The Magazine

Facing Capitalism's
Greatest Crisis

The New Deal turns 75 as the United States faces another credit crisis requiring government measures to restore confidence.

Mar 31, 2008, Vol. 13, No. 28 • By JAMES PIERESON
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It was 75 years ago, on March 4, 1933, that Franklin Delano Roosevelt appeared on the steps of the Capitol to take the presidential oath, declaring in his inaugural address that "the only thing we have to fear is fear itself" and promising "direct, vigorous action" to confront the unprecedented economic crisis facing the nation.

Roosevelt's speech was short on specifics about his bold new measures, and he did not use the term "New Deal"--though he had used it extensively during his presidential campaign. But the "New Deal" soon became the catchall phrase for the philosophy and the legislative accomplishments by which his administration is known. Roosevelt's leadership during those difficult years turned him into the most popular figure of his era, an authentic hero in the eyes of liberals and Democrats--and for many Republicans, a sinister demagogue and a traitor to his class.

The passage of time has not settled the controversies that grew up around the New Deal. It is easy today to find enthusiasts who look back on it as the foundation of the American welfare state and critics who see in it as an attack on American capitalism. There are leftwing historians who think Roosevelt should have gone much further in the direction of public ownership and welfare provision, and there are respected economists who say that the New Deal actually impeded recovery from the Depression. Ronald Reagan was accused of trying to roll back the New Deal, though this was manifestly untrue; if he tried to roll back anything, it was Lyndon Johnson's Great Society. Eminent liberals like Arthur Schlesinger Jr. and John Kenneth Galbraith claimed that the Depression discredited free market capitalism. They must have thought that history was playing a cruel joke when Reagan led a revival of market doctrines during the 1980s.

There is little political support today for rolling back any of the New Deal programs that continue to operate. (President Bush got nowhere with his modest proposal to introduce private savings accounts into Social Security.) But the New Deal remains an ideological touchstone in any debate about the appropriate role for government in our economy.

Roosevelt sounded an urgent populist theme in his inaugural address, placing the blame for the Depression squarely on the shoulders of bankers and industrial leaders who had put profit above the public interest. "The money changers have fled from their high seats in the temple of our civilization," he said. "We may now restore that temple to ancient truths. The measure of restoration lies in the extent to which we may apply social values more noble than mere monetary profit." Somewhat more ominously, he suggested that if the nation's inherited constitutional arrangements should prove inadequate to the task, he was prepared to call for a "temporary departure from that normal balance of public procedure." Roosevelt would pound on these two themes--hostility to big business and a readiness to break with tradition--throughout the 1930s.

The fact that Roosevelt's rhetoric was warmly received is a measure of the desperation felt by many Americans at the time. The dimensions of the catastrophe were overwhelming by any known measure. Following the stock market crash of 1929, real economic output in the United States declined by 30 percent and unemployment rose from 4 percent to 25. Stocks fell from a high of 381 in September of 1929 to 42 in mid-1932, turning Wall Street into a virtual ghost town and wiping out investors large and small. The dollar value of U.S. exports fell by two-thirds between 1929 and 1933. Nearly half of the banks in the United States had either failed or merged with other banks by the time Roosevelt came to office in 1933. In the process, millions lost everything. Worse, they saw little hope of getting it back.

The Depression was viewed in many circles as a sign of the impending doom of the capitalist order. Few were confident that the economy could be revived on the basis of the old principles. Intellectuals began to choose sides between socialist and fascist solutions to the crisis. Socialist parties received more than a million votes in the 1932 presidential election. Once in office, Roosevelt was attacked from both ends of the spectrum by extremists like Huey Long and Father Coughlin demanding measures to "share the wealth." Fascist and Communist parties advanced abroad in the wake of the worldwide economic collapse. Hitler came to power in Germany only five weeks before Roosevelt's inauguration.