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The New Deal Faces 1940

ISSUE:  Summer 1939

Until now President Roosevelt’s second term has failed to produce the results which its friends felt they had a right to expect and which almost everyone, regardless of party or economic association, must have hoped for in the bright afterglow of the 1936 election. The New Deal is on the defensive and whether a progressive president can be nominated and elected in 1940 is an open question.

In an article entitled “Agenda for a Second Term,” published in the Winter 1937 issue of The Virginia Quarterly Review, I outlined what I felt realistic liberals or practical progressives could reasonably expect from President Roosevelt’s second administration. That article, I am now relieved to find, cautioned against expecting too much. It took note of several factors that would tend to weaken Mr. Roosevelt’s control of the loose coalition that elected him to office and suggested that he would have increasing difficulty in handling the conservative Democrats. It set forth the thesis that Mr. Roosevelt should not be expected to reach any precise goal at any particular time: that his most important task was to keep the way open for continual economic and social adjustments by democratic processes.

“In a large sense, the greatest accomplishment of Mr. Roosevelt’s first administration has been the demonstration of the capacity of our form of government to act with sufficient energy, imagination, and scope to overcome a grave crisis and begin reforms designed to prevent the recurrence of such a crisis,” I wrote. “The demonstration has been heartening, but both the hopes and the tangible benefits generated during the last four years could easily be dissipated during the next four. To prevent such a relapse and its possibly disastrous consequences there seem to me to be at least six things of a general character that Mr. Roosevelt must do.”

Those six objectives still seem to me to be essential. They are serviceable, at any rate, as measuring rods of Mr. Roosevelt’s achievements and failures since 1936.

“The first and most imperative of Mr. Roosevelt’s responsibilities is to prevent our attention and energies from being diverted to an excursion abroad.” We are not—not yet— engaged in a war abroad; it was too much to expect Mr. Roosevelt to “prevent” our attention from being diverted by the clouds of catastrophe gathering over Europe and the Orient. However, Mr. Roosevelt by word and action has encouraged this diversion. He has sought in every way to muster public support for a policy of intervention in Europe and Asia—intervention, it is true, by methods “short of war,” which nevertheless many of his warmest supporters, while crediting him with good intentions, fear will increase the probability of our involvement if a general war occurs.

Whether Mr. Roosevelt’s trans-Pacific and trans-Atlantic policies are sound or dangerous—whether they help to postpone, avert, or precipitate a general war, and whether, if the general war comes, they help to get us in or help to keep us out—they have helped to divert the energies of his Administration and the attention of the country away from problems at home. In this there may be certain political advantages to him and his Administration. His foreign policy has won the approval of many of the enemies of his domestic program while it has not yet cost him the support of those who like his domestic program. But it has blurred the focus of his Administration, and it has stimulated, instead of allaying, the emotions which impel us toward war.

Second in importance to preventing a foreign diversion I put Mr. Roosevelt’s “responsibility for trying to keep our domestic recovery on a sound basis.” At the end of 1936 this seemed to require, among other things, effective checks on speculation. Checks were applied by the Administration in the spring of 1937—altogether too vigorously, some people think in retrospect, although it is debatable whether they made the economic decline that began in the fall of 1937 any sharper than it otherwise would have been. My article contained no prophecy of that decline, but suggested that the measures so far taken to redistribute the flow of the national income were “wholly inadequate.”

“Pending a more equitable distribution of the direct claims on production,” I wrote, “it may be necessary for the Federal government to increase, rather than reduce, its expenditures. To keep the capitalist system moving it might have to take, let us say, eight or ten billion dollars annually from the top through taxation and push it in at the bottom. This could be done easily with a properly graduated tax system and may prove to be indispensable.”

It is in the performance of its economic responsibility that the second Roosevelt Administration has most conspicuously failed. Recovery was the over-all measurement of Mr. Roosevelt’s success from March 4, 1933, to the election of 1936. It produced the general satisfaction which overwhelmingly re-elected him. He was not only a President who had tried hard but one who had succeeded in lifting the country out of its severest depression.

The sharp recession of 1937-38 broke the spell. Its causes, however they are defined, were not all within the control of the Roosevelt Administration. Although some of the Administration economists began to issue quiet warnings as early as February and March, the Administration could be excused for not foreseeing the arrival and severity of the economic slide. But even after he saw what had happened, the President was still slow to react. For six months he did almost nothing, clinging to the pleasant hope that there would be an automatic upturn in the spring of 1938. Only when the last hope of a spring rise had vanished did he come forward with a spending program which turned an economic rout into a marked upward trend.

