October 04, 2012

A Reformation Of American Capitalism

Capitalism With Social Values
By Melvin J. Howard

The Great Depression was basically the same in the United States as other capitalist countries.  High unemployment, lower gross domestic product, and some kind of a government response to the depression were evident in all the capitalist countries. However, the United States took a different approach from the rest of the world powers in their recovery methods during the depression. Herbert Hoover was the president from 1928-1932 and had the first opportunity to publicly combat the depression.  His philosophy was simple when speaking of the American system. “It differs fundamentally from all others in the world.  It is the American system. It is just as definite and positive a political and social system as has ever been developed on earth.  It is founded upon the conception that self-government can be preserved only by decentralization of Government in the State and by fixing local responsibility; but further from this, it is founded upon the social conception that only through ordered liberty, freedom and equal opportunity to the individual will the initiative and enterprise drive the march of progress. This is not what the American people wanted to hear at this time a self sufficient individualism” speech when many families could not even afford to put food on the table.  

Hoover created the Federal Farm Board to try and improve farm prices. This agency would sometimes pay farmers to not grow crops to try and raise demand. As soon as the prices started to show some rebound, farmers would plant crops again against the federal government’s wishes.  The prices would never correct without production and open foreign markets. He closed foreign markets for agricultural products.  In the 1920’s, markets in Europe for grain were tremendous, but because of the tariffs on American goods, many countries could not afford them and turned to other suppliers.

By then the recession had grown into a full-blown depression. Much worse, the depression’s was just getting started. Now it was Franklin D. Roosevelt (FDR’s) turn he was president from 1932 until his death in 1945.                         

He was the next American president that had an opportunity to deal with the depression. “Restoration calls, however, not for changes in ethics alone. This nation asks for action and action now….It can be helped by national planning for and supervision of all forms of transportation and of communications and other utilities which have a definitely public character. FDR and his advisers believed that Hoover had the right idea, but they wanted to do more than just follow Hoover’s lead.  FDR’s first New Deal had two very controversial pieces that tried to stimulate the American economy.  The first one was the National Industrial Recovery Act of 1933.  To try and gather an understanding of this act, here is an excerpt.

To provide for the general welfare by promoting the organization of industry for the purpose of cooperative action among trade groups, to induce and maintain united action of labor and management under adequate governmental sanctions and supervision, and to eliminate unfair competitive markets. This act has some definite socialist overtones.  FDR wanted the federal government to be very involved in the public’s lives.  The Agricultural Adjustment Act was the other controversial piece that basically attempted to collectivize the farming industry to control prices.  This was modeled after Hoover’s FFB, but it had more controls does this sound familiar? 

Both leaders realized that something needed to be done to help the American people.  That has been proven.  Hoover attempted to stimulate the economy with tariffs and FDR attempted to with price and wage controls through the first New Deal.  While evaluating the recovery programs of the two leaders, it is important to keep the American people’s needs at the top of the list.  With that being said, neither leader kept the basic necessities of the American people in mind when trying to fix the depression.  Food, water, shelter, and heat are things that people need to survive.  Fields of crops were being plowed under while people were starving to try and fix low prices.  

History shows that a capitalist economy needs time to crawl out of a depression.  The political divisions like the one we are witnessing now prolonged the depression in the United States until WWII when twelve million men were sent overseas.  Most of the world countries climbed out of the depression sooner than the United States, so, in essence, political economic formulas prolonged the depression in the United States. 

Too much wealth landed in the hands of too few people. An article by Ross L. Finney offered a dire prediction in early 1924: "Unless we shift our weight Western civilization will enjoy an illusive prosperity and greatness for a time, but will then stagger, stumble and eventually collapse" (January 24, 1924).

Some 19 months before the crash of the market, editorials scrutinized the problem of unemployment with a growing sense of urgency. In the face of this "orgy of speculation," editors argued, religion must "protest a social or industrial order in which men wallow in sudden wealth which they have not created while their fellows by the million face want" .The speculation of the capitalist market allowed for an accumulation of "undigested wealth" and the separation of means from ends Wall Street had divorced wealth from activities that led to employment. In addition, machines had invaded the workplace and massively displaced human labor.

