The Shape of US Populism
By
Henry C.K. Liu
Part I: Legacy
of Free Market Capitalism
Part II: Long-term
Effects of the Civil War
Part III: The
Progrssive Era
Part IV: A Panic-Stricken
Federal Reserve
Part V: The
Great Depression, the New Deal and the 2007 Credit Crisis
Part VI: The
Birth of the New Deal
This article appeared in AToL
on May 22, 2008
The New Deal was a continuation of the populist movement of the1890s
and the progressive movement of the 1900s, combining many aspects of
the political philosophy of Teddy Roosevelt and Woodrow Wilson. The
Populists from the Mid-Western farm belt in the late 1880s wanted
public funds to be spent in physical and social infrastructure, such as
transportation and education. They wanted to to
reduce transportation cost of farm produce by breaking the monopolies
of
the private railroad companies profiting from government subsidy.
Progressivism essentially
targeted two evils: political corruption in the form of special
privileges granted by government to organized wealth, and secondly to
stop the growth of monopolies with market regulations. Unlike
populists, progressives were
pragmatists detached from fixed ideological worldview that might have
seemed fanatical or irreconcilable. Progressivism extended populism
beyond the farm belt.
In the time of Jefferson and Hamilton, the young nation was primarily a
country of small farm owners, with an abundance of open land where
equality and democracy could best be promoted by restricting the power
of government to allow free play of individual initiative. The
establishment of a rich upper class, on the other hand, required
positive government intervention. Early liberals generally were
suspicious of big government and opposed the extension of its powers,
while the exponents of upper class leadership favored strong
centralized authority. As the national economy developed and
industrialized, these positions on governments shifted. With the growth
of big corporations that employed large number of wage-earning workers,
the declining wealth of farmers, common individuals began to find it
difficult to achieve economic independence and security by his own
means without government protection, while big business wanted free
markets to exploit its privileged positions gained from earlier
government assistance.
But in the 1930s, the Democratic Party was still dominated by Southern
conservatives and political machines of the Northern industrial cities,
both opposing a strong Federal government for separate reasons. Support
for Roosevelt
was strong among organized labor, small farmers and middle class
reformers and the idealistic intelligentsia. There
was constant conflict between the conservative and progressive wings
of the Democratic Party and some of the bitterest opponents of the New
Deal were conservative Democrats. Some of the strongest supporters were
liberal Republicans.
Roosevelt’s natural air of
confidence and optimism did much to reassure a dishearten nation. His
inauguration on March 4, 1933
occurred literally in the middle of a terrifying bank panic, a
challenging backdrop for his famous words: “The only thing we have to
fear is fear itself.” Such inspiring words were a exultant contrast
five decades later to Carter’s disconcerting “malaise” speech of
“crisis of the soul and confidence” to a restless nation facing rising
gasoline prices at $1.25 a gallon, with gold rising to $300 an ounce
but with the US enjoying a trade surplus with emerging China for
another 14 years. The US
now, with gas at $4 a gallon and gold over $1,000 and Trade deficit
with China
running to over $200 billion a year, would now thank God for the good
old days of 1979. Carter desperately imposed
wholesale resignation on his entire cabinet in 1979, the third year of
his first and only four-year term. In doing so, he deprived himself of
valuable support and assistance in dealing with the Iran
hostage crisis that cost him a second term.
Capitalism Was Saved in Eight Days
Roosevelt, on the very next
day of his inauguration, declared a national “bank holiday”, closing
all banks indefinitely until bankers and government could regain
control of the situation, to prevent further runs on banks. Congress
was completely compliant and gave the new President virtual dictatorial
power in a national emergency. The Emergency Banking Bill, which
strengthened, reorganized and reopened all still-solvent banks, was
passed overwhelmingly by Congress with little debate. On March 12, Roosevelt
announced that all sound banks would reopen. On March 13, deposits at
those banks exceeded withdrawals -- a tremendous relief to a worried
nation. “Capitalism was saved in eight days,” said Raymond Moley, a
founding member of the President’s Brain Trust. It was a counterpoint
to John Reed’s “Ten Days that Shook the World”, a chronicle of the
October Revolution.
Moley, a professor at Barnard
College
had recruited several Columbia
professors to form a “Brain Trust” to advise Roosevelt
during his 1932 presidential campaign. The group, derisively ridiculed
by a skeptical anti-intellectual press, subsequently went to Washington
to fill key posts successfully in Roosevelt’s
New Deal program. Yet Moley broke with Roosevelt
in mid-1933 to become a pro-Republican journalist and the most vocal
conservative critic of the New Deal. On April 22, 1970, Republican President Richard M.
Nixon awarded Moley the Presidential Medal of Freedom with the citation
that “his exceptional ability as a political analyst is matched by a
deep love of his country, and of the principles of democratic
government.”
The bank “holiday” demonstrated the need and effectiveness of
government intervention in an economic crisis. Hoover
had allowed two previous bank panics to run their natural courses,
which contributed to over 10,000 bank failures and $2 billion in lost
deposits. The bank holiday in 1933 secured Roosevelt’s
political reputation of decisive action, and convinced both Congress
and the public that the New Deal was the right road to follow.
Conservatives still consider government intervention as a corrupting
element in free markets that encourages rising moral hazard and that
government bailouts are the pain killers that will ultimately destroy
free market capitalism. Pain is not punishment; it is a necessary
warning against approaching danger. Without pain, free markets cannot
self-correct preemptively before it reaches total meltdown.
FDR’s Bank Holiday and The Bernanke Fed’s Bear
Stearns Bailout
Many present-day economists, including Stanley Fischer, the MIT-trained
International Monetary Fund chief economist who left in 2001 to join
Citibank as vice chairman and onto the Bank of Israel as governor in
2005, consider the Fed’s intervention in the 2007 credit crisis that
escalated into an unprecedented rescue of Bear Stearns, an investment
bank normally regulated by the SEC and not the Fed, as marking a
“turning point” in the latest financial market turmoil. Yet
the Fed’s Bear move could be seen as a continuing pattern of escalating
central bank market intervention rather than a turning point. Fischer
as first deputy managing director of the IMF played a central role in
the international monetary agency’s ineffective handling of the Asian
financial crisis in 1997 and Russian bond default in 1998 which had
added to, rather than moderating the severity of the damage.
“It is not over. There will be more occasions when we think that the
world is going to go to hell in a hand basket. But for the first time
since last summer it is clear that the authorities are beginning to
contain the financial sector crisis in the US,” Fischer told the
Financial Times recently. “My guess is that when the history of this
crisis is written, the Bear Stearns rescue will be seen as a turning
point. It was done very well and very decisively.” The statement sounds
very much like famous last words. More likely, history will record the
Bear Stearns move as the Fed pushing the panic button.
The Fed intervention was in fact done amid confusion. Information since
available on the details of the rescue suggests that the Fed failed to
notify Bear Stearns of it abrupt decision over the weekend to make
discount window borrowing accessible to investment banks. Had Bear
Stearns been armed with knowledge of the availability of that critical
option, it might have gone to the Fed discount window for funds rather
than to negotiate with JP Morgan which as a commercial bank had ready
access to the discount window. The Fed insistence on JP Morgan capping
the offer price of $2 per share to Bear Stearns was to bring home the
impression that the rescue was not a bail out of Bear Stearns, but a
move to prevent a market meltdown from counterparty effects from a Bear
Stearns default. But the deal neglected the fact that Bear shareholder
approval was necessary for the proposed transaction with JP Morgan and
that such approval was unlikely at an offered price below what Bear
shareholders could get in a bankruptcy filing. In the end, JP Morgan
had to offer a new price of $10 per share to acquire 40% of the voting
shares to ensure Bear shareholder approval, thus diluting the Fed
effort to avoid any appearance of bailing out Bear Stearns
shareholders. It was anything but a deal “done very well”.
Back in 1987, Greenspan and Corrigan of the NY Fed executed a cleaner
deal strong-arming all the major banks not to withhold payments for
fear of counterparty default because then the number of counterparties
was small and their identities were known, while in 2008, the number of
counterparties was huge and their identities obscured by complex
structured finance.
In 2008, Bernanke and Tim Geithner of the NY Fed executed a messy deal
of questionable need. The Fed as a lender of last resort is mandated to
support commercial banks and deposit-taking institutions that are
critical parts of the retail payment mechanism if failing to do so
threatens serious negative externalities in the entire market through
contagion effects, such as classic bank run by depositors, even then
only if the banks in question are otherwise solvent. Other institutions
are also deemed too important to fail because they play a key role in
the wholesale payments, clearing and settlement system and if their
failure would cause systemic consequences. Institutions are provided
with liquidity on non-market terms or bailouts by the Fed when they
face cashflow problem, but not insolvency, because their failure would
trigger a systemic chain-reaction of contagion effects on the entire
market.
