What the New Deal Did

Author(s): DAVID M. KENNEDY

Source: Political Science Quarterly, Vol. 124, No. 2 (Summer 2009), pp. 251-268
Published by: The Academy of Political Science
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 What the New Deal Did

DAVID M. KENNEDY

The United States now confronts a cascading economic crisis

Venerable banking houses collapse, once-mighty industries teeter on the br
of oblivion, and unemployment mounts. The air thickens with recollections
the Great Depression of the 1930s, and with comparisons between Bar
Obama and Franklin D. Roosevelt.
So what was the Great Depression, and what did FDR do about it? T
short answer is that the Great Depression was a rare political opportunity,
Roosevelt made the most of it, to the nation's lasting benefit. A longer ans
would acknowledge that the Great Depression was a catastrophic econom
crisis that Roosevelt failed to resolve, at least not until World War II cam
along, some eight years after he assumed office. A still longer answer wo
recognize the connection between FDR's short-term economic policy failu
and the New Deal's long-term political success. Much misunderstandi
surrounds these matters.
"At the heart of the New Deal," the distinguished historian Richa
Hofstadter once wrote, "there was not a philosophy but a temperamen
As a writer in The New York Times put it not long ago, "F.D.R. threw a bun
of policies against the wall, and the ones that stuck became the New Deal.
That view pf the New Deal?as a kind of unprincipled, harum-scarum fren
of random, incoherent policies that failed to slay the Depression dem
has become deeply embedded in our national folklore. It is badly mistaken
we are to understand the Great Depression's relevance to our own time, it
imperative to understand the relationship between the economic crisis of t
1930s and that decade's signature political legacy, the New Deal.
Into the years of the New Deal was crowded more social and institutio
change than in virtually any comparable compass of time in the nation's pa

1 Richard Hofstadter, The American Political Tradition and the Men Who Made It (New Yor
Alfred A. Knopf, 1948), XXX; The New York Times, 16 January 2001, Sec. A, p. 23.

DAVID M. KENNEDY is the Donald J. McLachlan Professor of History Emeritus and Co-Direc
of the Bill Lane Center for the American West at Stanford University. He is the author of the Puli
Prize winning Freedom from Fear: The American People in Depression and War, 1929-1945.

Political Science Quarterly Volume 124 Number 2 2009 251

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252 | POLITICAL SCIENCE QUARTERLY

Change is always controversial. Change on the scale the New Deal wrought
has proved interminably controversial. Debate about the New Deal's histori
cal significance, its ideological identity, and its political, social, and economic
consequences has ground on for three quarters of a century. Roosevelt's re
forms have become a perpetual touchstone of American political argument,
a talisman invoked by all parties to legitimate or condemn as the occasion re
quires, an emblem and barometer of American attitudes toward government
itself. So just what, exactly, did the New Deal do?
It might be well to begin by recognizing what the New Deal did not do. It
fell pathetically short of achieving full economic recovery. Roosevelt's pro
grams made a substantial dent in the 25 percent unemployment rate of
1933, but unemployment averaged 17 percent throughout the 1930s and never
went below 14 percent until World War II occasioned massive federal spending
and effectively wrote finis to the Depression Decade. Among the reasons that
the New Deal failed to overcome the Depression and World War II did was the
simple fact that the war made intellectually conceivable and politically possible
deficit spending on a level that was neither dreamed nor attempted before the
war came. The biggest New Deal deficit was some $4.2 billion in 1936, largely
because of the veterans' "Bonus Bill," which passed, not incidentally, over
Roosevelt's veto. No New Deal deficit reached 6 percent of GNR In 1943,
by contrast, the federal deficit was $53 billion, more than an order of magni
tude larger than in 1936, and as a share of GNP nearly six times the largest
New Deal deficit, at 28 percent.
What is more, much mythology and heated rhetoric notwithstanding, the
New Deal did not substantially redistribute the national income. America's
income profile in 1940 closely resembled that of 1930, and for that matter
1920. The falling economic tide of the Depression lowered all boats, but
by and large they held their relative positions. What little income levelling
there was resulted more from Depression-diminished returns to investments,
rather than redistributive tax policies. True, the so-called "wealth tax," or
"soak-the-rich" tax, that Roosevelt pushed through Congress in 1935 imposed
a 79 percent marginal tax rate on incomes over $5 million; but that rate ap
plied to but a single taxpayer in all the United States - John D. Rockefeller.
The basic rate remained 4 percent, and even that applied to a decided minority
of Americans. Until the war-time Revenue Acts hugely expanded federal tax
collections, fewer than one American household in twenty paid any income
tax at all. A Depression-era couple with an income of $4,000 would have been
in the top tenth of all income receivers; if they had two children, they would
have paid a federal income tax of $16 in 1936. A similar family making $12,000 -
placing them in the richest 1 percent of households?would have paid $600.
Nor, with essentially minor exceptions like the Tennessee Valley Author
ity's (TVA) electric-power business, did the New Deal challenge the funda
mental tenet of capitalism, private ownership of the means of production. In
contrast with the pattern in virtually all other industrial societies, whether

