11—Roosevelt on Fascism and the False Dichotomy of Good vs. Bad Capitalism

IN APRIL 1938, the vicissitudes of monopoly-finance capitalism brought Franklin Delano Roosevelt to another critical juncture in his presidency. After five years of steady recovery, a devastating recession seemed to take the nation back to the winter of 1932–1933, the worst months of the Great Depression. True, it was not as calamitous as when Roosevelt took office a few months later and pledged to deliver the nation from the throes of the crisis. This time there was no run on the banks, nor were there calls to suspend the Constitution and create what a New York Times editorial called an emergency Council of State to resolve the crisis and save the whole economic and political system from the abyss.1 Roosevelt had now to decide whether to restore deficit spending after cutting the budget the previous fiscal year or to listen to those in his administration who insisted he must balance the budget so business would regain confidence in the economy and invest further in productive enterprise.

Big Business had welcomed the New Deal in the spring and summer of 1933 but soon opposed it as an unwarranted obstacle and alien to the spirit of American free enterprise and democracy. Reactionaries in Roosevelt’s own party had played a leading role in the formation of the American Liberty League in 1934. In the final speech of his bid for reelection two years later, Roosevelt called out “the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.” As Roosevelt said:

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

They had become his enemies as well:

Never before in all of our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.2

Now, almost two years later, as the nation endured a crushing recession that once again brought unemployment, misery, and starvation, Roosevelt had to decide whether to restore the federal spending he had cut the previous fiscal year, or yield to the one man in his cabinet, and close personal friend, Treasury Secretary Henry Morgenthau, who badgered him constantly that he must satisfy business leaders and balance the budget.

For Roosevelt, it was indeed another decisive moment, and perhaps more significant than most historians have determined. He could give in to monopolists and finance capitalists—Big Business—and facilitate the triumph of the most reactionary elements of the capitalist ruling class. Or he could reaffirm the New Deal as the great promise of liberal reform by committing the federal government to permanent deficit spending while curbing and ultimately reversing the growing concentration of wealth and power in the United States. Failing to do the latter would mean the coming of American fascism.

THE “ROOSEVELT RECESSION” OF 1937–1938

Plummeting stock prices in the fall of 1937 triggered a recession that confirmed the warnings of Leon Henderson, an astute economist who served in the Works Progress Administration, the largest New Deal agency created in 1935. In a memo to Roosevelt in March 1937 titled “Booms and Busts,” Henderson predicted a major downturn within six months due to rapidly increasing prices on consumer goods during an economic upswing in the second half of 1936 that had caused consumption to lag. As demand for goods declined, big businesses held on to profits because they saw little or nothing to gain from new investments in production. For Henderson, the problem was that decisions were being made by larger and fewer monopolies. Here were the makings of renewed crisis. Though he saw all this clearly, Henderson was “a voice crying in the wilderness.”3 True to his warning, a deep recession did set in by October 1937, and much to the president’s chagrin his political enemies took delight in calling it the “Roosevelt recession.”⁴

Blaming Roosevelt resonated among a suddenly dispirited public and not without some justification. In January 1937, the president had declared that the nation had made it through the worst of the Depression and government had done its part to end the emergency. Now, he said, it was time for business to assume responsibility for leading the nation toward complete recovery and renewed prosperity. Indeed, a gradual and substantial improvement made possible by extraordinary federal expenditures had been underway since Roosevelt’s first hundred days in office in the spring and early summer of 1933. Throughout 1936 and into the first nine months of 1937, the pace of recovery appeared steady. Business had rebounded, corporate profits and wages were up, and national income had risen dramatically. Government spending in the billions had helped to revive consumption and lift corporate profits. Yet much of the business world disliked Roosevelt. According to a report in Kiplinger’s Washington Newsletter in the spring of 1935, 80 percent of American businessmen opposed the New Deal.5