Bear Stearns did not fall within these criteria. It was not a
deposit-taking institution. It played no role in the retail payment
mechanism and was of no significance to the proper functioning of the
wholesale payments, clearing and settlement system. There was no case
for Fed rescue for Bear Stearns except the risk of systemic contagion
effects, in which case the Fed should nationalized the investment bank
at zero price per share and prevent it from defaulting any counterparty
obligations. At most, the Fed can grant Bear Stearns shareholders the
right to post-receivership claims on surplus value after the Fed as
trustee has satisfied all Bear obligations.
Geithner told a U.S. Senate banking committee: “On
the evening of Thursday,
March 13, 2008, I took part in a conference call with
representatives from the Securities and Exchange Commission, the Board
of Governors of the Federal Reserve and the Treasury Department. On
that call, the SEC staff informed us that Bear Stearns’ funding
resources were inadequate to meet its obligations and that the firm had
concluded that it would have to file for bankruptcy protection the next
morning. Absent a forceful policy response, the consequences would be
lower incomes for working families, higher borrowing costs for housing,
education and the expenses of everyday life, lower value of retirement
savings and rising unemployment.”
Under questioning by Senator
Christopher J. Dodd, Democrat of Connecticut, the committee’s chairman,
both Fed Chairman Bernanke and Geithner said they played no role in
setting the price, which was one of the most controversial elements of
the deal.
In response to the same
question, Treasury Undersecretary Robert Steel said that Treasury
Secretary Paulson who could not attend the committee hearing due to a
scheduled visit to Beijing to attend Sino-US strategic dialogue, had
insisted during the negotiations that the price should be low because
the deal was being supported by a $30 billion taxpayer loan, to make
the broader point to the markets that the government did not want to
encourage risky behavior by other large institutions, a sentiment known
as “moral hazard.”
The failure to keep the intended
low purchase price turned even Senator John McCain, the Republican
candidate for the 2008 presidential election, critical of the terms of
the Bear Stearns deal. McCain said on television that he has “always
been committed to the principle that it's not the duty of government to
bail out and reward those who act irresponsibly, whether they're big
banks or small borrowers.” The Wall Street Journal reported that McCain
“displayed a strong populist streak over the housing crisis this
weekend, blasting what he called the ‘outrageous’ and ‘unconscionable’
compensation of Bear Stearns and Countrywide executives and their
‘co-conspirators.” McCain was quoted as saying: “I
think it’s outrageous that someone who is the head of Bear Stearns
cashes in millions and millions of dollars in stocks.” James Cayne,
chairman and former CEO of Bear Stearns Cos., recently sold the vast
majority of his stake in the company to JP Morgan at $10.84 a share,
generating $61 million. As one of the largest shareholders., Cayne also
lost a lot of money with the firm’s collapse. His stake was once valued
at about $1 billion when the stock was trading at $171.50 per share.
Jacob Frenkel, vice-chairman of AIG, the US
global insurance group, who preceded Fischer at IMF and the Bank of
Israel, said the Fed had shown it was prepared to broaden dramatically
its regulatory “clientele” to preserve the stability of the financial
system. “The expansion of its clientele and the expansion of the range
of assets have given a huge boost to the confidence of the market,” he
said. “I think that the last month has been a crossing of the Rubicon.”
Frenkel seems to be confusing moral hazard
with confidence. When Julius Caesar crossed the Rubicon, Rome’s
days as a republic were numbered.
Still, the Financial Times reported that Fischer also suggested that
central banks should do more to try to “prick asset bubbles” to prevent
such crises from recurring. “The monetary policy view that you should
not react to asset prices is wrong. Asset prices, including stock
prices, affect growth and inflation and it is fully consistent with the
monetary policy goals of providing price and financial stability to
take asset prices into account in setting asset prices.” This amounts
to a direct challenge to Greenspan’s mantra that it is not the central
bank’s role to “prick asset bubbles”, only to clean up after they
burst.
Closing rank with Greenspan, Frenkel said a policy to prick putative
bubbles would be difficult to implement. “There is no way the Fed or
any other monetary authority can prick all the bubbles that come its
way. And so the real choice is which system do you want: one in which
the Fed pricks three bubbles out of five or five out of three bubbles.
Because we know for sure that we will not be able to solve four out of
four.” This view echoes that of Allan Greenspan, the former Fed
chairman now frantically defending himself from being blamed by many
for following a policy that allowed serial bubbles to form. Still, most
traders would agree that scoring three out five or overshooting five
out of three is a preferable strategy than taking all incoming until
death.
Greenspan Continues to Deny Responsibility
Greenspan wrote early April in the Financial Times that he is “puzzled”
why so many commentators seek to explain the US
housing bubble in terms of Fed actions when many other economies with
different central banks and different monetary policies also saw rapid
house price gains. The answer is simple. The Fed is
the head of the global central bank snake with the fiat dollar as the
world’s key reserve currency. The Fed dominates monetary policies of
all other central banks which must be reactive either with compensatory
interest rate policy or currency revaluations. When the Fed eases,
global liquidity increases and asset prices rise everywhere. Other
central banks merely have options on which channel to react through;
they do not have the option of decoupling from Fed policy or the
dollar.
In early April, Greenspan wrote in defense of his policy: “We will
never have a perfect model of risk”, explaining that: “We will never be
able to anticipate all discontinuities in financial markets.
Discontinuities are, of necessity, a surprise. Anticipated events are
arbitraged away. But if, as I strongly suspect, periods of euphoria are
very difficult to suppress as they build, they will not collapse until
the speculative fever breaks on its own. Paradoxically, to the extent
risk management succeeds in identifying such episodes, it can prolong
and enlarge the period of euphoria. But risk management can never reach
perfection. It will eventually fail and a disturbing reality will be
laid bare, prompting an unexpected and sharp discontinuous response.”
Waiting for “speculative fever to break on its own?” Pediatricians
prescribe Motrin to break a child’s high fever because letting the
fever run its course can cause permanent brain damage.
Alice Rivlin, first Director of
the Congressional Budget Office from 1975 to1983, a persistent and
vociferous critic of Reaganonmics responded: "Greenspan is right, of course,
that we will never have a perfect model of risk in a complex economy.
But the culprit was not imperfect models. It was failure to ask common
sense questions:
Q: Will house prices keep going up forever?
A: Not likely.
Q: What will happen to the value of mortgage-backed securities when
housing prices stop rising or fall?
A: They will go down.
We didn’t need fancy models to answer questions like that. We just
needed to ask them."
Rivlin, a long-time defender of the economically helpless, stopped one
step too soon. The culprit was not merely the bankers who did not asked
these common sense questions. The bankers knew very well the common
sense answers; but they comforted themselves by also knowing that
securitization let someone else holding the bag of bad securities. The
problem was not imperfect risk models; it was faith in the myth of a
perfect hedge.
The factors behind the 2007 credit crisis were: 1) under-pricing of
risk during years of debt bubble; 2) excessive leverage by market
participants to magnify profit on the way up which inevitably magnifies
loss on the way down; 3) conventional bank capital reserve requirements
inadequate for overleveraged exposures; 4) defective risk management
models; 5) inoperative credit ratings; 6) unidentified and dispersed
counterparties and 7) circular hedges. The sudden
re-pricing of risk and de-leveraging caused market failures.
Top Economists Lost Personal Fortunes in 1929
A few days before the 1929 crash, the celebrated Irving Fisher, highly
respected economist at prestigious Yale
University
who had worked out the widely accepted equation of exchange between
money and price levels, famously predicted that: “Stock prices
have reached what looks like a permanently high plateau.” Fisher
stated on the day after the crash that the market was “only shaking out
of the lunatic fringe” and went on to explain why he felt prices still
had not caught up with their real value and should go much higher. Two
days later, he announced in a banker’s meeting that “security values in
most instances were not inflated.” For months after the crash, he
continued to assure investors that a recovery was just around the
corner.
Both Fischer and Keynes were
personally fully invested in 1929. They not only failed to anticipate
the crash but continued to deny it after the market imploded, suffering
significant loss of personal fortune, leading Keynes to remark:
“Markets can stay irrational longer than participants can stay liquid.”
While Keynes, the shrewd speculator, fell short
on the ability to get out of the market near the top, he did have the
unique ability to buy near the bottom. In 1932 he started buying stocks
and bonds yielding 15%, and gold stocks, even though he did not
consider gold a rational investment. But Keynes was practical
enough to adopt a trading pattern independent of his insights on
economic theory. Having lost all personal wealth, Keynes turned to
manage money for insurance companies and became spectacularly rich as a
result, being worth over 600,000 pounds sterling at the time of his
death in 1946, even though he had been completely wiped out in 1929 and
then again in 1937 when he lost three-quarters of his net worth.
