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The New Deal, Part 1: Domestic Policy

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Today, few Americans are left from the Greatest Generation (a phrase which my father, born in 1912, would have seen as obvious propaganda). There are more, perhaps, who experienced the New Deal directly as very small children. Most of us know it only from history, family lore, popular culture, film, and (yes) partisan political sources. And yet the farther it recedes in time, the more the feeling takes hold that the New Deal was an important watershed in American life.

That is certainly true and here is a clue: early in my lifetime you could still tell an overwrought person, “Don’t make a federal case of it!” Today this joke has no reach. Whatever the grievance, there very likely is a federal case in it. This change is the work of the New Deal, multiplied by the New Deal-at-War, forty years of Cold War, and other parallel causes. The Great Depression brought America’s state builders back to Washington in 1933. They were keen to overthrow the laissez faire and “isolationism” of the Republican New Era (neither of which, strictly speaking, exactly existed in the 1920s) and to renew America‘s wartime experiments with big, unaccountable government, largely abandoned as of 1919.

War among the Progressives

The contests that brought the New Deal into being, like those inside it, look like a war between (or among) Progressives. Republican administrations from 1921 to 1933 promised unending progress based on close cooperation between big business and government — not so much laissez faire as mild corporatism. (On corporatism, see my essay in Future of Freedom, February 2014.) In foreign affairs, as historian Clyde Wilson writes, these interwar Republican administrations pursued “moderate and realistic versions of Wilson’s failed fantasies … not so much a repudiation as a dilution of Wilsonism” (From Union to Empire). This was cautious Open Door Empire on a budget.

Herbert Hoover, hailed as a great Progressive, chanced to be president when an inflationary boom went bust. His remedies for the Great Depression foreshadowed the New Deal in detail. (See Ellis W. Hawley, “Herbert Hoover … and the Vision of an ‘Associative State,’” Journal of American History.) In the 1932 election advocates of economic “stabilization” (i.e., state-enforced cartelization) abandoned Hoover, whose corporatism fell short of theirs, and the Navy lobby also moved against him (Murray Rothbard, “The Hoover Myth,” Studies on the Left; and Charles and Mary Beard, America in Midpassage). (The Navy expected more from Roosevelt, a former assistant secretary of the Navy.)

New Dealers take power

Into the economic maelstrom stepped Franklin Roosevelt with his stentorian voice and Groton accent. He was not a “traitor to his class” (as businessmen claimed): his class was the landed gentry of upstate New York. He was pragmatic and distractible, but had perhaps a personal creed of organic collectivism (Richard P. Adelstein, “The Nation as an Economic Unit,’” Journal of American History).

Called in to “fix” the Great Depression, New Dealers retained Hoover’s Reconstruction Finance Corporation (which bailed out endangered companies). Striking out in several new directions at once, the New Deal oversaw a massive expansion of federal power. German observer M.J. Bonn commented, “[No] civilized community ever experienced such a sudden widening of Government action” (quoted in William E. Leuchtenberg, “Reflections on the Significance of the State in America,” Journal of American History).

As told by favorable historian Arthur M. Schlesinger Jr., the mad activism of the New Deal’s famous first Hundred Days was very exciting, as new agencies (Works Progress Administration, Civilian Conservation Corps, Tennessee Value Authority) and new legislation such as the Agricultural Adjustment Act grew like mushrooms. Roosevelt devalued the dollar by 40 percent and banned private gold transactions. He also torpedoed the London economic conference (1933), pleasing (temporarily) economic nationalists in his administration.

Contradictory New Deal practice arose from two somewhat contrasting forms of Progressivism (both found among Roosevelt’s advisors): Teddy Roosevelt’s New Nationalism and Woodrow Wilson’s New Freedom. New Nationalists accepted large corporations, if regulated and coordinated, and favored tariffs, economic nationalism (autarchy), and a degree of state planning. The Wilsonians, such as Louis Brandeis, wanted to use antitrust laws to level large corporations and restore competition and favored free trade. The nationalists were strongly corporatist, the free-traders less so, at least on paper. Both groups wanted increased foreign trade but disagreed on means. Historian Ellis W. Hawley writes, “The New Dealers failed to arrive at any real consensus about the origins and nature of economic concentration” (quoted in John A. Garraty, “New Deal, National Socialism, and the Great Depression,” American Historical Review; and see Otis Graham, The Old Progressives and the New Deal).

