FDR Met Social Needs and Saved Profit System
To understand why President Franklin D. Roosevelt is among the 50 people who made the biggest difference for business in this century, consider only the state of the economy on his Inauguration Day, March 4, 1933.
Banks were closed in 36 of the 48 states, including New York and Illinois. Both the New York Stock Exchange and the grain pits at the Chicago Board of Trade ceased operation on March 4 out of fear and panic. The economy had ground to a halt.
That was when Roosevelt, then 51, began his inaugural address by declaring “my firm belief that the only thing we have to fear is fear itself.”
Roosevelt saved capitalism and the principles of privately owned business for the U.S. economy. So desperate was the country when he took office, that he could have done most anything if it promised to ease the suffering.
At least 25% of the work force was unemployed. In 1932, ocean liners carried tens of thousands of immigrant working people back to Europe.
The United States’ gross domestic product that had totaled $103 billion in 1929--roughly $1.2 trillion in today’s dollars--had fallen by 1933 to $55 billion, almost 50% less.
Even businesspeople favored granting Roosevelt dictatorial powers. Barron’s business newspaper editorialized: “Of course we all realize that dictatorships in peacetime are contrary to the spirit of American institutions and all that. And yet--well, a genial and lighthearted dictator might be a relief. . . . “
But Roosevelt did not think in dictatorial or even anti-business terms. Amid speculation that his administration would nationalize the banks, Roosevelt’s emergency banking bill extended government aid to help banks through the crisis.
The legislation stabilized the situation, depositors regained confidence and within a month, seven out of 10 banks were open across the country.
In the harrowing years of the 1930s, Roosevelt’s programs “rested on the assumption that a just society could be secured by imposing a welfare state on a capitalist foundation,” wrote historian William E. Leuchtenberg in his 1963 book, “Franklin D. Roosevelt and the New Deal.”
Roosevelt’s New Deal reforms didn’t challenge the system of private profit but sought to regulate and channel it. Thus the Securities and Exchange Commission was set up in 1934 to correct abuses of the financial markets and the National Labor Relations Board was created in 1935 to protect workers’ rights to organize unions.
The federal government, adopting new ideas for the time, spent to create jobs in programs with alphabet names, such as the NRA (National Recovery Administration), WPA (Works Progress Administration) and CCC (Civilian Conservation Corps). Federal efforts reclaimed farmland from swamp and transformed an entire section of the country through the Tennessee Valley Authority.
In the New Deal there was a tug of war between those who favored a centrally planned economy and those who believed that a reliance on small business and decentralized economic power would bring about recovery. The decentralizers prevailed.
This belief in decentralized and democratic economic power characterized the most important reform of the Roosevelt era: Social Security.
Social Security, by guaranteeing income to elderly retired Americans, established the proposition that the individual has social rights.
But Roosevelt, against the advice of economic planners who would have made it solely a relief program for the poor, insisted on adding responsibilities by funding Social Security through taxes deducted from every wage earner’s paycheck.
Roosevelt conceded that such payroll taxes did not make total economic sense. “But those taxes were never a problem of economics,” he told Labor Secretary Frances Perkins. “They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program,” Roosevelt said.
All of Roosevelt’s shrewdness and combativeness are reflected in those words.
The scion of wealthy families who had built fortunes from sugar trading in Colonial times and tea trading with China in the 19th century, Franklin Roosevelt was seen as a traitor to his class. Businesspeople, led by the DuPonts of Delaware, formed organizations to oppose him. At the posh Westchester Country Club outside New York City, Roosevelt’s picture became the target on a dartboard.
Yet he also had opponents on the left. The Communist “Daily Worker” in 1935 called his Social Security program “one of the biggest frauds ever perpetrated on the people of this country.”
Roosevelt made mistakes. Impatient with a Supreme Court that found some of his economic programs unconstitutional, Roosevelt tried to enlarge the court in 1937 so that he could “pack” it with his own appointees. He was roundly defeated in Congress and in public opinion.
Meanwhile, the economy’s annual output did not climb back to 1929’s level until 1941, when the industrial buildup for World War II had begun. But confidence in the system had returned many years before and the nation survived the Great Depression with its economic--and political--institutions strengthened.
Roosevelt led that achievement as he then led the nation through most of World War II before his death in April 1945.