Tuesday, April 17, 2012

Why Capitalism and Government Intervention Go Hand & Hand | Lessons from FDR and the New Deal

This will sound eerily familiar to the political rhetoric of Republicans today...

The Conservative Critics of the New Deal and FDR’s Fireside Chat: A Discussion on the Rhetoric of Political Economy

It has been several months since I have talked with you concerning the problems of Government. Since January, those of us in whom you have vested responsibility have been engaged in the fulfillment of plans and policies which had been widely discussed in previous months. It seemed to us our duty not only to make the right path clear, but also to tread that path.
- Franklin D. Roosevelt, Fireside Chat, June 28, 1934
Franklin Delano Roosevelt began to implement his New Deal policies in 1933 and conservative critics, such as Herbert Hoover, were quick to declare that the New Deal policies were the “most stupendous invasion of the whole spirit of liberty that the nation has witnessed since the days of Colonial America.”[1] Appealing to the American fear of socialism and totalitarianism, critics like journalist David Lawrence asserted that the New Deal “more strongly resembles the dictatorship of the Fascistic and Communistic states of Europe than it does the American system.”[2] Ogden Mills, former Secretary of the Treasury under Hoover, warned, “Our economic system cannot be half free and half socialistic…. There is no middle ground between governing and being governed, between absolute sovereignty and liberty, between tyranny and freedom.”[3] FDR addresses these “prophets of calamity” in a fireside chat on June 28, 1934:
If I were to listen to the arguments of some prophets of calamity who are talking these days, I should hesitate to make these alterations… But I have no such fears. (Roosevelt 1934)
What is remarkable is that, at this time of fear of economic depression, Communism, Fascism, and liberty, Roosevelt lead the American people to “look to the larger future” which seeks to re-establish “forgotten ideals and values”[4] which recognize that in “a land of vast resources no one should be permitted to starve.” More importantly, Roosevelt connected the need to provide “social insurance” to the “vicissitudes of modern life” which have been caused “due to a lack of understanding of the elementary principles of justice and fairness by those in whom leadership in business and finance was placed.” Roosevelt is commenting on the changing nature of capitalism in which “neglected conditions” of the rise of industrialization and the decline in living standards of the people “had to be corrected.”[5]
Relief was and continues to be our first consideration. It calls for large expenditures and will continue in modified form to do so for a long time to come. We may as well recognize that fact. It comes from the paralysis that arose as the after-effect of that unfortunate decade characterized by a mad chase for unearned riches, and an unwillingness of leaders in almost every walk of life to look beyond their own schemes and speculations. (Roosevelt 1934)
            Recognizing the negative bi-products of capitalist development and the negative manifestations of socialism and communism, Roosevelt assumed the duty to ”not only to make the right path clear, but also to tread that path.” FDR rejected his detractor’s assumption that nothing was possible between capitalism and socialism and treaded the path for a third way, a perspective on economic policy that could exist between socialism and capitalism. Roosevelt created a system of capitalism that sought to protect its citizens against the dangers of inherit in the system. To better understand the significance of New Deal debate we must first understand the historical significance of the conflation between capitalism and its governments. In understanding this we are better prepared to understand why the conservative critics viewed the child labor laws, fair wages, and shortened working hours were not just attack on business but an attack on individual liberty.

            The two sides argued the protection of individual rights but FDR argued for the rights of the individuals of society while his critics argued that individual rights were the rights of business. The foundation of this debate the question about how the government should best respond to the complex social, economic, and political dynamics in a new era of industrial capitalism. To understand the relationship between business, government, and the people it is best to look at how this conversation emerged through the beginning stages of capitalism. Most important is to understand how the growth of capitalism is so intertwined with a strong central government and how that the myth of capitalism and individual liberty become reduced to a myth of business owners who operate outside of any political boundaries.