Populist and Socialist
Impacts from Europe
Reaction to the appalling social effects of the Industrial Revolution
led to the “Socialist Calculation” debate in Europe
at the end of the 19th Century. With crushing poverty in fast growing
cities from the socioeconomic effects of the industrial revolution and
decaying rural areas from the collapse of agricultural feudalism,
critics of laissez-faire market capitalism argued that free
markets are prone to failure because it drives investment towards what
is most profitable rather than what society most needs, and that the
market mechanism generally fails also to distribute the created wealth
equitably, thus creating a structural supply/demand imbalance. They
asserted that a responsive government controlled by the people rather
than by capitalist special interests, with progressive regulation over
the means of production and patterns of distribution, could allocate
resources, goods and gains in a more efficient and equitable manner for
the good of all.
The debate was between socialists, Marxists and other populist
reformers on one side and proponents of laissez-faire market
capitalism on the other who argued that markets could allocate
resources and rewards more efficiently than even an infinitely wise
government could. Even granting that claim, markets by definition do
not act to produce populist goals because of uneven market power among
market participants. Free markets are threatened by unequal market
power. Disparity in political power leads to dictatorship which is more
efficient than democracy. Disparity in market power leads to monopoly
which is also more efficient than free markets. Yet efficiency is not
an argument for injustice.
In the second volume of Capital, Karl Marx observes that
because the number of interlinked market conditions required for
steady-state growth is too large, too complex and too contradictory,
capitalism cannot avoid structural breakdowns. Soon after Marx’s death
in 1883, as Marxist parties grew in number and as Western European
states adopted democratic politics, many Marxists began to accept the
possibility of the national state responsive to popular will as a
progressive agent of change. This populist trend was part of the
movement of revisionism, sometimes attacked by orthodox Marxists as
opportunism. This revisionist period in European socialism coincided
with the populist era in the US
although there is no evidence that the two movements had any direct
connection, except a parallel populist reaction to industrialization
through capitalism.
The First World War brought about irreversible socioeconomic changes in
Europe that continued after
the war itself and even outlasted its geopolitical consequences. After
Marx’s death in 1883, orthodox Marxism was represented by Friedrich
Engels, and after Engel’s death in 1995, by Prague-born Viennese Karl
Kautsky. A post-Marx revisionist challenge to orthodox Marxism came
from Eduard Bernstein who argued that socialism can only replace
capitalism as a conscious choice of the people channeled through
political education, rather than merely preparing for inevitable
revolution from structural contradictions. A similar populist position
was taken by Sidney and Beatrice Potter Webb and the Fabian Socialists
in Britain
and Jean Jaurès in France
who was assassinated for opposing the war three days before its
outbreak by an ultra-nationalist.
As centrist leader of the German Social Democrats, Kautsky was
denounced by Lenin as an ideological renegade. Kautsky in turn accused
Bolshevism as a conspiracy movement that initiated revolutionary
changes for which there were no economic presumptions in Russia.
Bernstein’s opportunist trend in international Social Democracy began
at the end of the nineteenth century in Germany.
Bernstein believed that a socialist infrastructure within capitalism
would evolve from workers rights struggles and worker pension funds as
a powerful source of capital. This belief seems to
have been validated by developments in advanced economies towards the
latter part of the 20th century. Today, global capital
markets are dominated by pension funds from both advanced and emerging
economies. Whether socialist goals can be achieved through capitalistic
markets remains an unresolved question that still awaits further field
data. At this juncture, it appears that economic populism has become an
unintended byproduct of free market capitalism.
Rise of National Socialism in Germany
In Germany,
the rise of the National Socialists was enhanced by their ability to
cut across class lines to reach a mass constituency and to transform
them into the first real Volkspartei in German history.
The electoral successes of the Nazi movement
did not simply reflect national resentment against the harsh terms of
the Versailles Treaty or the hardships of the Depression. Germany,
when presented the completed document without the benefit of a hearing,
refused to sign the Versailles Treaty. No self-respect political figure
would lend his name to such a shameful document. Two unknown
representatives from a coalition of Social Democrats and Catholic
parties finally consented to bear the burden of historic shame.
The Nazi rise to power was the result of a general populist awakening.
World War I was the defining event in populist activism to various
degrees around the world and definitively in Germany.
Total war had spawned an unprecedented level of both voluntary and
involuntary comradeship among the German people and an outpouring of
populist self-expression had articulated the common experience of
struggle and defeat.
The outbreak of World War I in 1914 unified the historical political
divisions in German society. Catholics, Lutherans, Jews, conservatives,
liberals, socialists, and particularly the middle class, were all
filled with a new sense of nationalism. As the war dragged on, old
divisions resurfaced. Subsequently, suspicion of Roman Catholics,
Social Democrats and Jews grew. In 1916, the German High Command
conducted a Judenzählung (Jewsih Census) that disproved
allegations of lack of patriotism among German Jews, but the survey was
not made public, despite the fact that most German Jews viewed the war
as an opportunity to prove their commitment to the fatherland.
On the other hand, big business capitalists such as Krupp, the steel
making giant, were found to be manufacturing and selling arms for both
warring sides for profit. Companies skirted wartime price control by
switching to uncontrolled goods, which created shortages that led to
tensions between the more resourceful cities and the countryside and,
more importantly, exacerbated hardships and bred social discord. By
1917, there were over 500 labor strikes across Germany
resulting in over 2,000,000 total man-days of work lost. Striking
workers were looked upon as unpatriotic by management while big
business traded with the enemy all through the war. The German psyche
was fixated on the “stab-in-the-back” myth (Dolchstoßlegende)
to attribute Germany’s
defeat in war to internal political conspiracy rather than military
shortcomings.
The end of imperial Hohenzollern rule opened a valve for
democratization to circles well beyond the constituencies of the left.
Petit bourgeois and peasant populism championed the Volksgemeinschaft,
the people’s community that rejected the egocentric claims of special
interests, the multinational outlook of the imperial sovereign, the
internationalist network of the aristocracy, the proletarian centricity
of Marxism and the profit-driven big-business capitalism, while
insisting on localization of politics to respond to the needs of the
common man and on structural socio-political reform toward a
people’s state. In the people’s community, class struggle is condemned
and private property is tolerated only as long as it benefits the whole
community.
Following Kaiser Wilhelm’s abdication, the self-indulgent Weimar
Republic
witnessed the proliferation of petit-bourgeois organizations in
sufficient scale to contain the radical left. Denying the validity of
class struggle, though still divided along the occupational lines, the
new populism anticipated a “national socialist” consensus, the
political realization of which proved beyond the ability of Weimar
bourgeois parties to achieve. The militant Freikorps were too
nihilistic to construct an effective political strategy. Instead, the
National Socialists became the first party to actualize the populist
consensus percolating below the surface since 1914. To the electorate,
the Nazis stood for social inclusiveness, economic productivity, and a
racially-infused ethnic nationalism that championed the resurgence of
Germanic destiny.
Field Marshal Paul von Hindenburg, victor of the Battle of Tennenberg
in 1914 against two powerful but ill-led Czarist Russian armies,
defeated a rising Hitler in a runoff presidential election in 1932 but
was obliged by popular demand to appoint Hitler chancellor in January
1933. Hindenburg at first regarded the Nazi Party
as a convenient tool that could be manipulated to undermine the harsh
terms of the Versailles Treaty and to act as an ideological antidote
against the Marxist left, and to provide an effective way out of the
Depression. The Enabling
Act (Ermächtigungsgesetz: Gesetz zur Behebung der Not
von Volk und Reich (Law to Remedy the Distress of the People and
the Nation), was passed by the Reichstag on March 23 and signed by
President von Hindenburg the same day, in reaction to the Reichstage
fire, granting the Chancellor the authority to enact laws without the
participation of the Reichstag for four years. After
Hindenburg’s death in 1934, Hitler declared the office of President
vacant and made himself “Fuhrer”, combining of the office of president
and chancellor.
Marx on Capitalistic Free Trade; Lenin on
Imperialism
Marx argued that free trade would accelerate the structural
contradiction within capitalism and bring about its evolution towards
socialism. Lenin observed that imperialism as the highest stage of
capitalism would delay perpetually its evolution towards socialism and
such delay could only be overcome by political revolution. When the end
of WWII, the war to save democracy, failed to bring about the end of
Western imperialism around the world, national liberation struggles
against residual imperialism broke out like forest fires. But the Cold
War split the national liberation struggles between capitalist and
socialist paths, diluting its strength and delaying its final victory
for another half century. After the Cold War, economic globalization
promoted by the sole remaining superpower became the dominant trend.
Opponents of globalization see it as having taken the path of
neo-imperialism.
Almost two decades after the Cold War ended in 1991, signs that
globalized free trade are facing structural collapse are clearly
visible and populist resistance to free trade has become increasingly
vocal even in the advanced economies that benefit most from it.
Bernstein viewed protectionism in early 20th
century Germany
as helping only the financial elite to protect domestic industry from
foreign competition at the expense of the laboring masses, as
cross-border movement of capital was restricted by all governments.