Since the so-called second New Deal in 1935, working people, mainly white, had much reason to champion the president. As historian Ira Katznelson has written, the Roosevelt administration took “giant steps” in its domestic policy agenda “to reshape capitalism” during the New Deal’s most radical year. Two key pieces of legislation had helped to raise living standards for millions of Americans who could feel more confident in the government’s commitment to human welfare as part of its overall effort to end the Depression. The reemergence of a potent labor militancy the previous year had compelled Congress to pass the National Labor Relations Act on July 5, known also as the Wagner Act by virtue of its resolute sponsor, Sen. Robert Wagner of New York, which affirmed the rights of labor to organize and bargain collectively within a legal framework. Passage of the Social Security Act came a month later. The federal government would now provide old-age pensions and unemployment insurance in the form of grants to the states, as well as give assistance to the indigent elderly and aid to dependent children. But millions were denied these benefits along occupational lines that were de facto racist. Social Security did not include farmworkers, which in the South was the largest single occupation and much of it African American, or maids who served the wealthy in both the North and South. This was similarly true for the Wagner Act. Neither agricultural laborers nor domestics were covered under the term “employee.”⁶ Nevertheless, these measures helped to boost morale and fuel even greater approval for Roosevelt, whose landslide reelection in 1936 only seemed to confirm that the New Deal was surely working, though as Roosevelt told the nation in his second inaugural address on January 20, 1937, there was still “one third of a nation ill-housed, ill-clad, ill-nourished.”⁷

Still, full recovery was seemingly at hand and Roosevelt believed he could now look to balance the budget in the next fiscal year. On April 20, he instructed departments and federal agencies to eliminate all unnecessary expenditures and seven days later called for curtailment of all federal government expenditures. “I propose to use every means at my command to eliminate this deficit during the coming fiscal year.” He would withhold expenditures as much as possible by eliminating “a substantial percentage of the funds available for that year” and seek to raise “receipts of the Treasury through the liquidation of assets of certain of the emergency agencies” that the New Deal had created. It was “extremely important” to “achieve a balance of actual income and outgo” in the new fiscal year.8 By reining in deficit spending, his administration was returning to the time-honored orthodoxy of a balanced federal budget. Expenditures for recovery and relief were cut by a third, about $2 billion.⁹

It was a terrible mistake. A few months later the recession hit, opening deep cracks in the broad coalition of workers, farmers, and small businessmen who had supported Roosevelt’s sweeping reelection victory in 1936. Once again, middle-class longing for security was stymied, the second time their president had let them down. Big Business smelled Roosevelt’s blood. As conditions worsened in late 1937, Republicans and conservative Democrats declared that Roosevelt was “solely responsible” for a government-made depression.¹⁰ As Roosevelt biographer Kenneth Davis has written, Roosevelt had “lost control over his own party” by December 1937.¹¹ A resurgent working-class militancy made big business hostility to labor and the New Deal stronger than ever and bore more and more, in Roosevelt’s eyes, “the earmarks of a developing American Fascism.” He added:

For large corporations now made war, increasingly bloody war, upon their workers…. They employed labor espionage and subversion; they stockpiled arms and munitions; they allied themselves with organized crime as they recruited strike-breaking gangs of thugs—private armies whose only allegiance was to those who paid them. The possibility, the threat, of a Fascist coup appeared to Roosevelt not only real but growing as the economic recession continued with no end in sight.12

A year later, A. B. Magil and Henry Stevens provided numerous examples in a chapter of their book, The Peril of Fascism, which they titled “Terror, Incorporated.”¹³

THE PROBLEMATIC CHARACTER OF THE NEW DEAL RECOVERY

Apart from Leon Henderson and a few others, most economists had tended to avoid questions that might cast doubt on the future of the recovery. An exception was Alvin Hansen, an adviser to the Roosevelt administration. Hansen was initially skeptical of the views of the British economist John Maynard Keynes, who in his 1936 book The General Theory of Employment, Interest and Money argued for the necessity of government intervention in the economy during periods of crisis. By early 1938, Hansen was completely won over to Keynesian economics and had become its major proponent in the United States. In his own widely read book published that year, Full Recovery or Stagnation?, Hansen explained why the recession was so sudden and devastating: “The fragile and uncertain recovery from the Great Depression in the United States stopped dead in its tracks in 1937 and quickly began to slide back toward the deplorable depth from which it had started.”¹⁴ The main problem with the recovery was that it had been driven by consumption rather than investment. Since the start of the New Deal, and particularly from 1935 to the fall of 1937, income, employment, and output had expanded from two main sources: (1) a rising demand for durable goods, especially automobiles, that was made possible by a $5 billion expansion in installment credit, and (2) the income-stimulating expenditures of the federal government amounting to some $14 billion that had propped up employment on public works; provided relief to the unemployable; and infused capital into cities, towns, and communities across the nation. But the gains were short-lived because all aimed at increasing purchasing power rather than expanding production and overall economic growth. As Hansen viewed matters, the extent to which recovery was sustained on this limited basis required renewals and replacements of consumer goods, which had surely spurred capital expenditures, but only to the extent that the goods were purchased.15