The practical politicians of both parties agree that when generous allowance has been made for all other factors, the Republican gains in November, 1938, were the result, chiefly, of the recession of 1937-38. Good times blanket criticism; bad times give it luxuriant growth. If there had not been a marked recovery between June and November, a complete overturn giving the Republicans a majority of the House of Representatives might well have occurred.

As this is being written we are again idling along, substantially above the pit of the 1937-38 recession, but below the 1936-37 peak, and not within striking distance of the height we must attain if we are to make full use of our economic resources. After more than nine years of depression and half-recovery we still have eleven million or more unemployed, and our farm problem seems to be not much nearer solution than it was in 1932. Unless the New Deal can show a better general economic result by the summer and fall of 1939 it cannot expect to nominate and elect a President.

Mr. Roosevelt’s third broad task was to “round out the reforms which he has begun and to consolidate and imbed them so that they will be relatively secure against conservative reaction.” This, I wrote in 1936, “was closely related to the second” objective, and the intimacy of the relationship is even clearer now than it was then.

During the 1938 campaign, many of the Republican candidates for the Senate and House were cautious and discriminating in their criticisms of the Roosevelt Administration. They praised its objectives before singling out for attack a few errors and shortcomings. But the New Deal losses at the polls emboldened the more reactionary elements in both parties to speak their minds freely again. The trend during the last few months has been toward a total attack, or at least toward the attack which begins by damning all before singling out for praise a few of Mr. Roosevelt’s aims and achievements. If the next administration rides into power on a reaction against the New Deal, it may vitiate reforms which now seem secure in popular approval.

Social insurance is here to stay, and the main demand from all sides is for expanding it. The New Deal at last has openly recognized and proposed to eliminate one of its worst fiscal features—the immense reserve fund for the old age insurance system.

To conservation — especially soil conservation — Mr. Roosevelt has given an impetus which should carry it forward indefinitely unless it is stopped in its tracks by a war demand for the maximum production of the soil-exhausting staple crops. At any rate, in forecasting the farm programs of the next few years you can use your own imagination, but remain confident that, whatever they are, they will contain a fat subsidy to agriculture.

The Securities and Exchange Commission appears to be generally accepted as a useful instrument of government, but its value depends on its administration. Like the Federal Trade Commission of the ‘twenties, it can be drained of all substance, leaving only a hollow shell.

The Civilian Conservation Corps, the National Youth Administration, the Farm Security Administration, rural electrification, the slum clearance program, and sundry other creations of the New Deal now seem to be well protected by popular approval—yet all of them could be uprooted overnight in the name of economy.

To collective bargaining lip homage is accorded by all, but it is not yet established as the American practice. To realize how precarious its position is you need only examine some of the destructive amendments to the National Labor Relations Act that are pending in Congress.

The Fair Labor Standards Act—the wage-and-hour law —went into effect last October with a minimum of excitement and open opposition. But the United States Chamber of Commerce has now demanded its outright repeal. The wage-and-hour law is one of the few New Deal reforms that have been added to the books during the second Roosevelt Administration, the other important ones being the Wagner Housing Act, the Reorganization Act, and the farm program statutes.

What the Administration has omitted to do, or delayed too long in doing, during the last two and one-half years, would fill several pages. One of its egregious errors was its failure to tighten up the W. P. A. and to cleanse it thoroughly of politics before the 1938 election—in spite of all the evidence that politics in the W. P. A. had hurt the Administration more than it had helped it in the 1936 election. It choked off one of the most promising ventures in its tardy and half-hearted housing program: the erection of suburban “greenbelt” communities begun by the late Resettlement Administration. It has let the railroad problem, which Mr. Roosevelt proposed to attack in 1933, drag along wearily. Finally, and most important, it has developed no coordinated program concerning monopolies, trade practices, and a host of related problems which run to the heart of our economic difficulties. In the same bracket must be placed the poor progress that has been made toward the more effective use of taxation to direct the flow of national income.

The fourth major task that confronted Mr. Roosevelt at the outset of his second administration was the breaking down of the judicial barrier to orderly progress by democratic means. That has been done, although at unnecessary political expense. In his fight against the Court, Mr. Roosevelt made many tactical errors. Chief of them, I think, was his failure to recognize, and proclaim, that he had won his battle when the Court recessed in 1937 after upholding the Washington minimum-wage law, the National Labor Relations Act, and the social-security legislation, and when, through the retirement of Associate Justice Van Devanter, he was given the opportunity to strengthen the liberal side of the highest bench. However, the Supreme Court has been liberalized, and the ease with which it has found sanction for what it previously forbade is conclusive proof that Mr. Roosevelt was right in believing that the constitutional troubles of his first administration were caused by the Court and not by the Constitution.