Today, with globalization of deregulated financial markets and
unrestricted cross-border movement of capital and funds, voices
advocating protectionism tend to come from the laboring masses in the
advanced economies whose members are seeing their jobs shipped overseas
by transnational corporations controlled by global capital and their
wages pushed down by cross-border wage arbitrage.
Russian Populism
Ukranian economist Michal
Tugan-Baranovsky (1865-1919) whose 1894 book provided one of the first
coherent and thorough economic theories of business cycles, suggested
that capitalism, despite in many contradictions, could achieve
steady-state growth, so the breakdown of capitalism was not inevitable,
as practical experience up to his time had shown. If anything,
capitalism was entering an ameliorative phase in the early 1900s
through humanist reform by incorporating many of aspects of socialism.
Tugan-Baranovsky argued that cycles are driven by an independent
investment function and that, ultimately, overinvestment becomes the
cause of recessions and that there is not necessarily a secular
movement towards “destruction” but rather only wave-like patterns boom
and bust in capitalist economies. In another 1905 work,
Tugan-Baranovsky extended this observation to argue that there are
conditions whereby capitalist economies can arrive at a “stationary
state” and thus arrest their move towards terminal crisis.
Tugan-Baranovsky eventually adopted the views of his previous
opponents, the Russian Populists (Narodism) on co-operative economies.
The Russian political intelligentsia was “fired with a vast and general
zeal for struggle” against Narodism, which Lenin described as “the
ideology of Russia’s
peasant democrats.” (On Narodism, Lenin Collected Works,
Progress Publishers, 1975 Moscow, Volumn 18, pages 524-528.) Lenin wrote: “The theory of Narodism is
the theory of the bourgeois white-washing of capitalism with the aid of
catchwords like ‘labor economy’; it is a theory which plays down,
obscures and hinders the class struggle by means of these very same
catchwords, by advocating restriction of the mobilization of the land,
and so forth. … Narodism stands for bourgeois democracy in Russia.”
(The Bourgeois Intelligentsia’s Methods of Struggle against the
Workers, V. I. Lenin, Collected Works, 4th English
Edition, Progress Publishers, Moscow, 1964 Vol. 20, pp. 455-86.)
Narodism arose in Russia
after the emancipation of the serfs in 1861 under Tsar Alexander II,
which signaled the coming end of the feudal age in Russia.
This coincided with the US Civil War which began in 1861. Noticing that
freed serfs were being sold into wage slavery in which the bourgeoisie
had replaced landlords, Narodism aimed to become the political force of
populism to counter regressive developments in Russia.
Narodniks rallied in response to the growing conflicts between the
peasantry and the prosperous kulaks (rich large farm owners)
who hired peasant labor to work their large farms. Narodniks generally
aimed nostalgically to reverse modern agricultural capitalism back to
primitive agricultural socialism by opposing industrialization. By
rejecting industrial socialism as a goal, they rejected industrial
capitalism as its prerequisite. Russian Norodism had common threads
with US
populist communal agrarianism. Both resisted industrialization due to
its socioeconomic consequences.
Narodniks viewed the peasantry as the revolutionary class that would
overthrow feudal monarchism and identified the village commune as the
embryo of agricultural socialism. However, they believed that the
peasantry would not achieve revolution on their own, but instead that
history could only be made by heroic leaders. Narodnik writers, such as
Vasilij Voroncov, called for the Russian intelligentsia to “bestir
itself from the mental lethargy into which, in contrast to the
sensitive and lively years of the 1870’s it had fallen; and to
formulate a scientific theory of Russian economic development.” The
upper-class Narodnik intelligentsia needed to provide a concrete system
of economic ideals and goals that would uphold the paramount importance
of the village commune. These writers called for immediate movement
towards revolutionary action that went beyond philosophical and
political discussion.
In the conclusion of What Is To Be Done? - written between
the end of 1901 and early 1902, Lenin divided the history of Russian
Social Democracy into three periods. The first period spanned a decade
from 1884 to 1894, a period of embryonic development of the theory and
program of Social Democracy in the absence of a working class movement.
This period coincided with the period of populism in the US.
The second period embraced four years, from 1894 to 1898, during which
Social Democracy appeared as a social movement from an upsurge of the
masses to become a political party. The third period was “a period of
disunity, dissolution, and vacillation, and the voice of Russian Social
Democracy began to break, to strike a false note.” This period
coincides with the period of cooptation of populism into the two-party
system in US politics.
Lenin wrote that “it was only the leaders who wandered about separately
and drew back; the Social Democracy movement itself continued to grow,
and it advanced with enormous strides. The proletarian struggle spread
to new strata of the workers and extended to the whole of Russia,
at the same time indirectly stimulating the revival of the democratic
spirit among the students and among other sections of the population.
The political consciousness of the leaders, however, capitulated before
the breadth and power of the spontaneous upsurge; among the Social
Democrats, another type had become dominant – the type of
functionaries, trained almost exclusively on ‘legal Marxist’
literature, which proved to be all the more inadequate the more the
spontaneity of the masses demanded political consciousness on the part
of the leaders. The leaders not only lagged behind in regard to theory
(“freedom of criticism”) and practice (“primitiveness”), but they
sought to justify their backwardness by all manner of high-flown
arguments. Social Democracy was degraded to the level of trade-unionism
by the Brentano adherents in legal literature, and by the tail-enders
in illegal literature.”
Lujo Brentano (1844-1931), the German bourgeois economist, the author
of a variety of bourgeois distortion of Marxism known as Brentanoism,
advocated “social peace” in capitalist society, the possibility of
overcoming the social contradictions of capitalism without resorting to
class struggle, maintaining that the solution of the working-class
problem lay in the organization of reformist trade unions and the
introduction of pro-labor legislation and that the interests of workers
and capitalists could be reconciled.
A theory analogous to that of Brentanoism was propounded in Russia
by the chief representative of “legal Marxism”, P. B. Struve, in
an attempt to use Marxism in the interests of the bourgeoisie. Lenin
pointed out that “Struveism” takes “from Marxism all that is acceptable
to the liberal bourgeoisie and rejects its living soul, its
revolutionary nature. Struve ascribed to capitalism aims which were
foreign to it, namely the fullest satisfaction of man’s needs; he
invited people to learn from capitalism, and openly advocated
Malthusian ideas.” According to Lenin, Struve was the “great master of
renegacy, who, darting with opportunism, with ‘criticism of Marx’,
ended in the ranks of counter-revolutionary bourgeois
national-liberalism”.
Lenin observed that the “Credo program” had been put in
operationwhen the “primitive methods” of the
Social Democrats caused a revival of revolutionary non-Social
Democratic tendencies. Proponents of Economism,
or opportunism, grouped around the “program Credo”, written in 1899 by
Y. D. Kuskova. Economism was an opportunist trend in
Russian Social Democracy at the turn of the 20th century, a
Russian variety of international opportunism. It limited the tasks of
the working class movement to the economic struggle for higher wages,
better working conditions, etc., asserting that the political struggle
was the affair of the liberal bourgeoisie. They denied the leading role
of the party of the working class, considering that it should merely
observe the spontaneous development of the movement and record events.
According to Lenin, deferring to the “spontaneity” of the working-class
movement, Economism belittled the importance of revolutionary
theory and class-consciousness, and claimed that socialist ideology
could develop from the spontaneous working-class movement. Adherents of
Economism denied the necessity for bringing
socialist consciousness into the working-class movement from without,
by the Marxist party, and thus, they actually cleared the way for
bourgeois ideology. They championed the existing scattered, isolated
study circles with their parochial amateurish approach, encouraged
disunity in the Social Democratic ranks, and opposed the creation of a
centralized working class party. Economism threatened to turn
the working class away from the path of class, revolutionary struggle,
and to convert it into a political appendage of the bourgeoisie. Thus
Bernstein’s famous opportunist statement: “The movement is everything,
the final aim is nothing." The Credo of 1899 advocated that workers
should confine themselves to the economic struggle, leaving the
political struggle to the liberals.
Lenin concluded that scientific socialism ceased to be an integral
revolutionary theory and became a hodgepodge “freely” diluted with the
content of every new German textbook that appeared; the slogan “class
struggle” did not impel to broader and more energetic activity but
served as a balm, since “the economic struggle is inseparably linked
with the political struggle”; the idea is formed of a party did not
serve as a call for the creation of a militant organization of
revolutionaries, but was used to justify some sort of “revolutionary
bureaucracy” and infantile playing at “democratic”. Thus Lenin
proclaimed: “we may meet the question, ‘What is to be done?’ with the
brief reply: Put an End to the Third Period [of Social Democracy in Russia].”
Bernstein and the revisionists were opposed by all prominent figures of
the orthodox Marxism: Kautsky, Rosa Luxemburg, Georgy Plekhanov
and others. But the orthodox response was not uniform and
itself was transformed in the ensuing debate. Kautsky first
replied that there was no theory of breakdown in Marx’s work on
capitalism, and in 1902, he acknowledged there was a theory of “chronic
depression”, not a big-bang breakdown, but rather one that stressed the
increasing severity of recurrent crises.