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 WHAT THE NEW DEAL DID | 253

communist, socialist, or capitalist, no significant state-owned enterprises emerged

in New Deal America.2
It is also frequently said that the New Deal conformed to no pre-existing
ideological agenda, that it never produced a spokesman, not even Franklin
Roosevelt, who was able systematically to lay out the New Deal's social and
economic philosophy. Then and later, critics have charged that so many in
consistent impulses contended under the tent of Roosevelt's New Deal that
to seek for system and coherence was to pursue a fool's errand. That accu
sation has echoed repeatedly in assessments that stress the New Deal's mon
grel intellectual pedigree, its improbably plural constituent base, its political
pragmatism, its abundant promiscuities, inconsistencies, contradictions, incon
stancies, and failures. What unity of plan or purpose, one might ask, was to
be found in an administration that at various times tinkered with inflation
and with price-controls, with deficit spending and budget-balancing, carteliza
tion and trust-busting, the promotion of consumption and the intimidation of
investment, farm-acreage reduction and land reclamation, public employment
projects and forced removals from the labor pool?3 "Economically," one his
torian concludes with some justice, "the New Deal had been opportunistic in
the grand manner."4
And yet, illumined by the stern-lantern of history, the New Deal can be
seen to have left in place a set of institutional arrangements that constituted
a more coherent pattern than is dreamt of in many philosophies. That pattern
can be summarized in a single word: security.
It is fitting that the New Deal's most durable and consequential reform
bears that very word in its title: the Social Security Act of 1935. A measure
of security was the New Deal's gift to millions of Americans?farmers and
workers, immigrants and blue-bloods, children and the elderly, as well as
countless industrialists, bankers, merchants, mortgage-lenders, and home
buyers, not to mention enormous tracts of forest, prairie, and mountain.
Forget about the colorful creations of the decidedly frenzied and much bal
lyhooed Hundred Days, like the Civilian Conservation Corps and the National

2 See, for example, Mark H. Leff, The Limits of Symbolic Reform: The New Deal and Taxation,
1933-1939 (Cambridge: Cambridge University Press, 1984); U.S. Bureau of the Census, Income
Distribution in the United States (Washington, DC: GPO, 1966); Simon Kuznets, "Long Term Changes
in the National Income of the United States of America since 1870," in Kuznets, ed., Income and
Wealth Series II (Cambridge: Bowes and Bowes, 1952); Jeffrey G. Williamson and Peter H. Lindert,
American Inequality: A Macroeconomics History (New York: Academic Press, 1980), and Robert
Lampman, The Share of Top Wealth-Holders in National Wealth (Princeton, NJ: Princeton University
Press, 1962).
3 The classic study of the New Deal's tangled intellectual genealogy in the realm of economic
policy is Ellis W. Hawley, The New Deal and the Problem of Monopoly (Princeton, NJ: Princeton
University Press, 1966).
4 James MacGregor Burns, Roosevelt: The Lion and the Fox (New York: Harcourt, Brace and Co.,
1956), 322.

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254 | POLITICAL SCIENCE QUARTERLY

Industrial Recovery Act. Most of them were short-lived and ultimately in

consequential. But all of the New Deal reforms that endured - The Federal
Deposit Insurance Corporation, the Securities and Exchange Commission,
the Federal Housing Administration, the National Labor Relations Board,
the Fair Labor Standards Act, and above all the Social Security Act?had a
common cardinal purpose: not simply to end the immediate crisis of the
Depression, but to make life less risky and more predictable, to temper for
generations thereafter what FDR repeatedly called the "hazards and vicissi
tudes" of life.
The New Deal provided more assurance to bank depositors (FDIC), more
reliable information to investors (SEC), more safety to lenders (FHA), more
stability to relations between capital and labor (NLRB), more predictable
wages to the most vulnerable workers (FLSA), and a safety net for both the
unemployed and the elderly (Social Security). Those innovations transformed
the American economic and social landscape. They profoundly shaped the
fates of Americans born long after the Depression crisis had passed. With
the exception of FDIC, none of them dates from 1933. Had economic health
been miraculously restored in the fabled Hundred Days, a swift return to busi
ness as usual might well have meant politics as usual as well, and none of those
landmark reforms would have come to pass. Indeed, there would have been no
New Deal as we know it.
To be sure, Roosevelt sought to enlarge the national state as the principal
instrument of the security and stability that he hoped to impart to American
life. But legend to the contrary, much of the security that the New Deal
threaded into the fabric of American society was often stitched with a remark
ably delicate hand, not simply imposed by the fist of the imperious state. And
with the notable exceptions of agricultural subsidies and old-age pensions, it
was not usually purchased with the taxpayers' dollars.

Nowhere was the artful design of the New Deal's security program more
evident than in the financial sector. At the tip of Manhattan Island, south of
the street laid out along the line where the first Dutch settlers built their wall to
defend against marauding Indians, beats the very heart of American capital
ism. Deep in the urban canyons of the old Dutch city sits the New York Stock
Exchange, whence had come the first herald of the Depression's onset. As the
great crash of 1929 reverberated through the financial system, annihilating bil
lions of dollars in asset values and forcing bank closures, it raised a mighty cry
for the reform of "Wall Street," a site that early and late has been beleaguered
by threatening hordes incensed at its supposedly inordinate power. The New
Deal heeded that cry. Among its first initiatives was the reform of the Amer
ican financial sector, including the banks and the securities markets. What did
it accomplish?