The fifth of Mr. Roosevelt’s main tasks was to improve his administrative organization and personnel. On this front he has made real progress, especially during the last six months. On the whole, his new appointments, from the cabinet down, have been of a high order. The Reorganization Act gave him only a quarter of the authority which the chief executive should have for the proper performance of his administrative duties, but he has made a good beginning on the regrouping of government agencies. He has expanded the area covered by the Civil Service, and a small start has been made on the development of a merit system which has a purpose more constructive than the provision of security for petty job-holders. The improvement of the machinery of justice, including the purification of the personnel of the appellate courts, is worth a special note.

Mr. Roosevelt’s sixth major duty was the preservation of eivil liberties. Here his record is beyond reproach. Through the National Labor Relations Board and by means of prosecutions by the Department of Justice, the Roosevelt Administration has exerted itself to protect certain of the civil liberties. It has proposed nothing that would impair them.

The balance sheet of Mr. Roosevelt’s second term is incomplete without the item of party management. Mr.

Roosevelt can be convicted of overconfidence in the aftermath of his 1936 victory and of vindictiveness when his will was frustrated, especially during the late stages of the fight over his Supreme Court bill. Several of his principal lieutenants made matters worse by their overbearing manner. The “purge” was miserably bungled by the amateur politicians in the White House circle; whether it should have been undertaken at all is a debatable question. But unquestionably the conservative Democrats did set out to check the President and his program and to recapture control of their party by 1940. Mr. Roosevelt had to fight, although unaccountably he sometimes chose to fight on weak issues or when he might have gained more by applying diplomacy.

When the debits and credits of Mr. Roosevelt’s second term, up to now, are listed, the glaring items on the debit side come under the heading of economics. Here is the deficiency which must be repaired if the election of 1940 is to be won by a progressive running on a progressive platform.


In an extremely confused political picture, one thing is clear. The Democratic party cannot divest itself of Franklin D. Roosevelt’s record in the campaign of 1940. His record is the party’s record in this decade. If a general European war breaks out, his foreign policy might become the dominant issue. But that also would be part of his record.

If the Democratic party should try to disown Mr. Roosevelt in 1940, it would alienate his loyal personal following. Millions of his supporters would, I believe, vote for a conservative Republican rather than for a conservative Democrat—if only to avenge his betrayal and theirs.

If Mr. Roosevelt and his record are liabilities in 1940, the Democratic party will lose anyway. If they are assets, they will be indispensable to the success of the Democratic ticket. The Democrats can lose with him but they cannot win without him.

Mr. Roosevelt has given repeated notice that he intends to make use of the political power which is indubitably his, by insisting on the nomination of a progressive Democrat. Unfortunately none of his New Deal lieutenants has been able to develop much political strength—not much, at least, among the party politicians who choose most of the delegates for the national convention.

At present Mr. Roosevelt seems to be faced with a choice of two alternatives. The first is to acquiesce in the nomination of a middle-of-the-road candidate from among those who have been personally loyal to him. The outstanding examples—those with the greatest political following—are James A. Farley and Cordell Hull. Both gave invaluable aid in bringing about Mr. Roosevelt’s first nomination to the presidency in 1932. Both have served faithfully and with capability in his cabinet. Mr. Hull is handicapped by his age and Mr. Farley by his religion. But if either of them become the choice of a majority of the convention, it is difficult to see how Mr. Roosevelt could raise any objection—or, in fact, fail to put on a display of enthusiasm. But neither Mr. Farley nor Mr. Hull is the kind of thoroughgoing progressive by whom Mr. Roosevelt wants to be succeeded.

There are other middle-of-the-road candidates whom Mr. Roosevelt might feel compelled to accept, but most of them are mediocre and at present have little or no political following. John N. Garner must be included, I believe, among the candidates to whom Mr. Roosevelt would flatly object.

