Week 4: FDR the Depression and The New Deal

Reading:  Foner, "The New Deal, 1932-1940"

The Crash of 1929 and the prolonged depression frame the administration of Franklin Roosevelt and his New Deal.  How and why Obama’s administration is compared with the Roosevelt’s first administration is a topic for students who are interested in the problem of how states copes with crises.  

There are numerous theories about the causes of the depression and of the choices in policy by the government for resolution of the crisis.  The key here though is not to blame or pin the Crash of the markets as the cause of the Great Depression.  For a long time this was a mainstream myth.  But in fact the broad structural crises in the economy led to the collapse of the economy.  (Kennedy 38).  The farming sector was collapsing and automobile production and sales had plummeted in the final years of the 1920s.  

An excellent treatment of the origins of the crisis and the difficulty the state found in responding to the Great Depression is the Canadian scholar, Colin Gordon, New Deals:  Business, Labor, and Politics in America, 1920-1935. (Cambridge University Press, 1994).   Gordon argues that the structural undermining of the economy was occurring by the late 1920s in key sectors and preceded the stock market crash.  Gordon compares the varying responses between the two different administrations of Hoover and Roosevelt as a series of compromises and experiments aimed at preserving business interests and the state. 

A detailed study of the long term causes of the Great Depression and the difficulty in formulating a government policy to it are found in the Michael Bernstein’s, The Great Depression:  Delayed Recovery and Economic Change in America, 1929-1939. (Cambridge, 1987) See also, his article, “The Great Depression as Historical Problem,” Magazine of History, Vol. 16, No. 1, The Great Depression (Fall, 2001), pp. 3-10.  

Bernstein argues that all short-run arguments concerning the depression shared a common attribute.  They focused on the immediate causes and impacts of the stock market collapse of 1929 and asserted that the precipitous devaluation of wealth and distribution of the banking system occasioned by it explained the intensity of the crisis.  One of the main prevailing theories of the time was that this was a loss of “business confidence.”  (Bernstein, 4)  According to the Business Confidence school the crash of the market precipitated pessimistic expectations in the business community.  Indeed today you find the behavioral economics approach showing some resonance of this today.  The investor / celebrity George Soros today shows some aspects of this in his lack of perfect information thesis.  

Some of these early analyses thought the demise of the gold standard in international trade and demands by France and US that Germany make reparations in gold rather than in goods and services created a net gold inflow in the US that led to explosion of credit.  Extremely unstable credit arrangements emerged in the twenties especially in mortgage markets.  Because many banks in the relatively unregulated environment were committed to questionable loan contracts, when the crash came, the collapse of the banking system was quick to follow.  Thus, excessive credit and speculation coupled with a weak banking network caused the Great Depression.

Now the American credit crunch and deflation that sparked the 1929 crash was already manifested across the Atlantic as well.  Britain’s Chancellor of the Exchequer Winston Churchill had made Britain return to the Gold Standard at an overly high rate $4.86 to the pound and thereby made British exports expensive, bolstered its imports and threatened to drain the Bank of England of its gold reserves. Benjamin Strong, the Governor of the New York Federal Reserve Bank meant to support the British policy.  Strong eased credit.  Money was lent for stock purchases on expanded scales.  The use of margin loans allowed purchases of stock on credit.  When in October of 1929 the prices of stocks fell, creditors called in the margin loans thereby accelerating the collapse in share prices.

During the Great Depression, mainstream economic theory was revived with the appearance of the British economist John Maynard Keynes’ The General Theory of Employment, Interest and Money (1936).    Keynes was concerned with reform and the saving of capitalism through aggressive federal government expenditures to create public works and increase levels of public employment and therefore consumption.  Keynes had earned his reputation in Britain and international circles for his work on postwar recovery following World War I.    For a useful discussion of Keynes in comparison to Karl Marx’s theories, see Paul Mattick, “Marx and Keynes,” (Western Socialist, Boston, USA, November-December 1955).  

For some other early attempts to explain the dynamics of the crash, see Irving Fisher, The Stock Market Crash – and After (New York:  Macmillan, 1930);  and J.A. Schumpeter, “The Decade of the Twenties, “  American Economic Review, 36 (May, 1946), 1-10. 

Bernstein shows that a second version focused on the immediate effects of the crash on consumer wealth and spending.  The downturn resulted in a drastic devalution of consumer wealth and incomes.  The results were that a lack of consumer confidence could not be bolstered by increased credit.  The large decreases in purchasing power due to the crash left the economy saddled with unused capacity and low demand.