In 1913 Rosa Luxemburg argued that it was not obvious what Marxist
“surplus-accumulation” was supposed to achieve, particularly if would
come a point when there would be nobody to buy more goods produced by
expanded production and thus realize further surplus. In her
critique of the Marxist worldview, Luxemburg argued that crisis is only
inevitable in a closed system, but that in an open system (i.e. a
system with exogenous consumption), the crises can be averted by
obtaining new buyers in non-capitalist pre-industrial countries.
Imperialism, she argued, was the competition of capitalist
nations for precisely these consumers. Beginning in the 1990s,
globalization of trade and finance provided market capitalism with an
expanded open system. Two decade later, the open system is showing
signs of reaching its limits to once again become a closed system.
Crisis then again becomes inevitable.
Modern-Day German Populism
German president Horst
Köhler, former director of the International Monetary Fund (IMF)
taking on a populist tone, expressed in a Stern magazine interview
published on May 15, 2008 the
contempt among German politicians towards bankers as a result of the
current credit crisis. He likened bankers to “alchemists”, accusing
them of “massive destruction of assets” and described global financial
markets as “a monster” that urgently needed reining in.
Public opinion polls in Germany have shown the public as increasingly viewing big
business as unwilling to share its profits with the general population,
resulting in rising prices and stagnant wages. Such public opinion has
emboldened trade unions in their quest for record wage settlements this
year. This has led to an escalation in industrial action, and persuaded
many politicians, including members of the government, to back higher
pay claims.
Lenin, Bukharin, Luxemburg
Churchill, Bush and the Revisionist Debate
Both Lenin in 1916 and Nikolai
Bukharin in 1917 disagreed with Luxemburg’s theory and provided their
own view of imperialism. Imperialism, they argued, is the outcome
of capitalist competition for profit derived from rents, not
necessarily the outcome of crisis avoidance, even though that might be
the result. They regarded the First World War precisely as a
“hot” version of competitive capitalism.
Today, the second Bush administration’s neo-conservative
“transformational” foreign policy to “enlarge” capitalistic democracy
in the world as a strategy to prevent war is based on an questionable
assumption that democratic nation states do not wage war on each other,
a myth created by Winston Churchill to masked the two World Wars, both
conflicts caused by a challenge on the British Empire by a rising
Germany, as a moral struggle between the Democracies and Fascist
states. German expansionism did not begin with the Nazis. It was a key
cause of World War I. Churchill was merely waving the democracy flag to
induce an ideological US to side with Britain
against a rising Germany
again in WWII. There was no democracy in the non-white colonies of the British
Empire.
Bukharin, editor of Pravda, was regarded as the foremost theoretician
of the Russian Bolshevism in its early years and a promoter of the
“sociological” approach to Marxist theory championed by
Austro-Marxists. Yet his 1917 book contained an attack on the Austro-Marxist
School.
Bukharin as leader of the left opposed Russia’s
withdrawal from the war but later sided with Lenin. His 1918 piece on
imperialism was written soon after Lenin’s 1916 pamphet: Imperialism,
the Highest Stage of Capitalism. In 1920 Bukharin wrote “The
ABC of Communism”. He was the main promoter of the New Economic Plan
(NEP) in the USSR,
which emphasized small-scale peasant farming and the use of market
incentives in a socialist context. After Lenin's death in 1924,
Bukharin became a full member of the Politburo, and the president of
the Third Communist International (Comintern) in 1926.
Despite his internationalist tendencies, Bukharin elaborated on the
thesis of “Socialism in one country” put forth by Stalin in 1924, which
argued that socialism, the transitional stage from capitalism to
communism, could be developed in a single country, even one as
underdeveloped as Russia. This new theory stated that revolution needs
no longer be encouraged in the capitalist countries, since Russia
could and should achieve socialism alone. The thesis became the central
theme of Stalinism. The Cold War was as much a conflict of superpower
expansion as a struggle to contain communist expansion. Bukharin was
purged for his opposition to collectivization by Stalinists in the
trials of 1938 and subsequently executed.
The revisionist debate energized a group of Viennese lawyers and
scholars known as the Austro-Marxists, including Max Adler, Otto Bauer,
Rudolf Hilferding and Karl Renner. Renner focused
on the problem of nationality and the sociology of law. His 1904
text remains the classic Marxian work on the role of law in
society. During World War I, Renner broke with the left wing of
the Austrian Social Democrats represented by Bauer, and attempted a
re-orientation of Marxian thought to account for the rise of
white-collar workers and the growth of the State. Renner was the
first Chancellor of the Austrian
Republic
in 1918 and President of Austria
in 1945.
After the failure of the German Revolution of 1918 which led to the end
of the imperial system and the establishment of a republic,
revolutionary goals inspired by socialist ideas failed. While
all socialist were republicans, not all republicans were socialists. In
January 1919, the leadership of the Social Democratic
Party of Germany (Sozialdemokratische Partei Deutschlands
— SPD), Germany’s oldest political party founded by
August Bebel and Wilhelm Liebknecht, whose Gotha Program was criticized
by Marx in his Critique of the Gotha Program, resisted
socialist policies. Fearing an all-out civil war,
the SPD leadership, in line with other middle-class parties, rejected
complete stripping the old imperial elites of their power. Instead they
sought reconciliation with them under a new democratic framework. In
this endeavor they sought alliance with the army and allowed the Freikorps
(nationalist militias) to suppress the “Spartakist” uprising
by force. Rosa Luxemburg and Karl Liebknecht, leaders of the
Spartakist, were captured in Berlin
on January 15, 1919
by the Freikorps Garde-Kavallerie-Schützendivision, tortured and
shot. The German socialist revolution formally
came to an end with the adoption of the new Weimar Constitution
on 11 August
1919.
While revisionists opted to justify their new-found position and to
alleviate the fears of the middle classes, by embracing the revisionist
idea of socialism being a "conscious choice" of the proletariat, not an
inevitable outcome. The great exceptions were Henryk
Grossman (1929) who argued that capitalism simply has to collapse
because it is trapped into a declining rate of surplus value; and Otto
Bauer (1936), critic of Kautsky’s agrarian policy, contributor to an
understanding of the connection between nationalism and class conflict.
Bauer was the leader of the left wing of the Austrian Social
Democratic Party. Bauer served in the early government of
1918-19. These theorists set forth a new, formalized “breakdown of
capitalism” theory arising from under consumption. Michal Kalecki’s
theory of distribution cycles were developed largely in response to the
Marxian debate on “under consumption” crises.
The Austrian
School
The Austrian School
of economics emerged around Carl Menger, a pioneer of the Marginal
Revolution in 1871 at the University
of Vienna. Ludwig von
Mises and Friedrich von Hayek were later adherents. Joseph Schumpeter,
an early member, later turned towards Walrasian marginalist
ideas. Oskar Lange of the University
of Chicago argued that
prices are merely monetized rates of exchange of one good for another.
The issue of “finding” correct prices and market stability points can
be solved by the government acting as the mythical Walrasian
“auctioneer”. This was precisely what the Fed did when it announced on December 12, 2007 the Term
Auction Facility (TAF) program, under which the Fed would auction term
funds to depository institutions against the wide vantiety of
collateral that can be used to secure loans at the discount
window.
Furthermore, on the issue of socialist economies’ lack of profit
incentives, Lange reiterated that in a modern capitalist economy, with
the growing division between ownership (stockholders) and management
(CEOs), the incentives were similarly distorted. In this respect, Lang
closed ranks with the Institutionalists. Deploring the universal
pretensions of much of economic theory, the Institutionalists stressed
the importance of unique historical, social and institutional factors
which make economic “laws” contingent on these institutional factors.
Much of everything in the economic world, they argued, was not
immutable but rather conditioned by the influence of an always changing
history - whether acting on the individual directly, or indirectly
through the special institutions and distinctive society which surround
him.
Friedrich Hayek argued that a state-run economy could not achieve full
efficiency in resource allocation as in a capitalist one largely
because the information conveyed by the price-mechanism of a market
economy was greater than the information any planner could possibly
acquire and manage. Hayek focused on information and self-organizing
markets as arguments for the logic of free markets. Ironically, it was
Marx who predicted that the number of interlinked market conditions
required for steady-state growth was too large, the relationship too
complex and the goals too contradictory for capitalism to avoid
structural breakdowns. Joseph E. Stiglitz shared the Nobel Memorial
Prize in Economics in 2001 with George A. Akerlof and A. Michael Spence
“for laying the foundations for the theory of markets with asymmetric
information.” Regulation against insider trading is a pilar of
free financial markets.