Mr. Roosevelt’s alternative is to seek a third term. The pressure on him to run again has been increasing week by week. It has come not only from members of his own official family, but from progressive Democrats in many states who believe that, in spite of the “no third term” tradition, he is the strongest candidate they have. Mr. Roosevelt has not discouraged the third-term talk; his desire to conserve his political influence is sufficient explanation for his failure to do so. If a major European war breaks out and Mr. Roosevelt handles his foreign policy adroitly—or, for that matter, if he handles it badly and gets us into the war—the third-term movement will become stronger. But even in the absence of a war it cannot be struck from the list of serious possibilities. The greater the difficulty which Mr. Roosevelt finds in trying to nominate a successor of his own choice, the more attentively he can be expected to consider the argument that it is his duty to run again.

As there is a year to go, other possibilities cannot be precluded. A deadlocked convention might settle on a popular New Dealer such as Associate Justice William 0. Douglas, whose position on the Supreme Court prevents him from becoming an active candidate for the nomination. It is possible, too, that on further inspection, Mr. Roosevelt will decide that he can accept some Democratic Governor or ex-Governor, such as Lloyd Stark or Paid McNutt.


Unless the 1940 election is overshadowed by an acute war crisis, two conditions seem to me to be indispensable for a Democratic victory. The first of these is a marked economic upturn. The second is the formulation of a coordinated economic program for the ensuing four years. The first is the more important. If there is no upturn, bright promises concerning the future may be expected to fall on deaf ears. If there is a very substantial economic improvement before 1940, the prospectus for the next term can be sketchy.

An effective economic program cannot be built out of the prejudices or wishful thoughts of business men. It cannot be based on the flimsy hypothesis that if you repeal half the New Deal and try to balance the budget, business will generate its own recovery. Nor can it be based on the still flimsier notion that if taxes on corporations and large personal incomes are modified, we will experience an upward surge.

Certain slight revisions in the tax schedules probably would lend encouragement to risk-taking and so stimulate recovery. On the other hand, a reduction in taxes on small incomes would release more purchasing power and so stimulate recovery and, in consequence, risk-taking. Tax revision is important to a coordinated economic program, but it should be a thorough revision designed to eliminate national savings in excess of their need for new investment and to conserve the maximum of consumer buying power.

While encouragement must be given to individual risk-taking, it is safer and sounder, I believe, to start from the assumption that the active help of the government is needed to channel capital into many of the fields where it is most needed. This active help may be of various degrees. It may be no more than the creation, under government auspices, of an insurance fund to spread the risk. This is the device effectively applied by the Federal Housing Administration to channel private funds into mortgages on houses. A similar device has been worked out for stimulating loans up to ten years to small business men for plant improvement and expansion. Or the government aid may be in the form of a direct share in the risk, such as is taken by the Export-Import Bank in its partial underwriting of exports. It may be in the form of a guarantee, or in the form of a subsidy—such as is paid to our merchant marine and airlines. It may be a direct loan of government funds at low rates of interest. Or, finally, it may be a direct investment or expenditure by the government.

All these devices have been tested in one way or another by the Federal government, but they have not been developed to their maximum usefulness. Moreover, the distinctions between some of them have not been made clear to the public, especially as they affect the budget.

The books of the Treasury are kept on an income and outgo basis. In the outgo columns of the daily Treasury statements, current operating expenses of the government and outlays which are in fact investments in concrete additions to the national wealth are run together indiscriminately. You can ascertain the volume of secured loans held by the government and its direct investments in the securities of various government corporations. But you cannot ascertain, or even estimate without a great deal of work, how much of the daily outgo is in reality what a business man would regard as investment in plant improvement or expansion. The Treasury books should be put on a conservative business basis.

Housing, new railroad equipment, hospitals and health centers, power transmission lines, reforestation, and highways are among the fields in which the investment of great amounts of capital is obviously needed. There is probably a decade of prosperity in the rehousing of the nation.

On the side of spending, as distinct from investment, we need larger outlays for public health and medical care, more money for education, especially in the rural areas, more adequate pensions, not only for old people but for dependent children.

To the south of us lies a continent which is in its economic infancy and which, with the aid of judicious loans, we could help to develop.

From the studies of the Temporary National Economic Committee—the “monopoly” inquiry—is coming a wealth of data on the structure and practices of American finance and business, which may crystallize policies for making the business machine work more efficiently.

These are some of the materials for a coordinated economic program. Many of them are already being used by the Roosevelt Administration, but haphazardly and often in a muddy mixture of relief with public works. With help from a moderate economic pick-up or from a European war, the New Deal may be able to straggle through the 1940 election. But its position would be immensely stronger, I believe, if it could convince the country that it was clearer than it now is about its economic methods.


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