Central to all this activity were World War I precedents, taken as the logical continuation of Progressivism and not its defeat (as some argued). (See William E. Leuchtenburg, “The New Deal and Analogue of War,” in John Braeman et al., Change and Continuity in Twentieth-Century America.) The War Industries Board inspired the New Deal’s National Recovery Administration (NRA), which turned “a large number of the leading trade associations into ‘cartels,’ possessing either de facto or de jure powers … similar to those of their European national and international prototypes” (Robert A. Brady, Business as a System of Power).

New Dealers accepted New Era bankers’ arguments for large-scale overseas lending but added a direct role for the state. When New Deal measures endangered some New Era corporatists’ interests, those conservatives formed the Liberty League, the least classical-liberal and most opportunist branch of the “Old Right,” anti–New Deal movement. (See Sheldon Richman, “A Matter of Degree, Not Principle: The American Liberty League,” Journal of Libertarian Studies.) Roosevelt fought these critics with artful demagoguery, while also marginalizing Gov. Huey Long of Louisiana, Fr. Charles Coughlin (the “radio priest”), and pension reformer Francis Townsend, on his Left.

Behind the scenes, political scientist Thomas Ferguson finds a rising coalition of capital-intensive, internationally oriented corporations in oil, paper, tobacco, and farm machinery, and commercial banking, at war with the waning “System of 1896”: the McKinley-Roosevelt (Theodore) coalition of labor-intensive heavy industries committed to high tariffs. (See Ferguson, Golden Rule.) This element still held sway over much of the Republican Party, particularly in the Midwest, while the challengers cooperated with the New Deal. The rise of Secretary of State Cordell Hull and his state-driven brand of “free trade” was just their cup of tea.

Law and economics

In May 1935 the Supreme Court found the NRA unconstitutional. The experiment in formal corporatism covering the whole industrial sector was over. The New Deal replaced it with piecemeal legislation tailored to specific sectors of the political economy. Administrative “law” still had a big future. Section 7a of the NRA statute, providing for collective bargaining, was reborn as the Wagner Act (1935). An angry Roosevelt asked Congress to let him change the composition of the Court, but his “court-packing” scheme provoked Congressional rebellion, spearheaded by Sen. William E. Borah (R-Idaho), a Progressive noninterventionist.

Even so, the Court got the message and, from 1937 onwards, began its own constitutional revolution away from its earlier outward legal formalism and pseudo-strict construction. Indeed, the Court became so agreeable during World War Two in decisions such as Wickard v. Filburn (1942) (see part 2), that it would very likely have endorsed even the NRA had it been a war measure.

Contemporary critics: Robert Taft

Russell Kirk and James McClellan write that it was the New Deal that drew Robert Taft out of Ohio and into national politics. By 1935 Taft was becoming an able critic of the New Deal and an important opposition leader (Political Principles of Robert A. Taft). He accepted some early New Deal measures, such as its reform of the stock market, and contrasted the “original New Deal” with its later phases. Acting for a client, Taft sued the U.S. Treasury in March 1935 for enforcement of the gold clause, i.e., for payment of treasury notes in gold. A successful suit would have thwarted the New Dealers’ plans for inflationary fiscal and economic management.

Taft disliked the New Dealers’ many new agencies armed with administrative “law.” He did not oppose unions across the board (agreeing here with his moderately Progressive friend Herbert Hoover). As a senator (from 1939), Taft fought expansion of the Tennessee Valley Authority, while accepting some form of minimum wage, old-age pensions, depression relief, and even public housing, under strict limits. He was a budget-cutter but not a firm believer in laissez faire. He questioned the “constant tendency to increase the powers of the Federal government over the states, and the powers of the Executive over the individual” (Principles of Taft). On tariffs, his views mirrored those of Midwestern industries that focused on the home market and not on international trade.