Linear Programming and Input-Output Models
The USSR
adopted the techniques suggested by Lange, leading to the development
of linear programming by Leonid Kantorovich which demonstrated that
efficient allocation in a planned economy required effectively the same
of use of prices as in a competitive market economy. Linear programming
is the optimization of an outcome based on sets of constraints using a
linear mathematical model. Linear programming theory falls within
convex optimization theory and is also considered to be an important
part of operations research. It is widely use in corporate planning in
all market economies. Wassily Leontief was awarded the Nobel prize in
1973 for his work on input-output models in which an economy with a
number of industries each using input from itself and other industries
to produce a product. The Leontief input-output model, the
determination of shadow prices, etc., is used in business application
to maximize profit in a factory that manufactures a number of different
products from the same raw material by determining the optimum mix of
products using the same resources. Studies of efficiency in a
multi-market scenario suggest that a planned collectivist economy could
do no better than a private free market system in the idealized
Walrasian world, but it might also do no worse. However, socio-economic
justice can most likely be better served.
Economic Utility of Socio-Economic Justice
When the economic value of socio-economic safety nets in private market
economies is recognized, planned collective economies tend to perform
better, particularly if equality is assigned reasonable monetary value
to reflect its economic value. In a private free market economy,
resources are marshaled toward the highest price, not always toward the
highest need, even by private entities, because those most in need may
not have the money to pay the highest price which is why they are in
financial need. Thus shortages can occur until prices rise. Or to put
it another way, those in highest need are often forced to pay the
highest price in a market economy, or to put it still another way,
allocation by price can amount to a built-in inefficiency because
rising needs could create price inflation. Thus the satisfaction of
basic human needs, such as health care, education, social security,
environment protection, tend to be priced out of the reach of most
consumers so that the rich can have first claim to preserve the
advantage of having more money, or as economist would call it, the
marginal utility of money. For example, there is a surplus of hospital
beds in the US
while large segments of the middle class cannot afford hospital care or
adequate medical insurance. In a private free market, members of the
middle class will never have enough money to satisfy all their
needs. This self-evident truth is the foundation of economic
populism.
FDR Strategies for Recovery
In 1933 Roosevelt’s strategy for dealing with
the Great Depression consisted of two prongs. First, relief for those
most in need by a redistribution of newly created wealth more
equitably, away from the already rich who needed it less, to the poor
who normally received less than their fair share which was why they
were poor. Being not a revolutionary, Roosevelt
never entertained redistribution of existing wealth. The second prong
was structural economic reform through the creation of new institutions
with radical redistribution of power such as union protection programs,
the Social Security Act, full employment programs and programs to aid
tenant farmers and migrant workers. Most of Roosevelt’s
early macro policies involved shifting spending from one program to
another within a balanced budget. He did not accept at first Keynes’
recommendation of deficit spending, and did not do so until World War
II spending forced him to. Counter-cyclical demand management was the
outcome rather than the program of the Roosevelt New Deal.
The First 100 Days
Roosevelt’s legendary “First
100 Days” concentrated on the first prong of his strategy: immediate
relief. From March 9 to June
16, 1933, FDR sent a compliant Congress a record number of
bills, including banking reform laws, emergency relief programs, work
relief programs and agriculture subsidy programs, all of which passed
easily. These included the creation of the Federal Emergency Relief
Administration, the Civilian Conservation Corps, the Reconstruction
Finance Corporation, and the Tennessee Valley Authority. Congress also
gave the Federal Trade Commission broad new regulatory powers, and
provided mortgage relief to millions of farmers and homeowners.
The success of the First 100 Days was important, because it got the New
Deal off to a strong and immediate start to give it an image of
effectiveness. Later, the conservative Supreme Court would declare many
of the New Deal programs unconstitutional, and Roosevelt’s
political prestige as a problem solver would decline as his policies
failed to end the depression, particularly when compared to the
economic success of Nazi Germany. Many New Deal programs continued well
into the 1980s before being dismantled by neo-liberal deregulation
first adopted by Democrat president Jimmy Carter who by 1982 had
deregulated airlines, trucking, railroads, oil and interest rates, and
set up much of the deregulation machinery that Reagan would later use
to apply supply-side economic theory to national policies. The New Deal
was finally buried by another Democrat President Bill Clinton who
declared in a radio speech on January
27, 1996: “The era of big government is over.”
The New Deal Spirit
The New Deal was not all about economics. Woodrow Wilson, the
progressive Democrat, had issued the executive order that officially
racially segregated the Federal Government. One legacy of post-Civil
War Republican ascendancy was that Washington’s
large black population had access to federal jobs, and worked with
whites in largely integrated circumstances. Wilson, a Virginian,
brought Jim Crow laws to Washington.
Segregation in Federal
government agencies and programs had not been recognized as a key
failing of US race relations in the decades before the Civil
Rights Act of 1964 signed by Lyndon Johnson, a populist Texan, of Pat
Wrightman tradition. Wrightman, the voice of populism, served
in the US Congress from 1929 to his death on March 7, 1976, serving as chairman of the
House of Representatives Committee on Banking and Currency for 40
years, for 20 of which, he introduced legislation to repeal the Federal
Reserve Banking Act of 1913.
Wilson
and Federal Government Segregation
The Federal government
under Wilson used its immense power to impose a segregated
pattern of race relations among its employees and through its social
programs upon the whole of American society well beyond the Mason-Dixon Line and throughout the world in its diplomatic
network and military facilities. Both the First and Second World Wars,
the wars to defend democracy, were fought with a segregated military
and a segregated diplomatic institution. This pattern structured the
relationship between African Americans and the United States Federal
government, whether as employees in government agencies, inmates or
officers in federal prisons, inductees in the armed services, consumers
of federally-guaranteed mortgages, jobseekers in Federal Employment
Service offices, or visitors to National Parks in which the facilities
were segregated or, in some cases, off limit to African American
visitors all together. In all these instances, segregation did not
simply imply physical separation, but also profound prejudice, glaring
inequality and discrimination. Instead of thwarting segregated race
relations, the Federal government participated in their maintenance and
diffusion.
The Ickes: Two Generations of Civil Rights Activism
Harold LeClair Ickes, Secretary of Interior in the Roosevelt
administration, took the courageous action to end racial segregation in
the Federal Government. Ickes also stepped in after the Daughters of
the American Revolution barred Marian Anderson from staging a
performance in Washington's
Constitution Hall in 1939 because of the color of her skin. Ickes
offered the African-American diva the Lincoln Memorial in its place and
the gesture received such overwhelming support that 75,000 turned up to
hear her sing from the top of the memorial’s steps. In 1955, Anderson made her debut with the Metropolitan Opera. She was
appointed an alternate delegate to the United Nations in 1958 and in
1963 was awarded the Presidential Medal of Freedom.
Harold McEwen Ickes, the son, a life-long civil right activist, was
deputy White House chief of staff for President Bill Clinton. Ickes
chaired Clinton’s
presidential campaign in New York
in 1992. Before that, he was a senior advisor to African-American David
Dinkins’ successful mayoral election in 1989. In 2000, Ickes was a
senior advisor to Hillary Clinton’s New York
campaign for the Senate. He is now a senior advisor to Hillary
Clinton’s uphill presidential campaign.
Talking Points Memo reports
top Clinton aide Harold Ickes admitted pushing the Rev. Jeremiah Wright
issue with super delegates: “Super delegates have to take into account
the strengths and weakness of both candidates and decide who would make
the strongest candidate against what will undoubtedly be ferocious
Republican attacks,” Ickes continued. “I've had super delegates tell me
that the Wright issue is a real issue for them.” In a reference to
Wright’s controversial views, Ickes continued: “Nobody thinks that
Barack Obama harbors those thoughts. But that’s not the issue. The
issue is what Republicans [will do with them]...I think they're going
to give him a very tough time.” Asked whether he was specifically
bringing up the Wright issue to super-delegates, Ickes said: “I’ve said
what I've said...I tell people that they need to look at what they
think Republicans may use against him. Wright comes up in the
conversations.” Wright’s Black liberation theology views have been
causing problems for Obama’s message of racial harmony in its campaign
of “hope and change” for the presidency. The Reverent Wright issue has
been largely manufactured by the Hillary Clinton campaign, not by the
Republicans. If Republican candidate John McCain can overcome the
burdensome legacy of George Bush, there is no reason why Obama cannot
overcome the issue of Reverent Wright, except for the tenacity of
Hillary Clinton to win at any cost.
A 1997 profile by Michael Lewis
in the New York Times relates how in 1965 Ickes’ car carrying civil
right workers was attacked in Tallulah, Louisiana by a group of white men. Ickes told his two blacks
colleagues to run for their lived and faced the gang by himself. The
men fired a shotgun over his head; Ickes responded as he had been
trained, curling up in the fetal position. Fighting back would have
gotten himself killed. When the local sheriff finally arrived after the
attack, he arrested Ickes for disturbing the peace and let the
attackers go free. Ickes lost a kidney from the beating. Of all people,
Ickes should understand the sociological context of the Black
liberation theology espoused by Wright, and to dismiss fear mongering.
