Felix Morrow

Outcome of Roosevelt’s New Deal

(26 May 1945)

Source: The Militant, Vol. IX No. 21, 26 May 1945, p. 4.
Transcription/Editing/HTML Markup: 2018 by Einde O’Callaghan.
Copyleft: Felix Morrow Internet Archive (www.marx.org) 2018. Permission is granted to copy and/or distribute this document under the terms of the Creative Commons Attribution-ShareAlike 2.0.

A glance at the AFL’s unemployment chart shows graphically how the New Deal failed to find ways and means of permanently reviving American economy under peacetime conditions. From 1933 into the fall of 1937, the chart shows a slow fall in the number of unemployed, from 15 millions to under eight.

Then, suddenly, the line of the chart rises steeply, straight up to eleven millions and over. Toward the middle of 1938 it drops a little only, at the end of the year, to go up to over 11.5 millions. And it remains around 11 millions until war breaks out in Europe in the fall of 1939. And even with the first war production for Europe, it remains through most of 1940 above 10 millions. It does not drop below that point until production is underway on the United States’ own war production, begun with 15 billion dollars’ appropriations asked by Roosevelt after the fall of France in June 1940.

The significance of this picture of peacetime failure is even further enhanced if we keep in mind two facts. The AFL figures for unemployment were notoriously conservative. And from the very beginning of Roosevelt’s administration production for war began – quite openly in the case of the navy-building program, and in numerous hidden forms: PWA and WPA building of airports and military roads and extension of military camps, etc.

On the eve of the outbreak of World War II, the United States presented a picture of economic stagnation which could be changed by nothing short of war. The pump-priming of the New Deal had failed to revive private investment in capital goods – the dynamic element of capitalist economy. Some figures will make this fact vivid. During the nine years of 1921–1929, some 71 billion dollars had been put into plant and equipment. During the nine years of 1930–1938, only 55 billion dollars had been put in.

Whereas capitalism requires a constantly increasing amount of investment in capital goods, the 1930’s brought a decrease of nearly 25 per cent.

Even more startling is one of the key figures of capital investment: housing construction. In this field, during 1921–1929, there was invested 36.7 billions. But in the 1930–1938 period, there was invested only 10 billions.

The result was enormous sums of idle capital. An article in the January 9, 1941 N.Y. Times showed the extent of this in the case of the chief money market, New York state. In 1929 New York banks and trust companies employed 57 per cent of their total resources in the form of loans to private enterprise; but in 1940 only 18 per cent of their resources were thus employed!

Signs of Capitalist Stagnation

Economic stagnation had reached the point where it was more profitable to lend money to the government (traditionally such loans had been least profitable) than to business. The president of the Central Hanover Bank, one of the financial giants, was authority for the fact (New York Times, January 10, 1941) that average return on commercial loans was 2.08 per cent, whereas interest rate on the federal debt stood at 2.58 per cent. Unable to find fields of investment, savings banks were paying only 1.5 per cent interest.

It was to break out of this economic stagnation that government spending far beyond government income had been begun in 1933. After eight years of the New Deal, the result was that the federal debt had risen from 22.5 billions in June 1933 to 49 billions in June 1941, without producing any basic change in the economic situation.

Today, when the war has brought the federal debt to 300 billions, the earlier figures are dwarfed. But one must understand their full significance. In the first place, only the previous long generations of prosperity before 1929 had made possible the low figure of the federal debt as it stood when Roosevelt entered office. Thus Roosevelt’s deficit spending was made possible only thanks to the previous prosperity.

But how long could it go on? After eight years, and more than doubling the federal debt, there was still an endless vista of economic stagnation and unemployment, and the consequent necessity of continuing federal deficit spending. Simple arithmetic made it obvious that it was impossible indefinitely to continue to pile up debt which generations yet unborn would have to pay.

Seek New Investment Fields

In a word, the total economic situation dictated finding another way out than that of the 1933–1940 New Deal.

The way out for capitalism always means finding new fields for private investment. Eight years had demonstrated that no such new fields were to be found within the United States. That meant the new fields would have to be found abroad.

Superficially, it might seem that the urgency of expanding abroad had been softened by the employment of millions on WPA (if one leaves aside the pressure of the growing federal debt). Perhaps this was so in the first years of the New Deal. By 1938, however, government spending on useful peacetime projects had become increasingly difficult and made all the more imperative the need for expansion abroad.

Government spending was largely limited to projects which in no way competed with private industry. This meant building roads, parkways, playgrounds, schools, hospitals, etc. which after completion had to be maintained by the local governments. But the latter, with their limited means of taxation, found it increasingly difficult to maintain the completed projects turned over to them. They were already slashing their school, highway and welfare budgets. In 1938 the WPA announced that Philadelphia was refusing to accept projects which would put forty thousand men to work immediately. Other cities followed suit.

Hence indefinite continuation of government spending on useful peacetime projects would have had to move increasingly into fields where it would compete with private industry. But this would come up against resistance from the capitalists. Could a capitalist government overcome such resistance? The record shows it did not. One alleged exception is the Tennessee Valley Authority and the other federal electric-power projects, which were bitterly resisted by the utility companies.

But in the light of the aftermath, these power projects take on a different meaning. They made possible the necessary expansion of war production, which the short-sighted policy of the utility companies would have rendered impossible. When the secret archives of the government and the great industrialists are opened, we may well find that the overriding needs of the coming war was the argument with which the government marshalled enough support to have its way against the private utilities.

New Deal Ends in War

In the end, then, government spending served as a further pressure to seek the expansion of private investments abroad which was dictated by the total economic situation.

Expansion where? Two fields had long beckoned: China and Latin America. But Japan was in China, and Great Britain and Germany were crowding US business in Latin America.

That is where the New Deal led – to the battle to make the Far Eastern and Latin American markets exclusive financial and commercial American preserves.

(This is the fifth of a series of articles on the role of Roosevelt.)


Last updated on: 7 November 2018