Here, Hansen contended, was the structural flaw in the recovery from the second New Deal to the renewal of crisis conditions. Rising consumption did stimulate real investment, which brought growth in employment and payrolls and, consequently, higher levels of purchasing power. But the latter depended on increasing federal spending to inflate the economy to boost consumption. According to Hansen, government net contributions in the 1937 budget put about $3 billion into the hands of consumers.¹⁶ Then Roosevelt decided to balance the budget in the 1938–1939 fiscal year. Even to that point, a consumption-based recovery meant that the economy had failed to produce sufficient levels of new capital formation necessary for sustainable economic growth. Instead of an upswing driven by capital expenditures, which, Hansen argued, typically brought technological innovation, new product development, and the need for additional resources and materials, the recovery between 1935 and the fall of 1937 was driven by increases mainly in purchasing power. In turn, businessmen made capital commitments that were immediate to their needs. Here was the structural flaw—a recovery driven by consumption rather than production, which resulted in an “inventory crisis” that had become ruinous due to four “accidents” that had hit by early 1937: inflated prices in raw materials caused by British rearmament; the horrific drought in the Midwest that drove up the prices of agricultural commodities; alarmist talk of inflation despite persistent deflationary realities; and steep hourly wage increases won by labor in late 1936.¹⁷ General instability, Hansen wrote, created an unfortunate “conjuncture of circumstances” that brought on a collapse of stock prices in October 1937 and the onset of a deep and painful recession.18

There was a solution. As a convinced convert to Keynesianism, Hansen argued that federal expenditures were indispensable for continued recovery. Without it, the economy would operate on the basis of its normal tendency, which meant stagnation (slow or no growth)—and eventual crisis. As he wrote:

A recovery resting almost exclusively on a rising tide of consumption can go forward only so long as the consumption stimulus is applied. Worse yet, it cannot even maintain the level reached once new funds are no longer poured into consumers’ markets. For it is a peculiarity of business activity, geared closely to consumption demands, that once consumption ceases to rise, there are forces at work causing contraction…. In a peculiar sense a recovery based on consumption cannot stand still.¹⁹

Once the federal government withdrew spending, the dramatic turn from expansion to contraction in the fall of 1937 was rapid and devastating. A spike in unemployment pushed down demand for consumer goods. Inventories flooded over, putting a halt to the production of consumer goods and, more critically, further net investment in capital goods. “This is the dilemma which confronts a recovery reared on the stimulus to consumption,” Hansen wrote. “Such a recovery can proceed no farther than it is pushed. It has no momentum of its own. It has no inner power to complete its own development.”²⁰

Capitalism appeared to require sustained, and perhaps permanent, deficit spending by government to spur new investment in productive enterprise. Hansen’s conclusions in 1938 were not without precedent. In 1935, Lauchlin Currie, a Harvard economist then working at the Federal Reserve, had calculated that the federal government would have to spend $5 bilion to $6 billion for the next three years in order to achieve full recovery, much larger than the $3.6 billion that had been approved in the previous year’s budget.21

Even more insistent about the necessity of permanent government deficit spending was chairman of the Federal Reserve Marriner Eccles, who had Roosevelt’s ear in the winter of 1937–1938. Well before Hansen, Eccles had anticipated Keynes. He was one of the first big American bankers to insist that the federal government had to spend more than it collected in revenue to stimulate consumer demand to match the productive capacity of the economy. “In this conception,” he wrote in his 1951 memoir,

the government is the compensatory agent for an economy based on principles of private enterprise. It does not compete with private enterprise. But it consciously uses its system of taxation and expenditures, supplemented by monetary and credit policies, for the purpose of maintaining economic stability through maximum production and employment.²²