It is pathetic that internecine intra-party politics is pushing a
second generation civil rights activist to work against the prospect of
the first African-American president.
The pathetic fact is that after
two generations of courageous struggle for racial justice, Ickes
sincerely believes that the nation is still not ready for a Black
president unless the candidate openly denies his blackness as embodied
in Black liberation theology. What is even more pathetic is that Ickes
may be correct in that assessment. The issue for whether Obama is
electable rests on how effectively he can detached himself from
associating with Black liberation theory, not on whether BLT is
acceptable to US voters.
Hillary Clinton’s expected
victory in West
Virginia, by a
margin of roughly two to one, has provided a belated adrenaline boost
to the Clinton camp and new life into its devious argument that
Barack Obama will face insurmountable challenge in winning the hearts
and votes of the blue collar base of the Democratic Party in a general
election. West
Virginia is now
viewed as a Republican state, having twice voted for George W. Bush,
and many of its white working-class voters are typical of those in more
active swing states, such as Ohio
and Missouri and possibly Pennsylvania. According to exit polls, about 20% of Democratic
voters in West
Virginia considered
race to be a key factor in their decision to vote against Obama.
Soviet Influence on the New
Deal
The New Deal was also affected
by the experience of the Soviet
Union. In 1928, the Soviet Union,
under a new state planning commission called “Gosplan”, worked out the
First Five-year Plan, putting an end to Lenin’s New Economic Policy
(NEP). This plan succeeded in rapidly developing capital industries but
failed to reorganize agriculture. Many US management engineers were recruited by the Soviet
First Five-Year Plan. Returning to the US in the depth of the Great Depression, these US experts brought with them a fresh enthusiasm for
national planning within the capitalistic system that excited public
interest. In 1931, a book about Russian planning, New Russia’s Primer,
even made the Book-of-the-Month Club. Many of these returnees joined
the New Deal movement.
Kondratieff Long Wave Theory
Nikolai Dmyitriyevich
Kondratieff (1892 - 1938), a proponent of the Soviet NEP, helped develop the Soviet First
Five-Year Plan in 1917, for which he analyzed factors that
would stimulate Soviet economic growth. Kondratieff favored the
populist strategic option for primacy of agriculture and the industrial
production of consumer goods, over the development of heavy industry. In 1926, Kondratieff published his findings in a report
entitled: Long Waves
in Economic Life. Based on studies on prices and
interest rates between 1789 and 1926, Kondratieff put forth the theory
of long-wave cycles of boom and bust ranging between 50-60 years in
capitalist economies. He was purged in 1928 and executed in 1938 and
his place in history was rehabilitated in 1987. Kondratieff enjoys
today a large following among market analysts worldwide.
FDR Pragmatism
Franklin D Roosevelt became
president of the United States on March 4, 1933.
Neither informed on economics nor an ideologue central planner, not
even a businessman by virtue of being independently rich from birth,
FDR was dedicated to public service with Yankee pragmatic confidence.
He was assisted by his “brain trust”, a group of progressives such as R
G Tugwell and Raymond Moley of Columbia, Henry Wallace, an agricultural
reformer, Herbert Fei, Adolf Berle and Donald Richberg, experts in law
and economics. The FDR administration marked the involvement of
academics and scholars in US government in the ancient Chinese tradition.
FDR, liked to describe himself
to a quarterback in a football team, made all final decisions towards
apolitical goal, some decision mutually contradictory to balance
ideological excesses within a unified strategy. FDR faced urgent
problems that required immediate action: a systemic banking crisis, a
market collapsed in agriculture with widespread farm bankruptcies and a
stalled industrial economy with high unemployment. His first term was
consumed with rescuing the capitalistic order from its structural
faults, rather than to promote the establishment of a new system of
central economic planning. He saw government intervention in failed
market as not only a legitimate mandate, but also a matter of national
security.
Two days after he became
president, FDR issue an executive order to forbid the export of gold
and directed banks not to pay out gold in exchange for currency,
essentially to ignore the Gold Standard established since 1900. The
Emergency Banking Act (adopted March 9, five days after inauguration)
authorized the Reconstruction Finance Corp to buy bank preferred
stocks, a back-door nationalization measure. See my June 13, 2002 article in AToL: National
Planning and the American Myth.
Celebrated Sung dynasty
neo-Confucian reformer Wang Anshi (1201-86) revived Chinese state
socialism beyond historical natural socialism in Chinese society. Henry
Wallace, as US secretary of agriculture during the administration of
President Franklin D Roosevelt, adopted Wang’s idea of subsidized farm
credit and price guarantee and applied them to New Deal programs during
the Great Depression of the 1930s. Wallace, a liberal Republican turned
Democrat, later became Roosevelt’s third-term vice president but was
replaced by Harry Truman in FDR's fourth term as a result of
conservative opposition domestic and foreign, including British prime
minister Winston Churchill, who complained of Wallace's being soft on
communism. Had Wallace been still vice president when FDR died in
office in his fourth term, he would have been president instead of
Truman, no atomic bombs would have been dropped on Japan, and the Cold War might have been avoided. See my July 22, 2006 article in AToL: WAGES OF NEO-LIBERALISM - Part 4: Development
financing and urbanization.
The Agricultural Adjustment Act
(AAA), passed in 1933, is premised on idea that low farm prices are the
result of overproduction. Government sought to increased farm
prices by paying farmers to reduce production by reducing
acreage. While the original AAA was declared unconstitutional by
the Supreme Court, a new act correcting for the Court’s concerns was
passed in 1935. The irony of reducing food production to keep
prices high in a society and a world in which many children went to bed
hungry was not missed by critics. The problem of US agriculture was and is insufficient demand in the form
of purchasing power, not insufficient supply. The
centerpiece of the crop reduction program was acreage allotment. It
helped large and well-capitalized agribusiness, but not small farmers.
Landlords needed less labor under a system that paid them to leave
their land idle. Tenants farmers and sharecroppers faced eviction and
homelessness. The fundamental problems of the economic depression
were weak consumer demand due to falling wages and
unemployment. In the long run, the effect of the AAA was
beneficial mostly to large farm operators.
Populist Monetary Movement
Title III to the Agricultural
Adjustment Act, the Thomas Amendment, drafted by Democratic Oklahoma
Senator Elmer Thomas, (1876-1965) ,
blended populist easy-money
views with the theories of the new economics. Thomas wanted
a stabilized “honest dollar”
devoid of deflationary effects, one that would be fair to both debtor
and creditor. It sought to assure that the face value of loans to
farmers could be repaid at maturity by selling the same amount of farm
produce at price when the loans were taken out.
The Amendment gave the president
broad discretionary powers over monetary policy and mandated
that whenever the President desired currency expansion, he must first
authorize the Open Market Committee of the Federal Reserve
to purchase up to $3 billion of federal obligations. Should open market
operations prove insufficient the President must have the US Treasury
issue up to $3 billion in new money, or reduce the gold content of the
dollar by as much as 50 percent, or accept 100 million dollars in
silver at a price not to exceed fifty cents per ounce in payment of
World War I debts owned by European nations. The aim was to prevent
deflation, not to fight inflation.
The Thomas Amendment was rarely
applied. The Treasury received limited amounts of silver in payment of
war debts from World War I. With the mandate of the Amendment, Roosevelt
ratified the Pittman London Silver Amendment on December 21, 1933,
ordering the United
States
mints to buy the entire domestic production of newly mined silver at
64.5 cents
per ounce. Roosevelt’s most dramatic use of the Thomas amendment came
on January 31, 1934
when he decreased the gold content of the dollar to 40.94%, in effect
devaluing the dollar by 60%. The result was that wholesale prices
continued to climb. In the long run, the most significant expansion
brought on by the Thomas Amendment may have been the growth of
governmental power over monetary policy.
Bimetallism and Populism
Bimetallism had become a focus
of political conflict at the turn of the 19th century. The metal with a
commercial value higher than the currency value tends to be used as
metal and is withdrawn from circulation as money, as stated by Gresham’s Law of bad money driving out good. This occurred in
the United
States
throughout the 19th century as the official bimetallic standard became
in effect a silver standard. Newly discovered silver mines in the
American West caused an effective decrease in the value of money. In
1873 Congress passed the Fourth Coinage Act which embraced the gold
standard and de-monetized silver at the same time as these new
resources of silver were beginning to be exploited. This was later
referred to by Silverites as “The Crime of ’73,” as it was judged to
have led to deflation, causing problems for farmers with large
mortgages that could not be repaid by selling their produce at
depreciated prices. In addition, improvements in transport meant it was
cheaper for farmers to ship their grain to Europe, and
they over-expanded production until there was a glut on the market. The
Panic of 1893 was a severe nationwide depression that brought the money
issue to the fore. The “silverites” argued that using silver would
inflate the money supply and mean more cash for everyone, which they
equated with prosperity. The gold advocates said silver would
permanently depress the economy, but that sound money produced by a
gold standard would restore prosperity. The gold advocates won
decisively in 1896 and 1900. The Democrats and Populists lost heavily
in the 1894 elections, which marked the largest Republican gains in
history.