The usual ruling-class “explanations” revolve around the complexities of the stock market, unbridled speculation, and the economic policies that the capitalist class did or didn’t use to deal with the situation. But even today, the competing schools of economic thought on how to administer capitalism continue to argue about the causes of the 1930s collapse.  A conservative and quite reactionary theory was the “monetarist” school of thought represented by Milton Friedman. Monetarists maintain that the Depression was caused by the inappropriate policies in the 1920s and early 1930s—the Federal Reserve System.  Ben Bernanke the current Chairman of the Federal Reserve is a student and advocate of this monetarist position.  Monetarists deny that there is an inherent instability in the private sector.  Richard Strout in a series in the Christian Science Monitor also noted that another major cause was the lack of purchasing power by consumers and the maldistribution of income. The steelworkers who worked 12-hour shifts, and the farmers working from dawn to dusk didn’t have any real disposable income to purchase consumable goods.  Even in today's Great Recession of 2008-2012 (and continuing) the inadequate purchasing power  of the middle and lower class is relegated to the bottom of the list, as explanations by elites prefer to seek structural or institutional explanations that can be adjusted.  
The Depression can only be understood as the product of a social system in crisis. The Depression was neither a natural disaster nor a random stroke of bad luck. It was neither caused by faulty government policies nor generated by inadequate stock market regulations. Rather, it was the predictable product of the economic laws that govern capitalism the world over.
When the Great Depression hit during President Herbert Hoover’s first year in office, Hoover’s preference for business associations and a no-hands approach to intervention led to his fatal reluctance to move away from the essential laissez faire notions of business ideology in government policy. In 1929 federal expenditure sin 1929 accounted for 3% of GNP.  By the century’s closing decade, the federal budget represented 20% of GNP.  (Kennedy p. 55)
In 1929 state and local government expenditures were 5 times larger than the federal government expenditures;  by the end of the century these expenditures were about equal. When unemployment peaked at 11 percent in 1921 Hoover as Commerce Secretary convened the President’s Conference on Unemployment.  The attempt then was to influence the business cycle. 

The solutions were slow in coming.  Federal backed construction projects were few and relatively insignificant in scale.  Only $210 million in federal money was spent on construction in 1930.  It took ten years for President Roosevelt and his New Deal to spur public construction at $1.5 billion by 1939.  Business failures continued and GNP dropped 12 percent in one year.  However, the collapse of 1930 did not initially appear worse than the prior collapse of 1921.  (Kennedy p. 59).  The real panic broke out over banking.  On December 11, 1930 New York City’s Bank of the United States closed its doors.  

The early signs and cause of the depression were a result of complex combination of crises in the capitalist system.  There was a decade of stagnation in agriculture and flat or declining auto sales and housing markets.  Speculation was rampant on Wall Street, so the collapse of the stock market was a broader symbol that combined with the collapse of banking to provoke a global crisis.

Hoover’s memoir blamed much of the problem on the cost of Germany’s economic recovery.  In that sense, one could make a good argument that the ultimate cause of the Great Depresion was the war of 1914-1918 (Kennedy 71).  In 1931 Hoover tried to balance the federal budget by raising taxes.  This policy was vehemently attacked by John Maynard Keynes in his General Theory, who argued that the key was deliberate deficit spending.  The British finally departed from the gold standard in 1931.  By 1932 the federal farm subsidies administered through the Federal Farm Board were running out the government had no leverage to maintain farm subsidies.  By 1932 11 million or 20 percent of the labor force was out of work.  

Workers were not unemployed in the 1930s because there was no work to be done. Working-class families did not starve because society lacked sufficient capability to produce food. Nor did society lack the capability to produce the other necessities of life. But the economic relationships and class divisions that define capitalism, constituted a barrier between society’s needs and its capacity to satisfy them. Capitalism tolerates severe recessions and depressions as a way of disciplining workers to expect less and to reduce their demands for better pay, benefits or higher expectations.  It also embraces a high risk strategy of reward for investors to recover against risk.  In such a system elites who have resources and inside knowledge and connections are generally in a preferred position to profit from downfalls and recoveries.  They may choose to move their capital or investment or seek other strategies that their accrual of wealth and capital affords them. See the essay by Nathan Karp The Great Depression:  Can it Happen Again?    http://www.slp.org/pdf/others/gr_depress.pdf

President Franklin Delano Roosevelt's (FDR) election in 1932 allowed a new administration to readdress federal policy.  In an aggressive posture, the new government ushered what has come to be labeled the 100 Days, a series of immediate steps and programs that were proposed within his first 100 days in office in 1933.  A short chronology of these programs and subsequent federal programs is listed here.