Echoing Hansen for the most part, Eccles argued that the primary cause of the 1937–1938 recession was “a rapid and speculative building up of business inventories at a time when government spending was drastically curtailed.” National income from 1933 to late 1936 had increased in “an orderly and stable fashion.” Bank credit and private expenditures were also rising steadily. This proved that government borrowing for relief and public works and other programs was working. The long-awaited bonus of $1.7 billion to veterans of the Great War contributed to mass purchasing power.²³

But government stimulus created contradictions in the private economy that led to the 1937 recession and, once pulled from the next budget, would turn a convergence of contradictory forces at work into a recession. Still expecting that the government would continue to spend and maintain cheap credit policies, businesses feared they could not meet rising demand without increased costs. To counter these trends, corporations embarked on “a major inventory boom” in 1936 by converting “money into things.” Orders for new goods rose mainly on the basis of this speculation, which drove up the value of inventories by $4 billion in 1937. Then Roosevelt’s balanced budget for 1937–1938 pulled the rug from the government’s compensatory spending. Here was the root cause of the recession though there were other contributory elements. The collection of $2 billion in Social Security taxes in 1937 and the absence of the $1.7 billion bonus to veterans paid the year before created a major reversal in purchasing power. Eccles saw the recession as a conjuncture of declining purchasing power and the speculative policies of business, creating “a drastic deflation” in the economy.24

In his memoir, Eccles mentions a personal meeting with Roosevelt in March 1937. He pressed Roosevelt to consider that a sustained recovery could only be achieved by government exercising proper use and coordination of all major activities involving business conditions. “Unless this is done,” he told Roosevelt,

there is a grave danger that the recovery movement will get out of hand, excessive rises in prices encouraging inventory speculation will occur, excessive growth in profits and a boom in the stock market will arise, and the cost of living will mount rapidly. If such conditions are permitted to develop, another drastic slump will be inevitable.

Six months later, when Eccles visited Roosevelt at his family home in Hyde Park, he found the president unable to explain the recession and wondering how he could win back public trust.²⁵

While Eccles pleaded with Roosevelt, and Hansen made himself the chief American popularizer of Keynesianism, Harvard economist Sumner H. Slichter took issue with Hansen’s conviction. Slichter did not agree that better planning could end the Depression and counter the inherent tendency in monopoly-finance capitalism to stagnate without deficit government spending. Slichter saw the key cause of the recession closer to a Marxist critique. It was the result of the enduring problem of low profitability for capitalists, whose avenues for further productive investment were restricted. Despite the rise in industrial production since the onset of the recovery in the summer of 1933, profits had remained low by pre-1929 standards, even in 1936 when recovery had peaked. Hansen had deliberately downplayed this fact. For Slichter, persistent low profits had restricted investment on new capital goods to short-run considerations, that is, either replacing or adding what was necessary to maintain existing processes, or some innovation aimed at capitalizing on quick returns. Viewing recovery as a matter of increasing consumption, Hansen failed to see that it generated a budding crisis of profitability based on rising inventories. As Slichter duly noted, inventories were not necessarily excessive in relation to production before April 1937. After that, they became excessively large in relation to new orders, which involved the further expansion of capital goods. Consequently, a protracted problem had become acute as a result of a convergence of circumstances. The failure to find new outlets for investment in the production of capital goods—a persistent problem in the ongoing efforts to transcend deflationary forces at work since the beginning of the recovery—proved decisive in the sudden downturn in the fall of 1937. When the stock market nosedived, production quickly followed. Like Hansen, Slichter saw “a conjunction of events in the critical period from April to September 1937.”26

Regardless of whose case was more sound about the causes of the 1937 recession, Roosevelt had made a terrible mistake and the nation was paying dearly for it.