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 WHAT THE NEW DEAL DID | 255

Faced with effectively complete collapse of the banking system in 1933,

the New Deal confronted a choice. On the one hand, it could try to nationalize
the system, or perhaps create a new government bank that would threaten
eventually to drive all private banks out of business. On the other hand, it
could accede to the long-standing requests of the major money-center banks
?especially those headquartered around Wall Street?to relax restrictions on
branch and interstate banking, allow mergers and consolidations, and thereby
facilitate the emergence of a highly concentrated private banking industry,
with just a few dozen powerful institutions to carry on the nation's banking
business. That, in fact, was the pattern in most other industrialized countries.
But the New Deal did neither. Instead, it left the astonishingly plural and
localized American banking system in place, while inducing one important
structural change and introducing one key new institution.
The structural change, mandated by the Glass-Steagall Banking Act of
1933, was to separate investment banks from commercial banks, thus securing
depositors' savings against the risks of being used for highly speculative pur
poses. The same Act created a new entity, the Federal Bank Deposit Insurance
Corporation (FBDIC, later simply FDIC). Guaranteeing individual bank de
posits up to $5,000 (later raised), and funded by minimal subscriptions from
Federal Reserve member institutions, the FDIC forever liberated banks and
depositors from the fearful psychology of bank "runs," or panics. These two
simple measures did not impose an oppressively elaborate new regulatory
apparatus on American banking, nor did they levy appreciable costs on either
taxpayers or member banks. But they did inject unprecedented stability into
the American banking system. Bank failures, which had occurred at the rate
of hundreds per year even before the Depression's descent, numbered fewer
than 10 per year in the several decades after 1933.
If speculation and lack of depositor confidence had been the major
problems of the banking system, the cardinal affliction of the closely related
securities industry had been ignorance. Pervasive, systemic ignorance blan
keted Wall Street like a perpetual North Atlantic fog before the New Deal,
badly impeding the efficient operation of the securities markets and leaving
them vulnerable to all kinds of abuses. Wall Street before the 1930s was a
strikingly information-starved environment. Many firms whose securities were
publicly traded published no regular reports, or reports whose data were so
arbitrarily selected and capriciously audited as to be worse than useless. It
was this circumstance that had conferred such awesome power on a handful
of investment bankers like J.P. Morgan, because they commanded a virtual
monopoly of the information necessary to making sound financial decisions.5
Especially in the secondary markets where reliable information was all but
impossible for the average investor to come by, opportunities abounded for

5 For a vivid description of the workings of the pre-New Deal financial marketplace, see Ron
Chernow, The House of Morgan (New York: Atlantic Monthly Press, 1990).

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256 | POLITICAL SCIENCE QUARTERLY

insider manipulation and wildcat speculation. "It's easy to make money in

this market," the canny speculator Joseph P. Kennedy had confided to a part
ner in the palmy days of the 1920s. "We'd better get in before they pass a law
against it."6
The New Deal did pass a law against it, and assigned Joseph P. Kennedy to
implement that law, a choice often compared to putting the fox in the hen
house, or setting a thief to catch a thief. In 1934 Kennedy became the first
chairman of the new Securities Exchange Commission, one of just four new
regulatory bodies established by the supposedly regulation-mad New Deal.7
The SEC's powers derived from statutes so patently needed but so intricately
technical that Texas Congressman Sam Rayburn admitted he did not know
whether the legislation "passed so readily because it was so damned good or
so damned incomprehensible." Yet some years later, Rayburn acknowledged
that the SEC, thanks in part to the start it got from Kennedy, was "the stron
gest Commission in the government." A study of the federal bureaucracy over
seen by Herbert Hoover called the SEC "an outstanding example of the
independent commission at its best."8
For all the complexity of its enabling legislation, the power of the SEC
resided principally in just two provisions, both of them ingeniously simple.
The first mandated disclosure of detailed information, such as balance sheets,
profit and loss statements, and the names and compensation of corporate offi
cers, about firms whose securities were publicly traded. The second required
verification of that information by independent auditors using standardized
accounting procedures. At a stroke, those measures ended the monopoly of
the Morgans and their like on investment information. Wall Street was now
saturated with data that were relevant, accessible, and comparable across firms
and transactions. The SEC's regulations unarguably imposed new reporting
requirements on businesses. They also gave a huge boost to the status of the
accounting profession. But they hardly constituted a wholesale assault on the
theory or practice of free-market capitalism. All to the contrary, the SEC's
regulations dramatically improved the economic efficiency of the financial
markets by making buy and sell decisions well-informed decisions, provided
that the contracting parties consulted the data now so copiously available. This
was less the reform than it was the rationalization of capitalism, along the lines
of capitalism's own claims about how free markets were supposed to work. To

6 Kennedy quoted in Michael R. Beschloss, Kennedy and Roosevelt: An Uneasy Alliance (New
York: W.W. Norton, 1980), 60.
7 The others were the National Labor Relations Board, the Civil Aeronautics Authority, and the
Federal Communications Commission. Some existing agencies were also considerably strengthened,
notably the Federal Power Commission, the Federal Trade Commission, the Interstate Commerce
Commission, and the Federal Reserve Board.
8 Congressman Sam Rayburn and the Hoover Commission Report quoted in Thomas K. McCraw,
Prophets of Regulation (Cambridge, MA: The Belknap Press of Harvard University Press, 1984),175,
153-54.

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 WHAT THE NEW DEAL DID | 257