Karl Marx, in 1848, prophetically wrote in The Communist Manifesto:
"The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, and make connections everywhere."
What Marx was getting at is an inherent quality in the nature of capitalism, which demands constant growth for its survival. Constant growth requires more products, being purchased by more people, while being produced for less. The need for growth is what pushes down wages and working conditions but also drives producers to advertise to induce spending and establish new markets in other nations. Starting at this fundamental characteristic nature of capitalism helps to better understand why the business leaders of the early 1930s passionately denounced FDR and the New Deal. The implementation of higher standards and higher wages meant a decrease in profits and therefore the imminent decline of capitalist society. Theoretically they were correct, but they were mistaken on placing the blame on Roosevelt and the interference of government in the affairs of business because their claims ignored an inherent quality of capitalism – that capitalism requires the involvement of its government to grow and thus for capitalism to survive. So in order for capitalism to survive it must grow; but for it to grow it must increase profits; to increase profits it must pay less or sell more; to pay less is to create the social conditions of inequality; to sell more is to open new markets abroad; to open new markets abroad requires the power of the state. What FDR’s critics were really arguing was not for government to stay out of the affairs of business; rather they only wanted government intervention when it would increase profits for themselves. Roosevelt addressed the dynamic of greed in capitalism and indicted his detractors for causing the depression that forced the government to intervene:
Relief was and continues to be our first consideration. It calls for large expenditures and will continue in modified form to do so for a long time to come. We may as well recognize that fact. It comes from the paralysis that arose as the after-effect of that unfortunate decade characterized by a mad chase for unearned riches, and an unwillingness of leaders in almost every walk of life to look beyond their own schemes and speculations. (Roosevelt 1934)
Detractors were correct, from a pure capitalist economic perspective, that the FDR’s threat of a long-term system of relief and large government expenditures[6] threatened the core of capitalist expansion and American society as a whole. 
Hannah Arrendt explains how stagnation, in a capitalist society, moves from the economic to the political and affects the whole society because products are “shared by, many different people who were organized in widely different political bodies.”[7] The interdependency of government and business in capitalism does mean that stagnation in business leads to stagnation in the rest of society. Historian Arthur Schlesinger tells how the critics of the New Deal saw the protection of business interests as the protection of all Americans interests:
They were fighting, it seemed, for much more than their own interests; or, at least, the interests of business were the interests of all. As Hoover suggested, “Corporations are not a thing apart from the people, for they are owned by somewhere between six and ten million families.” The issue created by the war on business, Hoover said, was “orderly individual liberty and responsible constitutional government as opposed to un-American regimentation and bureaucratic domination. (Schlesinger 1958, 479)
The civilization envisioned by critics like J.P. Morgan, was bound up in the idea that capitalism was natural in humanity and therefore what is best for business is best for all. Morgan described the type of civilization that was in danger of destruction - that civilization was characterized by “all those who can afford to hire a maid.”[8] Morgan and Roosevelt’s vision of civilization differed. Roosevelt viewed American civilization as one “dominated by the humane ideals of democracy,” is that “in a land of vast resources no one should be permitted to starve.” For Roosevelt, it was the duty of government to protect its citizens against the negative consequences of government and even though his critics insisted that government interference inhibited the ability for business to operate according to pure capitalist principles, they ignored the fact that, in order for capitalism to expand and thus survive, individuals must be exploited and the government must act on behalf of business to establish markets abroad. Capitalism demands government intervention for its growth and survival, therefore capitalist economics is political as well as personal. The government, business, and the people cannot be separated and this is why FDR sought to find a third way in between capitalism and socialism.
            The debate between Roosevelt and his conservative critics reflects less an argument about government intervention and more about the struggle for America to adapt to the changing dynamics of culture within capitalism.  Following the great depression government, business, and citizens were struggling to understand how the most powerful economy in the world could become crippled so easily. Roosevelt and the New Dealers pointed to the greed and unregulated era of speculation in the economy and exploitation of the labor force and Roosevelt’s opponents pointed to government intervention in the free market that was crippling the ability of capitalist to grow business and the economy as a whole. In a way both parties were correct. The conservative critic’s misunderstanding of the interdependency government and business within capitalism is the back drop from which we can make sense of the powerful language and heated rhetoric employed in the fight against the New Deal. Opponents attacked New Dealers by labeling them fascists and communists[9], power hungry bureaucrats[10], and by attacking the “Brain Trust” academic advisors[11]. These labels are better seen as rhetorical tools used to protect the system of capitalism. Hoover, Mills, Warburg, Lawrence, and others were worried that, in a world where there was no middle ground between capitalism and socialism, the New Deal policies would inhibit economic growth and destroy the American society, as they knew it. According to their belief, they were correct but mistaken. Rhetorically they advocated for government to remove itself completely from the affairs of business but they were not aware or did not care to admit that capitalism required the intervention of the government in order to create favorable conditions for constant growth. Roosevelt rejected the notion that political economy was black or white. His New Deal policies innovated in a way to maintain the capitalist system by instilling in it socialistic principles. Roosevelt treaded the path to a third way, a sort of welfare capitalism that sought to protect capitalism and the American people from the social dangers inherent in capitalism. Roosevelt contends that his New Deal policies sought “the primary good of the greater number,” and that a small portion of society was having their toes stepped on but that minority of Americans sought to “gain position or riches or both by some short cut which is harmful to the greater good.”[12] Possibly the most convincing argument, directed towards the American people and not the leaders of industry, was a set of direct questions that Roosevelt asked the citizens if the New Deal had improved their situation. I conclude this paper with Roosevelt’s conversation with the American people:
But the simplest way for each of you to judge recovery lies in the plain facts of your own individual situation. Are you better off than you were last year? Are your debts less burdensome? Is your bank account more secure? Are your working conditions better? Is your faith in your own individual future more firmly grounded?
Also, let me put to you another simple question: Have you as an individual paid too high a price for these gains? Plausible selfseekers and theoretical diehards will tell you of the loss of individual liberty. Answer this question also out of the facts of your own life. Have you lost any of your rights or liberty or constitutional freedom of action and choice? Turn to the Bill of Rights of the Constitution, which I have solemnly sworn to maintain and under which your freedom rests secure. Read each provision of that Bill of Rights and ask yourself whether you personally have suffered the impairment of a single jot of these great assurances. I have no question in my mind as to what your answer will be. The record is written in the experiences of your own personal lives.
In other words, it is not the overwhelming majority of the farmers or manufacturers or workers who deny the substantial gains of the past year. The most vociferous of the Doubting Thomases may be divided roughly into two groups: First, those who seek special political privilege and, second, those who seek special financial privilege. About a year ago I used as an illustration the 90 percent of the cotton manufacturers of the United States who wanted to do the right thing by their employees and by the public but were prevented from doing so by the 10 percent who undercut them by unfair practices and un-American standards. It is well for us to remember that humanity is a long way from being perfect and that a selfish minority in every walk of life—farming, business, finance and even Government service itself—will always continue to think of themselves first and their fellow beings second (Roosevelt 1934)