CONCENTRATED WEALTH BREEDS BAD CITIZENS

By the end of 1937, the U.S. economy was in acute crisis. Huge sell-offs in the stock market were accompanied by business failures across the board, from auto dealerships to nightclubs. Between September and December, two million people were thrown out of work. During the winter months of 1938, many more Americans feared they would starve. “In Chicago,” writes historian William Leuchtenburg, “children salvaged food from garbage cans; in Cleveland, families scrambled for spoiled produce dumped in the streets when the market closed. During the first six days of 1938, sixty-five thousand Clevelanders on the relief rolls went without food or clothing orders.” Thousands of newly unemployed workers in the automobile towns of the Midwest swelled government relief rolls. In the poverty-stricken South, an untold number in seventeen states went hungry amid other longstanding deprivations.27

Throughout the winter and early spring of 1938, Roosevelt’s handling of domestic policy was “wavering, uncertain, and ineffectual.” In his State of the Union Address on January 3, Roosevelt affirmed the New Deal in the face of renewed crisis at home and what he described as “a world of high tension and disorder.” He assured that his administration remained firmly committed to provide work for every willing and able American, relief to those who were unemployable, and support for legislative efforts aimed at increasing wages and reducing the workday. As for leading businessmen, he was “as anxious as any banker or industrialist” to bring the budget of the U.S. government “into balance as quickly as possible.”²⁸ Roosevelt deliberately minimized the sharp and punishing recession as an aberration and temporary. “All we need today,” he told Congress, “is to look upon the fundamental, sound economic conditions to know that this business recession causes more perplexity than fear on the part of most people and to contrast our prevailing mental attitude with the terror and despair of five years ago.”²⁹ On the other hand, Roosevelt recognized a deep structural problem, namely, “the concentration of economic control [in the hands of big business] to the detriment of the body politic—control of other people’s money, other people’s labor, other people’s lives.” Such concentrations could not “be justified on the ground of operating efficiency, but have been created for the sake of securities profits, financial control, the suppression of competition and the ambition for power over others.” Roosevelt seemed intent to hit Big Business with new anti-monopoly legislation.30

For Roosevelt, everything turned on a sound relationship between government and business. Firmly opposed to the laissez-faire Big Business practices of the 1920s that caused the Depression, he would not allow the restoration of “abuses already terminated or to shift a greater burden to the less fortunate.” Instead, there must be more discussion about the “wider field of the public attitude toward business” and an understanding that greater purchasing power for the majority of Americans “presupposes the cooperation of what we call capital and labor,” though he made clear which was primary:

Capital is essential; reasonable earnings on capital are essential; but misuse of the powers of capital or selfish suspension of the employment of capital must be ended, or the capitalistic system will destroy itself through its own abuses.

Roosevelt connected the misuse of capital and the abuses of capitalists to bad citizenship. “The overwhelming majority of business men and bankers intend to be good citizens,” he insisted. Only “a small minority” were to blame. Moreover, their response to exposure and attacks for “specific misuses of capital” had created an even bigger problem: “a deliberate purpose on the part of the condemned minority to distort the criticism into an attack on all capital.” Any attack “on certain wrongful business practices” brought forth eager voices to claim that it was “an attack on all business.” It was all a matter of “willful deception” by the minority.³¹

He claimed that most Americans now believed that certain business practices must end:

tax avoidance through corporate and other methods … excessive capitalization, investment write-ups and security manipulations; price rigging and collusive bidding in defiance of the spirit of the antitrust laws by methods which baffle prosecution under the present statutes. They include high-pressure salesmanship which creates cycles of overproduction within given industries and consequent recessions in production until such time as the surplus is consumed; the use of patent laws to enable larger corporations to maintain high prices and withhold from the public the advantages of the progress of science; unfair competition which drives the smaller producer out of business locally, regionally or even on a national scale; intimidation of local or state government to prevent the enactment of laws for the protection of labor by threatening to move elsewhere; the shifting of actual production from one locality or region to another in pursuit of the cheapest wage scale.32

Roosevelt reminded Congress that “a permanent correction of grave weaknesses in our economic system” had been done by making “new applications of old democratic processes.” Unlike other nations faced with economic crisis, Americans had “rejected any radical revolutionary program.” The federal government had achieved much by “preserving the homes and livelihood of millions of workers on farms and in cities, in reconstructing a sound banking and credit system, in reviving trade and industry” and making other great strides in guiding the nation to recovery. Now it was necessary to confront the main problem that still remained, which, however, did not threaten the economic system.