be sure, a later generation's financial prestidigitation eluded the SEC's capac

ity responsibly and effectively to exercise its regulatory functions; but that
sorry development supported an argument for updating and upgrading the
Commission, not for challenging its essential rationale.
The New Deal's housing policies provide perhaps the best example of its
techniques for stabilizing a major economic sector by introducing new ele
ments of information and reliability ? and offer another lesson in what can
happen when government agencies fail to keep pace with changes in the
private sector. By its very nature, the potential demand for housing was then
and later large, widespread, and capable of generating significant employment
in countless localities. John Maynard Keynes was not alone in recognizing that
housing was a sector with enormous promise for invigorating the Depression
era economy. Well before Keynes urged Roosevelt to put his eggs in the
housing basket, Herbert Hoover had patronized the Better Homes for Amer
ica Movement in the 1920s. In 1931, as new home construction plunged by
95 percent from its pre-1929 levels, he had convened a national presidential
conference on Home Building and Home Ownership. Its very title, especially
the latter phrase, advertised Hoover's preferred approach to the housing issue.9
As in the banking sector, the New Deal faced a choice in the housing field.
It could take Keynes's advice and get behind proposals from congressional
liberals like Robert Wagner for large-scale, European-style public housing pro
grams. Or it could follow Hoover's lead and seek measures to stimulate private
home building and individual home ownership. Despite its experimentation
with government-built model communities like the so-called Greenbelt Towns
(of which only three were built), and its occasional obeisance to public housing
programs (as in the modestly funded Wagner-Steagall National Housing Act
of 1937), the New Deal essentially adopted?and significantly advanced?
Hoover's approach. Two new agencies implemented the New Deal's housing
program, the Home Owners' Loan Corporation and the Federal Housing
Administration, later supplemented by the Federal National Mortgage Asso
ciation (Fannie Mae) in 1938, the Veterans' Administration's housing pro
gram after World War II, and the Federal Home Loan Mortgage Corporation
(Freddie Mac) in 1970.10
The HOLC began in 1933 as an emergency agency with two objectives: to
protect defaulting homeowners against foreclosure and to improve lending
institutions' balance sheets by re-financing shaky mortgages. With much pub
licity, the HOLC stopped the avalanche of defaults in 1933. But its lasting

9 For a study of Hoover's policies, see Karen Dunn-Haley, The House that Uncle Sam built: the
Political Culture of Federal Housing Policy, 1919-1932, (Ph.D. Dissertation, Stanford University, 1995).
10 The discussion of housing here is much indebted to Kenneth T. Jackson's pioneering work,
Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press,
1985). Parallel programs, legislated by the Farm Mortgage Refinancing Act of 1934, and the Frazier
Lemke Federal Farm Bankruptcy Acts of 1934 and 1935, gave similar relief to farm owners.

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258 | POLITICAL SCIENCE QUARTERLY

legacy was a quieter affair. Just as the SEC introduced standardized accounting
practices into the securities industry, the HOLC, to facilitate its nation-wide
lending operations, encouraged uniform national appraisal methods through
out the real estate industry. Its successor, the FHA, created in 1934 to insure
long-term mortgages in much the manner that the FDIC insured bank depos
its, took the next logical step and defined national standards of home construc
tion. The creation of Fannie Mae completed the New Deal's housing program
apparatus. Fannie Mae furnished lending institutions with a mechanism for re
selling their mortgages, thus increasing the lenders' liquidity and making more
money available for subsequent rounds of construction. Taken together, the
standardization of appraisal methods and construction criteria, along with
the mortgage insurance and re-sale facilities the New Deal put in place, re
moved much of the risk from home-lending.
The FHA and Fannie Mae themselves neither built houses nor loaned
money. Nor did they manage to stimulate much new construction in the
1930s. But they arranged an institutional landscape in which unprecedented
amounts of private capital could flow into the home construction industry in
the post-World War II years. The New Deal's housing policies, cleverly com
mingling public and private institutions, demonstrated that political economy
need not be a zero-sum game, in which the expansion of state power automat
ically spelled the shrinkage of private prerogatives. Once the war was over, this
New Deal "reform" proved not to have checked or intimidated capital so
much as to have liberated it. And eventually it revolutionized the way Amer
icans lived.
Before the New Deal, only about four Americans in ten lived in their own
homes. Homeowners in the 1920s typically paid full cash or very large down
payments for their houses, usually not less than 30 percent. The standard mort
gage was offered by a local institution with a highly limited service area, had
only a five to ten year maturity, bore interest as high as 8 percent, and required
a large "balloon" payment, or refinancing, at its termination. Not surprisingly,
under such conditions a majority of Americans were renters.
The New Deal changed all that. Uniform appraisal procedures made
lenders much more confident in the underlying value of mortgaged proper
ties. F.H.A. insurance made them less nervous about loans going sour. Con
sequently, lenders began to accept down payments of ten percent, and to offer
thirty-year fully amortized mortgages, with level monthly payments. Interest
rates on mortgages also came down as the element of risk diminished. Finally,
nationally standardized appraisal and construction standards, along with Fannie
Mae's (and, later, Freddie Mac's) national market for mortgage paper, allowed
funds to flow out of regions of historic capital surplus to regions of historic
capital deficit?that is, from city to suburbs and from the Northeast to the
South and West.
The New Deal, in short, put in place an apparatus of financial security that
allowed private money to build post-war suburbia and the Sunbelt. Private

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 WHAT THE NEW DEAL DID | 259

money built private homes. Four decades after the New Deal, nearly two
thirds of Americans lived in owner-occupied houses. By the opening of the
twenty-first century, nearly 70 percent were homeowners ? a signal social
achievement, though too many among the last increment of new owners
proved unable to service their mortgages. Only one percent, usually the
poorest of the poor, lived in public housing. By contrast, in John Maynard
Keynes' England, nearly half the population lived in public housing in the
early post-war years, as did more than a third of the population of France.11

**

In the financial and housing sectors, the New Deal built

by the inventively simple devices of standardizing and
information, and by introducing industry-wide self-i
calmed jittery markets and offered dependable safegua
other sectors, the New Deal's technique was somewhat
ply, to suppress competition, or at least to modulate its
everywhere the objective was the same: to create a un
of risk-reduced, or risk-managed, capitalism.
The New Deal applied its crudest version of the anti
to the chronically volatile agricultural sector. There it
competition with the ham-handed device of simply pa
produce, keeping price-depressing surpluses off the m
of the same logic of mandatory and even subsidized re
was also apparent in the New Deal's treatment of la
Roosevelt declaimed about social justice in his campaign
rity Act and the Fair Labor Standards Act, and he achi
But those Acts also shaped a manpower policy that had
with stability, plain and simple, as it did with social ju
child labor, combined with virtually obligatory retirement
shrank the size of the labor pool and therefore reduce
Retirees were, in effect, paid not to work, just as far
produce (though all but the first generation of Soci
were ostensibly paid from their own forced-savings ac
unapologetically drew their subsidies from general Tr
Fair Labor Standards Act, as well as the industry-wide
the new CIO unions, also built broad floors under wage
reduced the ability of employers and employees alike t
labor costs.

