watched the selling orders accumulate. It wasn’t a flood; it was a deluge,” (Leonard, 1939). As a primary recount, this source affords an insight into the fear that spread rapidly. When confidence fell, speculation provided downward leverage throwing Capitalism into a spiral, in which, market mechanisms ceased to functioning order to prevent the pervasion of these destructive factors during the 1920s, government intervention was necessary. Arguably, this phase was merely an accentuation of the cyclical Capitalist phenomenon; however, The Great Depression was a period of unprecedented ‘bust,’ and there was no evidence of the reassertion of the Capitalist cycle. Throughout the 1920s and The Great Depression, governmental regulation was necessary to preserve Capitalism from its inherent flaws.
Herbert Hoover’s Republican government demonstrated knowledge of necessary reactionary measures but failed to implement them effectively, in turn, prolonging the depression.
His failure serves to highlight the crucial nature of FDR’s New Deal. Hoover’s concerns were similar to those of his successor, Franklin Roosevelt; however, the means through which they were addressed differed. Hoover believed that the responsibility for the support of the impoverished lay solely in the private sector and voluntarism. Whilst the intended outcomes were the same, this was in direct opposition with Roosevelt’s policy of governmental deficient spending. Hoover’s policy, the ’Paradox of thrift;’ maintained budget surpluses at the expense of aggregate demand (McElvaine, 2000, p. 53). His failure to buoy the economy is apparent in advisor to Roosevelt, William Trufant Foster’s essay, ‘When a Horse Balks,’ which states that, “The administration had no plan to offer except futile reliance on rugged individuals. In place of disappearing dollars, it put into circulation nothing but cheering words…” (Foster, 1932, p. 2). Foster represents Keynesian economic theory, as such has a predisposition to criticise contradictory theories. Despite Hoover’s attempts to protect American jobs from foreign influences, the depression was further exacerbated by the implementation of The Hawley-Smoot Tariff Act of 1930. Tariffs serve to endorse domestic produce and discourage imports; however, the Hawley-Smoot
tariff increased foreign inability to pay war reparations to America, worsening the depression. In Black’s evaluation of the economy in 1931: “There was no sign whatever that the traditional oscillation of the business cycle was reasserting itself; all indicators had continued in free fall almost uninterruptedly…” (Black, 2003, p. 251). Black’s assessment highlights the failure of Capitalist tendencies to re-emerge in the economy. He also justifies the success of Roosevelt by contrasting the economy before and after his ascendency. Thus, this source bears inherent prejudice towards Hoover’s administration. It is arguable, however, that Hoover was elected too late for his actions to be effectual, and that irrespective of measures taken, the depression was irreversible. Nevertheless, Hoover’s measures were counter-productive, in that they caused the depression to deteriorate, and prevented the re-emergence of Capitalist ideals. In short, Hoover’s ineffectual containment of The Great Depression and resultant suppression of Capitalist tendencies highlights the necessity of Roosevelt’s New Deal.
Franklin Roosevelt’s New Deal was a series of ad hoc legislation aimed at creating a countercyclical force to turn the deteriorating depression into economic recovery, and, in the long term, economic reform. Roosevelt intended to reduce impoverishment through government deficit spending and decentralisation of wealth – a central characteristic of renowned economist, John Maynard Keynes’ economic theory. Keynes likened economic spending in a depression to that during war – a notion evident in his letter to Roosevelt, which stated that, “You, Mr. President, … are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war…” (Keynes, 1933, p.1). By virtue of his expertise in economics, this source may be considered reliable, and pertinent. It was hoped that this would abbreviate The Great Depression. This decentralisation of wealth reduced inequality, which according to Cowie was necessary: “ … [Laissez-Faire was] the type of jungle law that permitted the bourgeoning of the already strong at the expense of the weak,” (Cowie, 1980, p. 130). As a secondary writer, Cowie’s work is not strained by the partiality inherent in primary sources. This demonstrates that unregulated Capitalism resulted in inequality equating to fewer jobs and lower consumerism, which hampered production, creating a downward cycle. In order to achieve these aims, New Deal legislation created ‘Alphabet Agencies’ such as the NRA, National Recovery Administration, which mobilised industry through the creation of jobs. Similarly, the FERA, Federal Emergency Relief Administration, provided employment through the allocation of $500 million to the unemployed (Clements, 2001). Arguably, Roosevelt was a fiscal conservative. And the New Deal did not represent true deficit budgeting. It is the case that Roosevelt promoted a ‘balance the budget’ approach to economics; however, in the case of The New Deal, he was unequivocally in favour of deficit spending. In summary, The New Deal was an economic programme, aimed at the provision of relief, recovery and reform, in order to allow Capitalism to function.