Among the solutions for dealing with the crisis of massive unemployment and migrations of dislocated peoples were new federal programs of reconstruction that were aimed at providing direct employment in infrastructure and in supervising work camps of cheap labor in agriculture in the West.  The government also commissioned the making of documentary films that rationalized and promoted these government projects.  A representative film is Pare Lorentz' The River (1938), which may be viewed and downloaded at the Internet Archive site. Lorentz offers a rhetoric that rationalizes the establishment of the new federal Tennessee Valley Authority (TVA) and construction of dams feeding the Mississippi basin as a means of controlling flooding that had devastated the Mississippi delta in 1927 and in recurring years.  As this was a documentary paid for by the federal government, consider how the state was developing a public relations campaign for its programs.  The great benefit from the TVA was not only flood control, but also an expansion of electrification to rural areas that were among the last to be integrated into a power grid.

Among the crises confronting American liberal democracy during the Great Depression, was the problem of balancing of relief and relocation efforts for white, black, Filipino and Mexican workers.  If race was a permanent characteristic of American political history, the relative measure of relief efforts and mobilization efforts for black and white workers, was a concern to the New Deal agencies.  In the course of the Depression and as the severity of displacement from the Dust Bowl worsened, the shift to moving whites into factory work and particularly into war production after 1940, also introduced the question of state sponsored programs for admitting Mexican Americans under the Bracero Program.  In effect, it is arguable that race and ethnic identity was preserved as a means of creating castes of workers for seasonal labor, primarily in agriculture, while white labor was mobilized into higher wages of new industries.[1] 

The notion of caste over class allowed a more permanent feature of subordination, and perpetuated the reliance of blacks upon sharecropping in the rural South.  The crisis in American agricultural capitalism and relations of the 1930’s and its spawning of liberal oriented photojournalism and experimental documentaries has been explored through a number of treatments.  The documentary form as a response to the crisis of capitalism was explored by Stott, (1973) as an intellectual evolution which integrated folkloric imagery and prevailing reformist tendencies in producing dramatic documentary photojournalist albums:  Lange, Bourke-White, in one style, and the moderated detachment of Walker Evans’ photographs as a more reserved and cautious form.  A number of comparative critical studies of An American Exodus have pointed out various technical, stylistic and positional tactics and strategies of the book.  William Stott (1973) argues that the book is a result of a compilation of field notes, begun in 1935, when Paul Taylor, a labor economist at the University of California Berkeley, and who had been working with the State of California’s Rural Rehabilitation Division, sought to impress upon the federal relief agencies the need to coordinate and provide organized camps and relief for migrant workers in the state.[2]  Stott uncritically accepts Taylor’s incorporation of captioning as accurate reflections or captures of original testimony and implied social, economic relations and material conditions.[3]  Surprisingly Stott, avoids a critical reading of Taylor’s sociological portrayal, and instead agrees with Carey McWilliams’ 1940 review, in alluding to Taylor’s overuse of statistics and academicism.  Stott does acknowledge and note the folkloric use of quotes in the captions, but he fails to analyze why  the resort to folklore reflected the strategies of state patrimony sought by the documentary genre.  Expressions, such as “we’re starved, stalled and stranded,”  establish foundation for Taylor’s position as an elite arbiter and rationalist for federal intervention.   Stott’s analysis is also unaware of the compromise of the quote of the woman on page 101, stating, “If you die, you’re dead, -- that’s all.”  Paula Rabinowitz, (1994), counters with her own defense of Lange and Taylor, citing uncritically to their self-authenticating claim in the foreward to “adhere to the standards of documentary photography as we have conceived them.”[4]  

Another problem of FDR and the New Deal was the sudden appearance of recession within the Great Depression.  In 1937-1938 the economy took another step in recession.  The consensus among Brad Delong and other economic historians is that the goverment in trying to balance the budget undercut the needed stimulus needed for economic relief, infrastructure and hence money for circulation into the economy.  As a result the nation fell into a deep recesssion that negated some of the recovery that had been achieved since 1933.  The choice of the goverment to pursue military construction projects and arms buildup with the impending and actual arrival of World War II was ultimately the step that boosted GNP and began to pull the country out of a technical recession and depression.  

[1] On the development and reproduction of racist relations, see The use of race as caste in the bourgeois democracies of the U.S. and Britain is discussed by among others,  Peter Gran, Beyond Eurocentrism:  A New View of World History.  Syracuse University Press:  Syracuse (1997).  For a political economy and cultural discussion of the subordination and suppression of blacks as labor force in the Mississippi Delta, see Clyde Woods,  Development Arrested:  Race, Power, and the Blues in the Mississippi Delta   Verso:  New York, (1997).
[2] See, William Stott, Documentary Expression and Thirties America,  University of Chicago Press:  Chicago.  (1973)  p. 225.
[3] For instance, Stott, Ibid. p. 226, claims Taylor, “let the camera and the words of those photographed take care of the concrete while he generalised, often in ways tangential to the theme.”
[4] See Paula Rabinowitz.  They Must Be Represented.  Verso:  London.  (1996) p. 86.

No comments:

Post a Comment