11 Jackson, Crabgrass Frontier, 224. Jackson also demonstrates that both the private and public
housing programs encouraged by the New Deal frequently reinforced and even exacerbated racial
segregation in housing. It is also worth noting that by the 1990s, Britain had substantially abandoned
the public housing model, and a majority of Britons had become homeowners.

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260 | POLITICAL SCIENCE QUARTERLY

In some sectors, new regulatory commissions provided orderly forums

where the rules of competition could be agreed on and the clash of interests
accommodated in a peaceful manner. The National Labor Relations Board
constituted a compelling example of that technique. Elsewhere, as in large
infrastructural industries like transportation, communications, and energy, as
well as in the wholesale distribution and retail marketing sectors, the New
Deal sought stability by directly curtailing price and cost competition, often
by limiting new entrants. The Civil Aeronautics Board, created in 1938, per
formed those functions for the infant airline industry; the Interstate Commerce
Commission for the older railroad industry, and, after the passage of the Motor
Carrier Act of 1935, for truckers as well. The Federal Communications Com
mission, born in 1934, did the same for telephones, radio, and, later, television;
the Federal Power Commission, though with more difficulty, for oil and gas
production. The Federal Trade Commission, newly empowered by two New
Deal "fair trade" laws, was charged with limiting price competition in the retail
and wholesale trades. (The Robinson-Patman Act of 1936 prohibited chain
stores from discounting below certain stipulated levels, a way of insulating
"mom-and-pop" corner stores against aggressive price pressure from the high
volume giants. The Miller-Tydings Act of 1937 legalized price-maintenance
contracts between wholesalers and their distributors, a way of stabilizing the
prices of nationally marketed name-brand goods.)
The creation of this array of anti-competitive and regulatory instruments
has often been criticized as an inappropriate response to the Great De
pression. The economic historian Peter Temin, for example, writes that "the
New Deal represented an attempt to solve macroeconomic problems with
microeconomic tools." Recent writers, including conspicuously Amity Shlaes,
have levelled similar charges.12 But that kind of judgement about the New
Deal not only ignores the substantial, if incomplete, economic recovery that
Roosevelt's policies did achieve. It also rests on the assumption that solving
the macroeconomic problem of insufficient demand and high unemployment
by inducing economic recovery was the New Deal's highest priority. Certainly
Roosevelt said on countless occasions that such was his goal. But if actions
speak louder than words, then it may be fair to conclude that perhaps not
in stated purpose, but surely in actual practice, the New Deal's premier ob
jective, at least until 1938, and in Roosevelt's mind probably for a long time
thereafter, was not economic recovery tout court but structural reform for the
long run. In the last analysis, reform, not simply recovery, was the New Deal's
highest ambition and its lasting legacy.
Roosevelt signalled as much in his Second Inaugural Address on 20 Jan
uary 1937. On that occasion he uttered one of his most-quoted and most

12 Temin's remark is in Gary M. Walton, ed., Regulatory Change in an Atmosphere of Crisis: Cur
rent Implications of the Roosevelt Years (New York: Academic Press, 1979), 58; Amity Shlaes, The
forgotten Man: A New History of the Great Depression (New York: HarperCollins, 2007).

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 WHAT THE NEW DEAL DID | 261

misunderstood lines: "I see one-third of a nation ill-housed, ill-clad, ill

nourished." He was emphatically not speaking in that passage about the
victims of the Great Depression. Just moments earlier he had boasted about
the return of at least a measure of prosperity since he had assumed the
presidency in 1933. But then, in one of the most extraordinary and revealing
remarks in the entire canon of presidential addresses, he said: "Such symptoms
of prosperity may become portents of disaster!" Here was an unmistakeable
indication of Roosevelt's sensitivity to the relationship between economic
crisis and political opportunity. Like a later president, Barack Obama, who
told an interviewer in February 2009 that hard times are "when the political
system starts to move effectively," Roosevelt knew that the Depression had
created a rare moment of political and institutional malleability when the
tectonic plates of American political life could be consequentially shifted.13
The pattern of economic restructuring that the New Deal put in place
arose out of the concrete historical circumstance of the Depression, but it
was not wholly or perhaps even mainly determined by that circumstance. It
also had a more coherent intellectual underpinning than is customarily recog
nized. Its cardinal aim was not to destroy capitalism, but to de-volatilize it, and
at the same time to distribute its benefits more evenly. New Deal regulatory
initiatives were precipitated from decades of anxiety about overcapacity and
cut-throat competition, the very issues that had so disrupted the first great
national industry, the railroads, in the nineteenth century, and led to the cre
ation of the country's first regulatory commission, the Interstate Commerce
Commission, in 1887. Against that background, the Depression appeared to
mark the final, inevitable collapse of an economy that had been beset for at
least fifty years by overproduction and an excess of competition. The regula
tory regime that the New Deal put in place seemed, therefore, but a logical
extension of the kind competition-controlling remedies that the ICC had first
applied to the railroads half a century earlier, and a fitting climax to five de
cades of sometimes wild economic turbulence.
Those views found their most systematic formulation in Franklin Roosevelt's
1932 campaign address at San Francisco's Commonwealth Club. As much as
any single document can, that speech served as a charter for the New Deal's
economic program.
"The history of the last half century," said Roosevelt in San Francisco, is
"in large measure a history of a group of financial Titans....
As long as we had free land; as long as population was growing by leaps and
bounds; as long as our industrial plants were insufficient to supply our own needs,
society chose to give the ambitious man free play and unlimited reward provided
only that he produced the economic plant so much desired. During this period of