Many of the western silver mines
closed, and a large number were never re-opened. A significant number
of western mountain narrow-gauge railroads, which had been built to
serve the mines, also went out of business. The depression was a major
issue in the debates over Bimetalism. The Republicans blamed the
Democrats and scored a landslide victory in the 1894 elections. The
Populists lost political power and had to support the Democrats in the
1896 presidential election which was fought on economic issues and was
marked by a decisive victory of the pro-gold, high-tariff Republicans
led by William McKinley over pro-silver William Jennings Bryan.
The New Deal and National
Planning
The 1933 National Industrial
Recovery Act (NIRA) set up the New Deal’s fundamental strategy of
centralized planning as a means of combating the Depression.
Industrial sectors were encouraged to avoid "cutthroat competition"
(selling below cost to attract dwindling customers and drive weaker
competitors out of business) which may have been good for individual
businesses in the short-run, but resulted in increased unemployment and
an even smaller customer pool in the long-run. The government
temporarily suspended enforcement of anti-monopoly laws and sponsored
what amounted to price-fixing as an emergency measure. Similar
efforts were made to stabilize wages within industries as well.
Again, the basic problem left unanswered was overall weak consumer
demand. The NIRA did address this in a limited way with the
Public Works Administration which funded various public employment
schemes; however, the number of jobs created by the PWA was
miniscule compared to the number of jobless workers.
Support and Opposition for TVA
The “First” New Deal created the Tennessee Valley Authority (TVA -1933)
that heralded the future populist approach of the “Second” New Deal of
helping the people directly, not through private big business.
The TVA provided government financing to transform the economies of
seven depressed, rural Southern states along the Tennessee
River. The program included dam-building, electric
power-generation, flood and erosion control. It provided
relatively high-wage jobs in construction in a region Roosevelt
called “the nation's number one economic problem.” Critics saw
creeping socialism in the TVA venture even though private free market
had not helped to eliminate poverty in the region since the end of the
Civil War; liberals saw it as a successful example of government
solving socio-economic problems that private enterprise had fail to
solve.
Yet both the left and the right exploited the rise of populism to
promote their separate agenda. Roosevelt’s programs of government
intervention were opposed by the extreme right as represented by the
Liberty League, a speaker's bureau funded by the Du Pont family and
other big business interests which sought to fuse a partnership between
the segregationist Georgia Democrat governor Eugene Talmadge and other
conservative leaders to create a grassroots right-wing populist
opposition to the institutional approach of the New Deal. Liberty
League speakers toured the country accusing Roosevelt
of instituting creeping socialism. Talmage’s son, Herman Eugene,
succeeded him as governor at his death in 1947 and was elected to the
senate for four consecutive terms and only lost a fifth term run in
1980 after having been denounced by the Senate in 1979 for financial
misconduct.
Despite organized opposition, the New Deal helped Georgia
out of its post-Civil War poverty and brought to it advances in rural
electrification, education, health care, housing, and highway
construction. Georgia’s
farmers, in desperate straits from decades of depression and low cotton
prices, were echoing the demands of the 1890s Populists for activist
government in agricultural policy. The New Deal also had a particularly
personal face in Georgia;
Warm Springs was Roosevelt’s southern White
House, where he founded a rehabilitation center for polio victims. He
met and worked with many Georgians of diverse politics and died there
on April 12, 1945.
Dr. Francis Townsend, a California
physician, argued in favor of a federally-funded old-age pension as a
means of ending the Depression. He argued that turning the
nation's elderly population into robust consumers would solve the
underlying problem of weak demand. Dr. Townsend's clubs began
springing up across the country as his message of care for the elderly
meshed with people's desire for a rapid end to the Depression.
The flamboyant senator from Louisiana,
Huey P. Long, joined Roosevelt’s critics with
his “Share Our Wealth” plan. Long proposed a guaranteed household
income for each American family paid for by high taxes on the
wealthiest. Long’s rising popularity until his assassination in
1935 further demonstrated to FDR the discontent of the people.
US
populism also found voices in the extreme right. Right-wing radio
personality Roman Catholic priest Father Charles Coughlin denounced
government assistance to the needy and claimed the New Deal led the
country toward a Communist dictatorship. He suggested Nazi
Germany as a correct model for the US
and blamed the Depression on an international Jewish conspiracy.
At the height of his popularity, millions listened to his radio sermons
each week.
The Liberty League showed Roosevelt that he
would not get any support from the big business right, nor can he
depend on it for solutions to the Great Depression. Roosevelt
was not anti-big-business as he was frustrated by the inability of big
business to solve real economic problems that it had created in the
first place. The popularity of Coughlin showed Roosevelt
that the suffering public could be exploited by the extreme right to
destroy the American political system. The Southern Democrats were
vehemently against the New Deal for its progressive civil liberty
outlook, particularly on racial integration. These developments of
diverse opposition pushed FDR toward the liberal Republicans for
support of the new Deal. In 1932 the Socialist presidential candidate
Norman Thomas had tripled his 1928 showing as hard times rejuvenated
the Socialist critique of the capitalist system. Thomas posed no
serious electoral threat to FDR, but Roosevelt
was sensitive to the rising popularity of socialism, as were the
liberal Republicans.
The Second New Deal
These developments push Roosevelt to launch the
“Second” New Deal (1935-40s), which aimed at reviving the economy from
the bottom up. It aimed to end the Great Depression by spending public
money at the bottom of the economy to revive consumer demand. The
Works Progress Administration (WPA) was a massive federal jobs program
to create employment for the purpose of boosting consumer demand.
The jobs varied but consisted of mainly of construction of public
roads, buildings and parks. Over the course of its life (1935-43)
over eight million workers were employed on WPA projects. This was the
first “counter-cyclical demand management” measure on a national scale.
Responding in part to Townsend’s advocacy for senior citizens, the
1935 Social Security Act set up a modest worker-funded but
federally-guaranteed pension system. Though falling far short of
the level proposed by Townsend, Social Security did act as a safety net
for older workers, promote increased consumer demand and earned a place
as a fixture on the US
political and social landscape. The Social Security regime,
conceived as a worker-supported pension program, is now in actuary
crisis as the demographics tilts toward a older population. Until
social security is viewed as part of national security and funded as
such, the program will head toward insolvency.
Another significant component of the Second New Deal was the National
Labor Relations Act of 1935. Known also as the Wagner Act after
its sponsor, Senator Robert Wagner of New York,
this law prohibited employers using intimidation and coercion in
breaking up unions. It set up the National Labor Relations Board
to guarantee the right of collective bargaining for workers. The
result was the formation of the Congress of Industrial Organizations
(CIO) whose auto worker and coal miner units soon saw their wages
increase significantly. Again, higher wages among the masses of
the working class was the centerpiece of the “Second” New Deal to
restore the economy from the bottom up.
Nixon: “We are all Keynesians Now.”
Many programs of the New Deal, such as Social Security, the Federal
Deposit Insurance Corporation, the Securities and Exchange Commission
and Labor Mediation Practices have become permanent institutions in US
society and stabilizing forcing in the US
economy. Yet the role of the new Deal in ending the Great
Depression was not definitive. War production with deficit financing
solved the problem of overcapacity in the US
economy. The long-term political consequences of the Great Depression
and New Deal was the rise of the “Roosevelt Coalition” of farmers,
union members, working class families, Northern blacks and liberals
made the Democratic Party the nation’s dominant party for almost six
decades. Further, the political consensus that developed after
World War II held government responsible for the health of the economy,
creating an unspoken mandate for an unprecedented level of federal
economic intervention even among the Republican right. This extensive
expansion in the role, size and power of government in US
social and economic life was aptly summed up in Republican President
Richard Nixon’s famous 1971 remark, “We're all Keynesians now.”
New Deal Statism
Earnst Cassirer, in
the chapter on Hegel in his The Myth of the State, wrote:
"Hegelianism has had to pay the penalty of its triumph." It is an
observation very applicable to Statism. The state apparatus of the New
Deal, as constructed under Franklin D Roosevelt, evolved naturally into
the postwar military-industrial complex so loved by the Conservative
right wing. Hans Morganthal (Politics Among Nations) developed
the theme that US postwar foreign policy was
“imperialistic” in the non-pejorative sense of the word, because it was
expansionist and empire-building for the postwar Pax Americana. Of
course, both an interventionist government and a military-industrial
complex are necessary for an "imperialistic" foreign policy. This is
the foundation for the coalition of the neo-liberals and
neo-conservatives, which is opposed separately by the
paleo-conservatives and the radical left for opposing reasons.
Next: Populism and the 2008 Presidential Election
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