Full Employment and “New Deal Liberalism”

The following is a guest post from Mike O’Connor (the fifth of a series–see the first post here, the second here, the third here, and the fourth here). Mike is one of the original USIH bloggers and a founder of the Society for U.S. Intellectual History. He is the author of A Commercial Republic: America’s Enduring Debate over Democratic Capitalism, which will be published in May by the University Press of Kansas. The book’s Facebook page can be found here, and information from the publisher is available here.

American politicians, particularly presidents, fear the electoral consequences of high unemployment. The jobless occupy a space of constant anxiety; if allowed to continue, this unease will grow to envelop their families and friends before spreading to other workers and, eventually, the public at large. The desire for relief can manifest itself in support for anyone who can promise a radical change in the country’s economic direction. From the voter’s perspective, however, this behavior rests on a rather peculiar premise: that securing employment for the largest possible number of citizens is a federal responsibility. Nothing in our Constitution tasks the government with this duty or gives to it adequate powers to take on such an obligation. Moreover, a job represents a private arrangement between an employer and an employee, and it is hardly obvious that ensuring one for all workers should be a federal concern. The government promotes many things that it presumes to be good—like, say, healthy eating habits—without making them the centerpiece of domestic policy. What is different about jobs?

Like so much about American political economy, the answer to this philosophical question is rooted in history rather than theory. Until the end of the nineteenth century, the idea of a government employment policy would have struck many in the United States as nonsensical. A sizeable majority of Americans lived in rural areas and worked in agriculture, and wage labor was not particularly common. But industrialism reshaped both the city and the farm, and before too long a young adult who had grown up in a rural area had little choice but to leave it behind.

The break with traditional patterns of life prompted the rise of Progressivism. Among the central tenets of this movement was the belief that old ideas were unlikely to address new conditions adequately. One of the most influential Progressive thinkers, Herbert Croly, embodied this principle when he criticized the laissez faire orthodoxy of the Gilded Age. In the new industrial age, he argued, government economic intervention was no longer possible to avoid. Certainly, when the state “interferes,” it restricts the free play of economic forces. But if it “remains impartial,” government is actively deciding to allow “natural selection” to determine economic results. In either case, Croly concluded, the state “authorizes discriminations” by pursuing policies “which in their effect violate the doctrine of ‘equal rights.’” If government cannot help but intervene in the economy, he concluded, then it might as well attempt to maximize those things of which it approves.

Progressivism provided the intellectual point of departure that paved the way for modern-day liberalism. But it was the Great Depression, rather than some philosophical insight, that activated the federal commitment to fighting unemployment. This new government charge represented less a theoretical development than a political necessity: the extreme rates of joblessness (peaking at 24% in 1933) presented a problem that simply had to be solved. It is, therefore, a difficult task to tease out the intellectual constructions that justified the assigning of responsibility for unemployment to the federal government. Franklin Roosevelt frequently used the language of the new liberalism in suggesting that the industrial economy called for a complete rethinking of traditional American political values, as when he stated as a candidate in 1932 that “equality of opportunity as we have known it no longer exists.” (Much later, the notions of “Freedom from Want” and the “Economic Bill of Rights” would suggest similar commitments.) But his call for “bold, persistent experimentation,” which more closely described his behavior as president, implicitly rejected any overarching theoretical commitment. Indeed, Richard Hofstadter went so far as to claim that when “the federal government [assumed] primary responsibility for the relief of the unemployed” during the New Deal, “nothing revolutionary was intended.” The new charge, he asserted, was “simply a matter of politics.”

More recent historians have backed away from this extreme characterization. Alan Brinkley’s End of Reform, for example, did not argue that the New Deal represented no philosophy at all. But Brinkley pointed out that the commonly used phrase New Deal liberalism presupposes a unity of outlook that did not exist. Those who served in the Roosevelt administration expressed competing views about the nature of the problems facing the country, the best solutions to them, and the appropriate long-term adjustments to the relationship between the federal government and the nation’s economy. When Americans today invoke the philosophy of the New Deal, they tend to have in mind the particular approach—Keynesianism—that emerged only after a long period of struggle. Moreover, this strategy itself represented a compromise of sorts, Brinkley argued, in that it allowed the “state [to] manage the economy without managing the institutions of the economy.”

Within the administration, the Keynesian perspective on unemployment was embodied most clearly by Henry Wallace. Called by Louis Hartz “the most articulate and reflective of the New Dealers,” Wallace served as secretary of agriculture under FDR before being elected vice president in 1940. Though Roosevelt dropped him from the ticket in 1944, Wallace remained a supporter of the president. His 1945 book Sixty Million Jobs, written after FDR’s death when Wallace was Truman’s secretary of commerce, represented one of the more rigorous attempts to articulate the premises and policies that expressed the New Deal commitment to full employment. “It is also,” declared the economist assessing the book in the liberal Saturday Review, a “passionate statement of a remarkable American’s basic political, social and personal philosophy.”

The specific policy approach touted by Sixty Million Jobs was anchored by what Wallace called a “national budget.” Under this scenario, the president would submit a fiscal estimate that expressed for the coming year not only the anticipated spending of the government, but also the economic conditions that would characterize the private sector. Upon comparing the two to ideal models and assessing the difference between the projection and the desired outcome, the president would propose additional taxes, programs or expenditures whose purposes would be to provide a job for all who wanted one. (One available option would always be direct government employment.) Such an approach, Wallace argued, would have represented an official commitment to what Americans had come to expect implicitly and informally. Noting a significant barrier to the plan, he expressed concern over the tendency of the electorate to blame the government during bad times but to refuse to allow it to regulate the economy when things are going well. In the wake of the worst economic catastrophe in our history, Wallace asked whether it can be “now conceded” that “the cost of salvage, of cleaning up the wreckage from boom and depression,” is “so great that government should be asked to prevent some of the destruction from ever occurring?” His argument for government economic intervention in the employment market concluded with the point that “the people of this country, speaking through their elected representatives in Congress, must write that responsibility into law.”

Wallace was active in pushing for such legislation, and his work with lawmakers led to the Employment Act of 1946. Congressional sausage-making stripped the measure of its most forceful provisions, however, and the resulting law was all but toothless. In 1978, a similar fate befell another full employment bill: the Humphrey-Hawkins Act. Thus it is that the philosophy animating government economic intervention today remains similar to what Wallace described in 1945: the electorate demands that the government address high unemployment while refusing to it the tools for meaningfully confronting the problem.