13 FDR's inaugural, accessed at http://bartelby.com/124/pres50.html; Obama interview with Jim

Lehrer, 27 February 2009.

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262 | POLITICAL SCIENCE QUARTERLY

expansion, there was equal opportunity for all and the business of government
was not to interfere but to assist in the development of industry."

But now, said Roosevelt, "our industrial plant is built; the problem just
now is whether under existing conditions it is not overbuilt. Our last frontier
has long since been reached, and there is practically no more free land.... We
are now providing a drab living for our own people....
Clearly, all this calls for a re-appraisal of values. A mere builder of more industrial
plants, a creator of more railroad systems, an organizer of more corporations, is as
likely to be a danger as a help. The day of the great promoter or the financial
Titan, to whom we granted everything if only he would build, or develop, is over.
Our task now is not discovery, or exploitation of natural resources, or necessarily
producing more goods. It is the soberer, less dramatic business of administering
resources and plants already in hand, of seeking to reestablish foreign markets for
our surplus production, of meeting the problem of underconsumption, of adjust
ing production to consumption, of distributing wealth and products more equita
bly, of adapting existing economic organizations to the service of the people. The
day of enlightened administration has come.... As I see it, the task of government
in its relation to business is to assist the development of ... an economic constitu
tional order."14

The National Recovery Administration, of course, with its measures to

stabilize production and limit price and wage competition, was the classic in
stitutional expression of that philosophy. But even after the NRA's demise in
1935, the thinking that had shaped it continued to inform New Deal efforts to
erect a new "economic constitutional order."
That thinking rested on three premises, two of them explicit, the other
usually implicit. The first was the notion, so vividly and repeatedly evident
in Roosevelt's Commonwealth Club Address, that the era of economic growth
had ended. With his references to the closing of the frontier, Roosevelt, echo
ing Frederick Jackson Turner's celebrated thesis about the 1890s, suggested
that the Depression did not mark a transient crisis but heralded instead the
death of an era and the birth of a new historical epoch. Many other New Deal
ers, from Rexford Tugwell to the young Keynesians who rose to prominence in
the second Roosevelt administration, shared this view. It deeply colored their
thought right down to the end of the Depression decade. "The economic crisis
facing America is not a temporary one," the economist Lauchlin Currie wrote
to his boss, Marriner Eccles, in 1939. "The violence of the depression following
1929," Currie continued, "obscured for some time the fact that a profound
change of a chronic or secular nature had occurred."15 That change, Currie
concluded, was the emergence of a "mature" economy, one whose capacity
for growth was largely exhausted. The best that could be hoped for, therefore,

UPPA, Vol. I, 742-756.

15 Currie quoted in Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War
(New York: Alfred A. Knopf, 1995), 122.

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 WHAT THE NEW DEAL DID | 263

was to restore the gross levels of production of the late 1920s, and to effect a
more equitable distribution of consuming power so as to sustain those levels
indefinitely. Roosevelt himself said consistently that his "goal" was to raise
national income to "ninety or one hundred" billion dollars. "When, the Lord
only knows," he remarked to reporters as late as October 1937, "but that is a
perfectly sound goal...."16 Measured against a national income of nearly 87
billion dollars in 1929, it was also a perfectly modest goal, a goal inspired by
visions of economic restoration, not economic expansion.
The second premise that informed New Deal policy was closely related to
the first, and was also evident in Roosevelt's Commonwealth Club address. It
was the idea that the private sector, left to its own devices, would never again
be capable of generating sufficient investment and employment to sustain even
a 1920s-level economy. That premise was the starting-point for Harry Hopkins'
Works Progress Administration. Both he and Roosevelt presumed that WPA
would be a permanently necessary government employment program. ("The
time...when industry and business can absorb all able-bodied workers," said
Hopkins in 1936, "seems to grow more distant with improvements in manage
ment and technology.")17 The same assumption about the long-term structural
inadequacies of the private sector in "mature" economies formed much of the
intellectual core of Keynesian analysis. Even before Keynes gave the idea full
articulation, this motif ran like a bright thread through the writings of the
professional practitioners of the dismal science in the 1930s. Alvin Hansen,
a Harvard economist destined to become America's leading Keynesian, gave
forceful expression to this notion in 1938 in Full Employment or Stagnation?, a
book that helped to popularize the concept of "secular stagnation" while also
arguing that government spending was indispensable to make up for the per
manent deficiencies of private capital.18
The third premise that moulded the economic thinking and policies of the
New Deal was the assumption, less consciously held than the other two, but
powerfully determinative nonetheless, that the United States was an econom
ically self-sufficient nation. That concept of economic isolationism had under
lain Roosevelt's frank declaration in his first inaugural address that "our
international trade relations ... are in point of time and necessity secondary
only to the establishment of a sound national economy." It had formed the
basis of his inflationary schemes of 1933 and 1934. It formed the filament on
which a series of New Deal measures, from crop-supports to minimum-wage
and price-fixing legislation, was strung. When Roosevelt spoke of "balance"

16 PPA, 1937 Vol., 476; see also Roosevelt's Annual Message to Congress of January 3, 1938, in
PPA, 1938 Vol., 3.
17 Harry Hopkins, Spending to Save (New York: W.W. Norton, 1936), 180-181.
18 Alvin H. Hansen, Full Employment or Stagnation? (New York: W.W. Norton, 1938). Witnessing
the economic impact of World War II, Hansen later revised his views on secular stagnation. "All of us
had our sights too low," he wrote in 1944. See Alvin H. Hansen, "Planning Full Employment," The
Nation, 21 October 1944, 492.

