75 Years ago:
Roosevelt’s “New Deal”

Jun 2, 2008

Seventy-five years ago, Franklin Roosevelt, the newly elected Democratic president, was putting the finishing touches on a package of economic reforms. Between March 1933, when he took office, and June, he pushed 15 measures through Congress.

In the land that champions free enterprise, the New Deal marked the intervention of the nation-state into the affairs of the bourgeoisie. Some businesses and political reactionaries viewed this state intervention as interference in free enterprise. They considered the New Deal “socialist,” due to the social nature of some laws put into effect to re-start the economy. In fact, the laws Roosevelt got Congress to pass were simply an attempt to patch up a capitalist system threatened with collapse, and to prevent a social explosion by allowing a few rights to unions and a little aid to the poorest. The constraints imposed on the capitalists aimed at protecting their interests.

A lasting crisis

By 1933, the crisis affected all sectors of the economy. More than 5,000 banks had closed since the crash of 1929, leading to numerous closings of businesses starved for money. Industrial production had fallen 50%, putting 15 million workers out of work, between 25% and 33% of the working population. There was no unemployment compensation at that time. Those who still worked suffered big wage cuts. Poverty generalized throughout the working class. Workers who could no longer pay their rent were evicted. Vast shanty towns appeared, called Hoovervilles after former President Herbert Hoover. For many people, soup kitchens were the only source of food. Countless farmers were kicked off their land; sharecroppers and farm workers had no work. There were plenty of goods for sale and food available to be bought, but there were few buyers.

The situation was explosive. Workers and small farmers were being reduced to misery. Spontaneous riots broke out everywhere in the country. Despite brutal repression, the revolts threatened to spread.

In this situation, Roosevelt was able to convince the capitalists that it was necessary to accept some restrictions–if they didn’t want to lose everything. On the one hand, the system needed to be regulated if the economy was to be relaunched; on the other hand, social aid needed to be extended to avoid social revolts by the working population.

Restarting the capitalist economy

Roosevelt’s first measure, taken the day after he took office, was the emergency decree to close all banks and prohibit gold transactions for a week, in order to stabilize the banking system. On March 9^th the Emergency Banking Act authorized banks with good financial health to reopen. The law allowed shaky banks to obtain credit from the Federal Reserve Bank, one of its first bail-outs. In this case, the ferocious defenders of “free enterprise” had no problem with the state intervening in the economy–if it was in favor of big business.

The Economy Bill, introduced on March 20^th, cut wages of federal employees by 15% and reduced veterans’ pensions. Roosevelt’s excuse was the need to reduce government expenses.

With respect to industry and agriculture, Roosevelt began a policy to limit production, thus reducing inventories, allowing prices to rise, letting the capitalists make profits once more.

Even while part of the population was starving and without money, the Agricultural Adjustment Act, passed on May 12, aimed at pushing up farm prices. Landowners were encouraged to reduce the acres under cultivation and to kill off part of their livestock. The government paid the landowners compensation, so they lost nothing. Essentially this compensation went to benefit the biggest farms. Farm workers and share-croppers, thrown out to starve, were the first victims of this reduction in cultivated acres, as were small farmers who could barely survive on their meager production.

The same policy was followed for industry. The National Industrial Recovery Act (NIRA), the key law of the early New Deal, was aimed at relaunching production by limiting the savage competition among the capitalists. The act provided for manufacturing companies to agree to fix production quotas, price and wage minimums, and to lower the hours of work in order to create jobs. The agreements were negotiated between employers, unions and government.

The more reactionary manufacturers immediately cried that this was socialism, first, because the state had intervened in their affairs and, second, because workers gained a few rights to join unions. This “statism,” however, was very limited, and didn’t go beyond encouraging the bosses to act. There was no enforcement in the NIRA to ensure that employers respected the law. Moreover, the organism set up to administer the NIRA was controlled by businessmen! Most of the wage minimums fixed by the industrial sectors were lower than what was already paid. And the famous clause 7A, which authorized workers to participate in collective bargaining with their employers and to belong to the union of their choice, did so only if the state authorized their particular union.

Preventing the extension of revolts

To fight unemployment, Roosevelt began a program of large public works, similar to what the Italian and German fascist regimes were doing. The projects included the repair or construction of schools, museums or public buildings. The most important program was the development of the Tennessee River Valley, under the Tennessee Valley Authority (TVA). Created with federal credits in May of 1933, the TVA began building a public network of dams and hydroelectric power plants in order to contain flooding of the river and to furnish cheap electricity to businesses and inhabitants of the area. These big public works, however, didn’t put an end to unemployment. At most, they employed four million workers, who got wages lower than those paid by businesses. The lower wages were established so that public works would not compete with private business.

Many of these first laws were thrown out by the courts, still adhering to the wishes of the most reactionary part of the bourgeoisie.

It was not until after the big strike wave of 1934 pushed the bourgeoisie to the wall that many of these early social laws were re-instituted.

The year 1934 saw three nearly generalized local strikes set off by longshoremen on the California coast, truck drivers in Minneapolis, and auto workers in Ohio, as well as the national textile strike which spread from the South into 16 states. In 1935, the Social Security Act was passed, a law that initiated unemployment compensation. But Social Security was financed by deductions from wage earners. And even these minimum coverages did not apply to domestic workers and farm workers, occupations in which the black population was concentrated. Just as they were excluded when the minimum wage laws and farm subsidies were set in place. Roosevelt did not want to annoy the reactionary South, which traditionally voted Democratic.

The measures put in place by Roosevelt were not socialist in the least, despite what his critics said. These measures were an expedient accepted temporarily by the U.S. bourgeoisie to get out of the crisis, without having to face widespread revolt.

But the New Deal did not respond to the needs of the working class. The great strike movement of 1936-37 was testimony to this–it was also the proof of the force of the U.S. working class and its capacity to propose its own solutions to the crisis.

As for the economy–the New Deal measures did not relaunch it. In fact, the economy by the end of the 1930s was falling back again into the morass. American capitalism did not get out of its crisis until it engaged itself–and all of society with it–in the butchery of World War II.