Blogs > Liberty and Power > Did Roosevelt "Save Capitalism?"

Jan 14, 2006 10:47 am

Did Roosevelt "Save Capitalism?"

A popular theory in the history textbooks is that Franklin D. Roosevelt"saved" capitalism.

I don't buy it. I have yet to see any evidence that the U.S. was ever on the verge of revolution either before or after the rise of FDR. In 1932, for example, the Communists and the Socialists (primary indicators of radical or revolutionary sentiment on the left) scored between them a measly 2.5 percent of the vote. They did not elect a single member to Congress.

In 1932, FDR campaigned on a platform that differed little from that Al Smith in 1928 or, for that matter, his opponent Herbert Hoover. While he vaguely promised an undefined New Deal, he just as often attacked Hoover as a spendthrift. Politicians who promised retrenchment and low taxes, such as Governor Harry G. Leslie of Indiana, were often just as popular at the polls as those who promised more government.

To be sure, voters rallied to FDR's New Deal in 1933 but, in my view, this was primarily because they wanted action, not because of an ideological conversion. Given the poor state of the economy, it is probable that they would have climbed on board had FDR announced a program of spending and tax cuts instead. My sense is that the voters wanted change in 1933, not necessarily more government.

While quasi-fascists (actually populists) like Huey Long and Father Coughlin made waves, this was mostly in 1934 and 1935. If FDR"saved" the United States from the likes of them, why did they have their best years after his New Deal was implemented. Long's high point, for example, was 1935, when the NRA was already on its last legs.

I have a challenge for those who argue that FDR"saved capitalism." They need to start by answering two questions. When precisely did he"save capitalsm" and who did he save it from?

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Richard Kaplan - 1/26/2009

The proof has been supplied in the present financial meltdown. The financial laws passed under Reagan, Clinton and Bush(s) destroyed the American Financial System saved by FDR. Ironically, FDR saved capitalism and the others above handed the financial markets to socialism. Glass Steagall allowed investment banks to exist along with commercial banks under regulation to preserve the capitalist system. When Glass Steagall was repealed along with the weakening of regulations from Reagan to Bush(s)it allowed investment banks to buy commercial banks leveraged by average bank accounts. The bailout is a bitter pill to swallow but the FDIC did not have enough money to bail out the commercial banks if they failed. Money grabbed by investment banks had to be replaced. It was done under the guise it was going to buy toxic assets. In reality it was to restore capital in commercial banks; to preserve the banking system. That is why you see no activity buying mortgages after the money was sent to the banks. Blaming the crisis on poor mortgages is the straw man. Greenspan like Mellon under Cooledge and Hoover, undermined confidence in the American financial system that must be restored. Unfortunately, even when restored the world financial leaders will no longer take their lead from America.

William Marina - 1/16/2006

I had this argument around 1959-60 with a graduate school prof. of mine, a gentle Quaker who loved the New Deal & FDR.
Nothing seems to have changed in 45 years!

David T. Beito - 1/15/2006

I wish I could answer your question but those throw around this theory rarely get too precise.

By the term "capitalism," I suppose they imagine a system closet to number 2 which still has private property and some sort of market but can also have heavy state intervention.

The truth is that most of the people who claim FDR "saved capitalism" are big government redistributionist liberals or socialists who see him as some sort of wise and far-seeing hero.

Roderick T. Long - 1/14/2006

I believe that link should be

Charles Johnson - 1/14/2006

I think before we can get any traction on this question we need to be clear about what the competing claims are about. When you "challenge those who argue that FDR 'saved capitalism'" to provide further information, (1) what do you think your interlocutors are using the word "capitalism" to mean? and (2) what are you using the word "capitalism" to mean?

I ask because there are several different uses of the word "capitalism," including (1) a voluntary economic order under conditions of laissez-faire et laissez passer ("the free market"), (2) active government support for big business through forcible accumulation, monopolization, and protection of industrial capital ("state capitalism" or "the corporate State"), and (3) a particular form of labor market, in which most goods are produced by wage-laborers working for a boss who owns the means of production ("the wage labor system," or "boss-directed labor"). But (3) is orthogonal to either (1) or (2) (it could in principle exist under either system) and (1) and (2) are in fact mutually exclusive. (1) has almost never existed in its pure form in human history; (2) and (3) have been very common, especially over the past 150-200 years. (I discuss the terminological issues in more length elsewhere, e.g. at <>;.)

So it seems to me that I need to know what "capitalism" means, before I can have any idea of whether FDR saved it, destroyed it, left it untouched, or never even came upon it in the first place.

Robert Higgs - 1/14/2006

Setting aside the fact that what survived after Roosevelt was a far cry from capitalism, the nonsense about his "saving capitalism" represents an instance of the fallacy of post hoc, ergo propter hoc. The historians see that something they take to be capitalism existed after Roosevelt had died; therefore, he must have saved it.

The implicit assumption, of course, is that but for Roosevelt's actions, the system would have given way to some radical alternative, such as communism or socialism. For leftish historians, this hidden assumption reflects their chronic wishful thinking: they imagine that the capitalists are always holding down the restive masses, who long to break away from the exploitive status quo to pursue some collectivist utopia at the earliest opportunity. Not only does this view embody a mistaken conception of the character of the masses, but it displays obtuseness about which elites rule the regime and how the actual political economy works.

As you say, David, there is scarcely any evidence to support the notion that the country in 1933 or thereabouts rested on the brink of a socialist revolution. Instead, it was taking still another lurch toward participatory fascism (quasi corporatism, social democracy, choose your own term)--the system toward which the entire world has been gravitating, with much ebb and flow, for more than a century.