The New Deal had limited success in that it provided relief for the impoverished, national economic recovery and partial reform; however these outcomes were not as substantial as those intended. The successes were due mainly to the optimism and buoyancy that it inspired, rather that the monetary measures taken. According to historian, Nevins, “… as Roosevelt took these steps [of The New Deal] his courage… his blithe optimism, infected the spirit of people,” (Nevins, 1965, p.348). This insight represents a modern, revisionist perspective, which attributes the majority of Roosevelt’s success to his inspiration. This suggests that the focal point of Roosevelt’s action was not the action itself, but the spirit in which it was undertaken. In contrast, William Trufant Foster, a member of Roosevelt’s ‘Brains-Trust’ hypothesised that only monetary measures could prompt monetary recovery. Public optimism encouraged economic recovery: it transformed individualist America into a more social-minded nation in which welfare state principles were more readily embraced, and eradicated the defeatism which characterised Hoover’s presidency. However, the deficient nature of the economic programmes led to The New Deal being referred to by authoritative and pre-eminent US historian, William Leuchtenberg, as a “half-way revolution” (Graham & Wander, 1985, p. 288). Criticisms were directed from both ends of the political spectrum: the ‘thunder on the left’ was a protest against the slow recovery and failure for true redistribution of wealth. Essentially, the left criticised The New Deal as being too moderate. The ‘thunder of the left’ denounced The New Deal as causing the debasement of the traditional American libertarian values. This view is expressed in a prominent criticism of The New Deal, which it states, “… taking the people down the road to the welfare state – a road that would eventually end in socialism and therefore the negation of individual freedom,” (Gerald & Athan, 1982, p. 291). In direct contrast with the view of Roosevelt, himself, who stated that The New Deal eradicated revolutionary tendencies, thus preventing Socialism. Whilst there was limited reform in the economy, the precedent of government intervention was the most far-reaching effect on Capitalism. However, depending upon the criteria of success, judgements of The New Deal differ. Nevertheless, informed analysis of The New Deal in light of Roosevelt’s aims is the most pertinent. In summary, the New Deal was partially successful in achieving the aims set forth by Roosevelt; however, the majority of this success resulted from the decline of defeatism from Hoover’s era.
The limited success attributed to The New Deal was in part due to influences external to Franklin Roosevelt’s programme. Throughout the 1920s and 1920s, The United States was a protectionist nation. Towards the end of this era, there was a trend towards globalism, in which cooperation dominated. It is due to the collaborative effect of this cooperation that the achievements of The New Deal appear to be inflated. In synchronicity with The New Deal, similar programmes were operating under Fascist governments in Italy and Germany. Not only did Fascist rearmament, influence other economies under globalism, but it also compelled other nations to focus industrial efforts on armament production – stimulating the economy. Prior to the beginning of World War II, “The huge expenditures for weaponry clinched the Keynesian doctrine that government spending could underwrite prosperity…” (Kennedy, 1999). This secondary source plays a key role in a revisionist theory questioning the success commonly attributed to The New Deal. This sentiment is supported strongly by that of esteemed historical economist Jeffry Frieden, who posited that “… by [1937-1938]…it was hard to distinguish deficit spending for countercyclical purposes from preparations for rearmament” (Frieden, 2006, p.235). As these views are not pervasive, there is little evidence to suggest that they are reliable; however, when in conjunction the reliability of these two sources is confirmed. The superior degree of foreign success under Keynesian economics serves to dilute Franklin Roosevelt’s success. In 1936, well before American emergence from The Great Depression, Germany had completely recovered. I, 1933, German unemployed amounted to 6 million; in 1939, this had reduced to 1 million (Overy, 1996, p. 108). However, this coincides with the purging of Jews from Germany, which would allow the unemployment to fill vacant jobs – skewing these figures. Meanwhile, The United States struggled to control rampant unemployment levels of 17.2% (Folsom, 2009, p. 246). However, it must be considered that, initially, America adopted an isolationist policy in response to German aggression, and may have been less affected. Despite this, eventually, American rearmament saw unparalleled economic success. In summary, during The Great Depression, external influences forced action, external to The New Deal, which stimulated the economy, providing the inflated impression of The New Deal’s success.
In conclusion, Franklin Roosevelt’s New Deal redefined the operation of Capitalism in The United States. It altered the operation of Financial Capitalism, from the prosperous 1920s, to a more sustainable form of Capitalism through governmental intervention. In spite of the detrimental failure of previous governments to abbreviate The Great Depression, Roosevelt’s New Deal inspired limited economic relief, recovery and reform; however, not to the extent it was originally intended. Further, external influences such as a Nazi rearmament in a newly formed global society created the illusion of a larger degree of success than was achieved in reality. It is hypothesised that The New Deal failed to achieve any radical modifications; nevertheless, it set a precedent for governmental intervention in the economy, and addressed the inherent flaws of Capitalism.