Works Cited
Arrendt, Hannah. 2009 [1958]. The Origins of Totalitarianism. Benediction Classics.
Roosevelt, Franklin D.: "Fireside Chat.", June 28, 1934. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=14703.
Schlesinger, Arthur M. Jr. 1986 [1958]. The Coming of the new Deal, 1933-1955. New York: Houghton Mifflin Company.

[1] Herbert Hoover quoted in Schlesinger 1958, 473
[2] David Lawrence quoted in Schlesinger 1958, 473
[3] Ogden Mills quoted in Schlesinger 1958, 479
[4] I have pointed out to the Congress that we are seeking to find the way once more to well-known, long-established but to some degree forgotten ideals and values. We seek the security of the men, women and children of the Nation. (Roosevelt 1934) www.presidency.ucsb.eduhttp://www.presidency.ucsb.edu/ws/index.php?pid=14703#ixzz1rrumhyk3

[6] Relief was and continues to be our first consideration. It calls for large expenditures and will continue in modified form to do so for a long time to come. (Roosevelt 1934)
[7] Arrendt 1958, 125, 126
[8] “Businessmen, in short, were fighting for civilization itself. ‘If you destroy the leisure class,’ J. P. Morgan told a senate committee, ‘ you destroy civilization.’ (When reporters asked him to identify the leisure class, he replied, ‘All those who can afford to hire a maid.’)” (Schlesinger 1958, 479)
[9] Ogden Mills “an all-powerful central government to which all men must look for security, guidance and assistance, and which, in turn, undertakes to control and direct the lives and destinies of all.” (Schlesinger 1958, 473)
Herbert Hoover “Most stupendous invasion of the whole spirit of liberty that the nation has witnessed since the days of Colonial America.” (Schlesinger 1958, 473) David Lawrence – “This Maelstrom of centralized order-giving… more strongly resembles the dictatorship of the Fascistic and Communistic states of Europe than it does the American system.” (Schlesinger 1958, 473)
[10] Herbert Hoover “the human animal… has two forms of greed – the greed for money and the greed for power. The lust for power is infinitely the worse.” (Schlesinger 1958, 474) “In all bureaucracies there are three impeccable spirits – self-perpetuation, expansion, and an incessant demand for more power.” 474) “this host of government agents spread out over the land, limiting men’s honest activities, conferring largess and benefits, directing, interfering, disseminating propaganda, spying on, threatening the people and prosecuting for a new host of crimes.” (Schlesinger 1958, 474) Nation’s Business – the best public servant is the worst one: “the better he is and the longer he stays, the greater the danger. If he’s an enthusiast – a bright-eyed madman who is frantic to make this the finest government in the world – the black plague is a house pet in comparison.” (Schlesinger 1958, 474)
[11] Frank Kent – “third rate college professors and unsuccessful welfare workers” allied with a group of political bosses and an amiable but reckless President. (Schlesinger 1958, 473) Eugene Meyer – The nation’s “most immediate danger, lay in ‘the inexperience of the young intellectuals who are apparently directing the policy of the administration.’” (Schlesinger 1958, 473) George Peek – “The major policies of agriculture and foreign trade  are in charge of men who have never earned their livings in industry, commerce, finance, or farming.” (Schlesinger 1958, 473) Saturday Evening Post – If they are a class competent to plan and run the business of the country, then practical experience and training in industry have lost their meaning.” (Schlesinger 1958, 473) “it is our country not a laboratory for a small group of professors to try out experiments that bid fair to result in an expansion and a stink.” (Schlesinger 1958, 474) Nation’s Review – “The differences between the man of thought and the man of action seem fundamental an irreconcilable.” (Schlesinger 1958, 473) Bruce Barton – an advertising guy – “The day will come when compared to the word professor, the word banker will be a term of endearment.” (Schlesinger 1958, 474)
[12] In the working out of a great national program which seeks the primary good of the greater number, it is true that the toes of some people are being stepped on and are going to be stepped on. But these toes belong to the comparative few who seek to retain or to gain position or riches or both by some short cut which is harmful to the greater good. (Roosevelt 1934)

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