Garet Garrett

Old Right journalist Garet Garrett described the New Deal’s “revolution within the form” as following this checklist: “capture the seat of government”; “seize economic power”; “mobilize by propaganda the forces of hatred”; “attach to the revolution … industrial wage earners and the farmers”; “liquidate or shackle business”; “domesticate individuality”; systematically  reduce “rival forms of authority”; “sustain popular faith in an unlimited public debt”; and “make the government itself the great capitalist and enterpriser.” To accomplish those things, New Dealers aggrandized the executive branch, issued inflationary dollars, gave grants-in-aid to the states, and fostered “fantastic extensions of the interstate commerce clause.” They kept double books, turning deficit spending into “investment,” and spread the doctrine that “we” (unspecified) owed the resulting debt to “ourselves” (also unspecified) (“The Revolution Was,” in The People’s Pottage).

However incoherent its program, the New Deal coalition did rather well from 1933 down to the 1970s.

John T. Flynn

Old Right journalist John T. Flynn wrote that “the crisis, instead of making things more difficult for Roosevelt, made Roosevelt’s whole spending program possible” (Country Squire in the White House, italics added). The unemployed were thankful for any help and “became very naturally an immense army to fight for its continuance” and thus for Roosevelt. Billions went to farmers — and thence to the banks — leaving farmers beholden to his party. Flynn adds, “When it was all over, the mortgage lenders had been bailed out, and the farmers … were still in debt plus the additional sums the government had loaned them; and the government held the bag” (ibid.).

So too with homeowners: the federal government “bailed out the moneylenders, but the home owners are still in debt … and the government holds the bag.” Governors and mayors borrowed, too. What really mattered was “that all this money was dispensed by one man — the President.” This strengthened the White House as against Congress, while piling up future debt (ibid., italics added).

New Dealers turn outward

Despite ample New Deal state-building, persistent unemployment was barely touched. The 1936 election showed falling support for the Democrats. With the secondary recession of 1937-1938, the party fared worse in 1938. Thereafter, a working coalition of Southern conservatives and Republicans began blocking New Deal legislation. Such facts contributed to the administration’s turn toward foreign policy and Open Door solutions (increased foreign trade and investment). Roosevelt’s famous “Quarantine” speech against fascist aggression in October 1937 was one sign. Thereafter New Dealers edged America towards participation (however belated) in the pending world war alongside Great Britain. The twin threat of New Deal domestic and foreign policy brought what Murray Rothbard called the “Old Right” coalition into final form.

Political economy further politicized

American governments usually see economic growth as their important job. As legal historian William J. Novak notes, the years from about 1870 into the 1920s witnessed a steadily rising curve of government interference with everything (“Legal Origins of the Modern American State,” in Austin Sarat et al., Looking Back at Law’s Century). Any party taking federal power in 1933 would necessarily adopt activist federal depression cures, believing that only extensive renewed intervention could possibly undo the effects of prior interventions. The only practical question was just how far the new measures would go. The New Deal gave one answer: a sharp upward spike of state-building. As Garrett said, spending freely and borrowing as needed drove it along very splendidly. As we shall see in part 2, World War II raised its powers toward high heaven.

This article was originally published in the November 2016 edition of Future of Freedom.

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    Joseph R. Stromberg is an independent historian and writer who was born in Fort Myers, Florida. He received his B.A. and M.A. from Florida Atlantic University and his further graduate work was completed at the University of Florida. Mr. Stromberg was a Richard M. Weaver Fellow from 1970-1971. His work has appeared in the Individualist, Libertarian Forum, Journal of Libertarian Studies, The Freeman, Chronicles, Independent Review, Freedom Daily as well as in several books of essays.