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264 | POLITICAL SCIENCE QUARTERLY

between American industry and agriculture, or when he posited the require

ment "that the income of our working population actually expands sufficiently
to create markets to absorb that increased production," he was clearly envi
sioning an America for which foreign markets, not to mention foreign com
petitors, did not exist.19

***

From those intellectual building blocks, composed of a t

conception of the nature of modern economies, and an
unique position in the world, the New Deal erected an ins
designed to provide unprecedented stability and predict
can economy. In time, that edifice would serve as the latt
post-war economy grew like kudzu, the "mile-a-minu
much of the South. The unparalleled economic vitality
cades owed to many factors, not least the gusher of defi
by World War II, as well as the long exemption from for
the results of the war conferred on the United States. B
financial reliability, modulated competition in commodi
communication, retail, and labor markets, well-order
management and labor, and government support of a
of aggregate demand?developments that owed much t
surely figure largely in any comprehensive explanation o
the American economy in the post-war quarter-century.
Yet economic growth as a later generation would know
of the New Deal's ambition, even after FDR's timid, atte
Keynesian deficits in 1938. Roosevelt remained reluct
1930s to engage in the scale of compensatory spendin
the economy to pre-Depression levels, let alone expand i
his attacks on business sufficiently to encourage capital t
of the stabilizing elements his own government was putti
he succeeded in building structures of stability while ma
the 1930s, so far as businessmen and investors were conc
of uncertainty. Capital can live with restrictions, but it i
rity. "Business is now hesitant about making long term p
New York Federal Reserve Board wrote to Marriner E
because it feels it does not know what the rules of the ga
That sentiment was widely shared in the business comm
much the regulations that the New Deal imposed that int
in the 1930s; it was the fear of what new and unknown p

l9PPA, 1933 Vol., 14, and 1937 Vol., 496.

20 Quoted in Richard Polenberg, "The Decline of the New Deal, 1937-1
et al, eds., The New Deal: The National Level (Columbus: The Ohio State U

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 WHAT THE NEW DEAL DID | 265

might yet unleash. When at last Roosevelt declared the New Deal's reform
phase at an end, and when the war compelled government spending on an
unexampled scale, capital was unshackled, and the economy energized, to a
degree that he and other New Dealers could scarcely have imagined in the
Depression decade. And ever after, Americans assumed that the federal gov
ernment had not merely a role, but a major responsibility, in ensuring the
health of the economy and the welfare of citizens. That simple but momentous
shift in perception was the newest thing in all the New Deal, and the most
consequential, too.
****

Humankind, of course, does not live by bread alone. Any

the New Deal did would be incomplete if it rested with
Deal economic policies and failed to acknowledge the r
social innovations nourished by Roosevelt's expansive tem
The world is not a finished place, the philosopher Willi
nor ever will be. Neither was the New Deal a finished th
years some scholars lamented its incompleteness, its alleg
and its supposedly premature demise.21 But what needs e
accounting, is not what the New Deal failed to do, but ho
much in the uniquely plastic moment of the mid-1930
years, it is now clear, constituted one of only a handful
ican history when substantial and lasting social chang
the country was, in measurable degree, remade. The Am
tem, after all, was purpose-built in the eighteenth centur
manipulation from the national capital, to bind gover
mischief, as Jefferson said, by the chains of the Constit
the notoriously constraining system of checks and balance
ing, therefore, that political stasis defines the "normal" A
Against that backdrop, what stands out about the New D
tions and its temerity, but the boldness of its vision and
of its ultimate achievement.
For all his alleged inscrutability, Franklin Roosevelt
clear enough. "We are going to make a country," he o
of Labor Frances Perkins, "in which no one is left out."2
sentence Roosevelt spoke volumes about the New Deal

21 Works that generally share a critical posture toward the New Deal incl
"The Conservative Achievements of Liberal Reform," in Bernstein, ed.
York: Pantheon, 1968); Howard Zinn, New Deal Thought (Indianapolis, I
pany, 1966); Paul Conkin, The New Deal (Arlington Heights, IL: Harlan Da
Alan Brinkley, The End of Reform (New York: Alfred A. Knopf, 1995), a
racy's Discontent (Cambridge, MA: The Belknap Press of Harvard Univer
22 Frances Perkins, The Roosevelt I Knew (New York: Viking, 1946), 11