This antagonism toward capitalism surfaced regularly after October 1929. Given its socialist sensibilities, there were many people that interpreted the crash of the stock market as an opportunity to begin a new form of capitalisms. People could no longer ignore the growing and devastating problem of unemployment. This awareness opened the door to social solutions most Americans would have rejected as unacceptable only a few years before. Editorials supported legislation designed to account for the unemployed, to establish public works projects to enable their return to work, to provide for newly unemployed through a national unemployment insurance program, and to create a national bureau of unemployment to stay on top of the problem.

The crash of the market also offered Americans the opportunity to reflect on a new understanding of the problem of greed. Americans, said some editorials, have been too quick to condemn racketeering, "the poor boy’s easy road to quick wealth," while ignoring ways "the son of a comfortable home seeks to make his pile and make it quickly". In addition, the country’s obsession with its "standard of living" had to be balanced against the needs of the rest of the world. Standing pat on the traditions under which the present absurd inequities have grown up” would not solve problems like these, concluded. Editors grew impatient with President Hoover’s unwillingness to use federal means to address the social crisis. Hoover urged private charities, and the organizations of local communities where hunger existed, to step up to meet the need. Many people judged the president’s response entirely inadequate. His fear of the dangers associated with the federal "dole," argued editorials, ignored the fact that poverty emerged more from the defects of the system than from the "personal shortcomings of the sufferers.

The depth of the depression demanded a federal response, one that would establish a "permanent deposit of advanced social legislation." Hoover, to the growing dismay of editors, ruled such legislation out of bounds. "How bad must things become," asked one editorial, "before the nation is ready" to enact legislation?  Hoover’s local-community approach would "prove to be not only tragically inefficient but scandalously inequitable". Roosevelt’s landslide victory was a sign that Hoover got it wrong in some people’s eyes. Once elected, and once the extent of his program to deal with the depression became evident, Roosevelt quickly gained enthusiastic endorsement. With 16 million people out of work, editors declared Roosevelt’s "readiness to experiment with new policies his greatest asset and the nation’s greatest ground of hope". As Roosevelt exercised emergency power to deal with the banking crisis, revise the relationship between American currency and gold, and establish the Tennessee Valley Authority, editors hailed the arrival of "a new United States.

Editors interpreted the administration’s orchestration of the national recovery act as a commitment to graft socialistic principles into the American capitalist system.
This philosophy of "socialized capitalism" encouraged the idea that "business exists for the community" instead of "the principle that a business exists for itself, that is, for the profits it can make for its owners. But editorials simultaneously noted that the National Recovery Administration (NRA) depended too much on voluntary compliance. Ultimately, Roosevelt’s new system set no restrictions upon profits. And here it necessarily faltered. "Can human nature which has been so long conditioned by the stimuli of capitalism," discipline itself while still subject to the same stimuli, to the point of curtailing its greed for profits when profits are to be had?"

In addition to anxiety about the overwhelming influence of the profit motive, many also worried about whether the power of labor organizations could develop rapidly enough to counter the autonomous industrial associations. Small businesses also tended to suffer under self-regulation provisions that favored the efficiency of the mass-producing abilities of larger businesses. This weakness surfaced more clearly as time passed. Editors also knew that the extension to the South of NRA codes mandating minimum wages would likely cause displacement of black workers without creating an effective remedy.

At a time when the vast majority of clergy in America disapproved of Roosevelt’s New Deal reforms. By 1937, many aspects of Roosevelt’s New Deal had successfully taken root. Labor gained strength. Legislative checks against the worst abuses of big business seemed securely in place. Social Security provided unemployment and pension insurance. Welfare programs eased the suffering of the poor. Roosevelt’s domestic policy had produced a reformation of American capitalism.