Unlike the spring of 1933 when Roosevelt declared that emergency measures were necessary to save the economic system, he now insisted that “a new moral climate in America” required “business and finance to recognize that fact” and, accordingly,

cure such inequalities as they can cure without legislation but to join their government in the enactment of legislation where the ending of abuses and the steady functioning of our economic system calls for government assistance. The Nation has no obligation to make America safe either for incompetent business men or for business men who fail to note the trend of the times and continue the use of machinery of economics and practices of finance as outworn as the cotton spindle of 1870.33

Roosevelt had wavered on policy-making decisions, but he made up for it in his unique way of inspiring people. He had serious help. As president, he was surrounded by individuals who had clearly and forcefully identified Big Business as the main fascist threat in America. None worked harder at this than the pugnacious Secretary of the Interior, Harold Ickes, a Republican whose support for the New Deal was uncompromising. Ickes was one of the first New Deal heavyweights to call out the fascist threat in public. In a 1935 speech in Altoona, Pennsylvania, Ickes had referred to “a sinister movement” in America that sought “to super-impose on our free American institutions a system of hateful fascism.” Ickes said the movement was “composed of, or at least has the active support of, those who have grown tremendously rich and powerful through the exploitation not only of natural resources, but of men, women and children of America.” These people “will stop at nothing to hold on to that wealth.” Ickes blamed the American Liberty League for riling up “patriotic fervor” by “pretending that a Communist uprising threatens in this country,” thereby “attempting to line us up in support of a fascist coup d’état.”³⁴

Two years later, as America reeled from the recession, Ickes and others around Roosevelt, especially Assistant Attorney General Robert Jackson, stepped up the offensive against Big Business, pushing the president to do so himself. In a speech to the American Civil Liberties Union in New York and broadcast over national radio, Ickes attacked corporate America and the “fascist-minded men” who were “the real enemies of our institutions,” men who had

a common interest in seizing more power and greater riches for themselves, and ability and willingness to turn the concentrated wealth of America against the welfare of America. It is these men who, pretending that they would save us from dreadful communism, would superimpose upon America an equally dreadful fascism.35

Jackson joined the assault throughout the month of December. Addressing the American Political Science Association in Philadelphia on December 29, Jackson pointed out that unlike democratic forms of government, which were subject to periodic checks and changes through elections,

there is no practical way on earth to regulate the economic oligarchy of autocratic, self-constituted and self-perpetuating groups. With all their resources of interlocking directors, interlocking bankers, and interlocking lawyers, with all their power to hire thousands of employees and service workers throughout the country, with all their power to give or withhold millions of dollars worth of business, with all their power to contribute to campaign funds, they are so dangerous a menace to political as well as to economic freedom. Modern European history teaches us that free enterprise cannot exist alongside monopolies and cartels.³⁶

Ickes put an exclamation point to the month-long attack the following night in another national radio broadcast speech titled “It Is Happening Here,” his take on the satirical 1935 novel It Can’t Happen Here, by Sinclair Lewis, which depicted the rise of a Huey Long–type populist getting elected president with the help of an utterly fraudulent media tycoon and then turning America into a fascist dictatorship. In his diary, Ickes reveals that others had assisted him toward completion of a final draft, which he called “an attack on great agglomerations of capital.” He added: “I raised the monopoly issue [in the speech], pointing out that the struggle in this country was now, as it had been in the past, one between democracy and monopoly. I pointed out that if the latter won, it meant a fascist state with an end to our liberties.”³⁷