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266 | POLITICAL SCIENCE QUARTERLY

meaning. Like his rambling, comfortable, and unpretentious old home on

the bluff above the Hudson River, Roosevelt's New Deal was a welcoming
mansion of many rooms, a place where millions of his fellow citizens could
find at last a measure of the security that the patrician Roosevelts enjoyed
as their birthright.
Perhaps the New Deal's greatest achievement was its accommodation of
the maturing immigrant communities that had milled uneasily on the margins
of American society for a generation and more before the 1930s. In bringing
them into the Democratic Party and closer to the mainstream of national life,
the New Deal, even without fully intending to do so, also made room for an
almost wholly new institution, the industrial union. To tens of millions of rural
Americans, the New Deal offered the modern comforts of electricity, schools,
and roads, as a well as unaccustomed financial stability. To the elderly and
the unemployed it extended the promise of income security, and the salvaged
dignity that went with it.
To black Americans the New Deal offered jobs with the CCC, WPA, and
PWA, and, perhaps as importantly, the compliment of respect from at least
some federal officials. The time had not come for direct federal action to chal
lenge Jim Crow and put right at last the crimes of slavery and segregation, but
more than a few New Dealers made clear where their sympathies lay, and
quietly prepared for a better future. Urged on by Eleanor Roosevelt, the Pres
ident brought African-Americans into the government in small but unprece
dented numbers. By the mid-1930s they gathered periodically as an informal
"black cabinet," guided often by the redoubtable Mary McLeod Bethune.
Roosevelt also appointed the first black federal judge, William Hastie. Several
New Deal Departments and agencies, including especially Ickes' Interior
Department and Aubrey Williams' National Youth Administration, placed
advisers for "Negro affairs" on their staffs.
In the yeasty atmosphere of Roosevelt's New Deal, scores of social experi
ments flourished. Not all of them were successful, not all of them destined to
last, but all shared the common purpose of building a country from whose
basic benefits and privileges no one was excluded. The Resettlement Admin
istration laid out model communities for displaced farmers and refugees from
the shattered industrial cities, though only a handful of those social experi
ments survived, and they soon lost their distinctive, Utopian character. The
Farm Security Administration maintained migrant labor camps that sheltered
thousands of families like John Steinbeck's Joads. The Tennessee Valley Au
thority brought electricity, and with it, industry, to the chronically depressed
Upper South. The Bonneville Power Authority made a start on doing the same
for the Columbia River Basin in the long-isolated Pacific Northwest. The New
Deal also extended the hand of recognition to Native Americans. The Indian
Reorganization Act of 1934?the so-called Indian New Deal?ended the half
century-old policy of forced assimilation and alienation of tribal lands. The
new law encouraged tribes to establish their own self-governing bodies and

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 WHAT THE NEW DEAL DID | 267

to preserve their ancestral traditions. Though some Indians denounced this

policy as a "back-to-the-blanket" measure that sought to make museum pieces
out of Native Americans, the Act accurately reflected the New Deal's consis
tently inclusionary ethos.
The New Deal also succored the indigent and patronized the arts. It built
roads and bridges and hospitals. It even sought a kind of security for the land
itself, adding some 12 millions acres of national parklands, including Olympic
National Park in Washington State, Isle Royal in Lake Superior, the Ever
glades in Florida, and King's Canyon in California. It planted trees and fought
erosion. It erected mammoth dams?Grand Coulee and Bonneville on
the Columbia, Shasta on the Sacramento, Fort Peck on the Missouri?that
were river-tamers and nature-busters, to be sure, but job-makers and region
builders, too.
Above all, the New Deal gave to countless Americans who had never
had much of it a sense of security, and with it a sense of having a stake in
their country. And it did it all without shredding the American Constitution
or sundering the American people. At a time when despair and alienation
were prostrating other peoples under the heel of dictatorship, that was no
small accomplishment.
The columnist Dorothy Thompson summed up Franklin Roosevelt's
achievements at the end of the Depression decade, in 1940:
We have behind us eight terrible years of a crisis we have shared with all coun
tries. Here we are, and our basic institutions are still intact, our people relatively
prosperous, and most important of all, our society relatively affectionate. No rift
has made an unbridgeable schism between us. The working classes are not clam
oring for [Communist Party boss] Mr. Browder and the industrialists are not
demanding a Man on Horseback. No country in the world is so well off.23

In the last analysis, Franklin Roosevelt faithfully discharged his duties, in

John Maynard Keynes's words of 1933, as "the trustee for those in every coun
try" who believed in social peace and in democracy. He did mend the evils of
the Depression by reasoned experiment within the framework of the existing
social system. He did prevent a naked confrontation between orthodoxy and
revolution. The priceless value of that achievement, surely as much as the
columns of ciphers that recorded national income and production, must be
reckoned in any final accounting of what the New Deal did.
The New Deal powerfully revitalized American life in the second half of
the twentieth century. It built a platform for sustained economic growth,
spread the benefits of prosperity widely, made more people more secure than
they had ever been, and helped set the stage for the civil rights movement that
brought at least a measure of long-delayed social justice for African-Americans.

23 New York Herald Tribune, 9 October 1940, reprinted in Arthur M. Schlesinger, Jr., The History
of American Presidential Elections (New York: McGraw Hill, 1971), Vol. IV, 2981-93.

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268 | POLITICAL SCIENCE QUARTERLY

Yet as the century waned and a new generation came to power, national
attitudes toward risk, security, and the role of government shifted consequen
tially. "Government is not the solution to our problem," Ronald Reagan de
clared. "Government is the problem." The policies that flowed from that
political theology did not fully dismantle the New Deal, but they badly compro
mised the capacity of government to adapt to the rapidly changing character of
the global post-industrial economy. As a new generation of political leaders peer
into the maw of another monstrous economic calamity, they would do well to
remember the enduring relevance of the New Deal: that government has not
only a right, but an obligation, to make a country in which no one is left out,
and in which all can live in safety and security.*

* This article is adapted and updated from David M. Kennedy, Freedom From Fear: The American
People in Depression and War, 1929-1945 (New York: Oxford University Press, 1999).

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