Roosevelt entered the first months of 1938 carrying all this on his shoulders. By all accounts, he was beleaguered and caught between fiscal conservatives led by Morgenthau who pushed for an end to deficit spending for fiscal year 1938–1939 and a growing number of advisers and confidants urging him to restore the spending he had cut the previous year. These included Eccles, Ickes, Jackson, and Works Progress Administration director Harry Hopkins. There was also the battery of administration economists and economic advisers, including Leon Henderson, Lauchlin Currie, and Alvin Hansen. All advised Roosevelt that the only way to overcome the immediate crisis of the recession and finally end the Depression was permanent deficit spending, what Eccles before all the others had called a compensatory economy. Yet Roosevelt was still incapable of resolving basic contradictions, as his biographer Kenneth Davis believes:

He was acutely aware of the threat. He did not know what to do about it. If he saw merit in each of the two broad and widely divergent courses of action that were pressed upon him by advisers, courses determined by radically different conceptions of what had gone wrong, he also saw grave hazards. Balanced against each other, the alternatives canceled each other out: He was unable to think his way through either of them to a conclusion that felt “definitely” more “right” than the conclusion reached when he considered the other. And so he continued to drift on a sea of troubles, tossed this way and that by waves of contradictory advice, as the long winter wore itself away.38

Roosevelt’s inability to make a decision left Eccles angry and bewildered. In an early March memorandum to Roosevelt, he reminded the president of his visit to Hyde Park the previous October when he had warned of ominous times ahead:

We appear to be launched on a severe depression of considerable duration. If this is allowed to happen, the New Deal and all it stands for is in danger of being discredited. Alibis will not be accepted…. The conciliatory attitude adopted by the Administration has borne no fruits either in dollar terms or in goodwill. By the nature of the case, leadership can come neither from business nor from the Congress. It is the responsibility of the Administration.

The greatest threat to democracy today lies in the growing conviction that it cannot work…. I urge you to provide the democratic leadership that will make our system function. Only in that way can the growing threat of Fascism be overcome.

Congress should be provided with a reflation program now. To permit it to adjourn without adopting vigorous remedial measures is to waste precious time and to court the danger of a 1931–32 winter. The stresses and strains, frictions and conflict that would result from another year of deepening depression would make our system even more difficult to work in the future.39

By month’s end, Roosevelt was moving in this direction. During a five-day visit to his summer cottage in Warm Springs, Georgia, he gave a speech in the city of Gainesville where he told his audience that the nation “will never permanently get on the road to recovery if we leave the methods and the processes … to those who owned the Government of the United States from 1921 to 1933.”⁴⁰

Soon after, Harry Hopkins arrived in Warm Springs “well armed with facts and figures about the economic situation, and with policy arguments written and oral” to convince Roosevelt that he needed to renew deficit spending in the coming fiscal year. As one of Roosevelt’s closest advisers and himself an architect of the New Deal, Hopkins was determined to get Roosevelt on board with Eccles and others who argued that government compensatory spending and curbing the power of monopolies were intertwined. According to Kenneth Davis, Hopkins was delighted to find Roosevelt “already well headed in that direction.” Both men recognized that a temporary return to laissez-faire economic policies in the previous budget “must be abandoned.” Roosevelt offered no resistance to any of the main arguments made by Hopkins. According to Davis, he and Hopkins were joined the next day by Jackson and Ben Cohen, a speechwriter and adviser to Roosevelt, as they all rode back to Washington together on the president’s special train. Jackson and Cohen reinforced what Hopkins had stressed about the necessity of linking deficit spending with the restoration of a competitive market economy and flexible prices—which was only achievable through government action against monopolies. By the time the train arrived in the capital, Roosevelt had agreed that Congress should investigate the problem of concentrated wealth and the power of monopolies.41

Morgenthau, who had also been vacationing in Georgia, learned of Roosevelt’s intentions but did not return to Washington until April 10, whereupon he went straight to the White House with a memorandum on “fiscal responsibility” that he dutifully read to the president, pleading with him to at least “sleep on it.” Morgenthau tried again during the next two days but to no avail. Claiming that the spenders had “stampeded him like cattle,” Morgenthau wrote that Roosevelt “has lost all sense of proportion” and threatened the president with his resignation.⁴²

On April 14, Roosevelt sent a budget message to Congress titled “Recommendations to the Congress Designed to Stimulate Further Recovery.” After weeks of riding the fence between two camps of his closest advisers, Roosevelt acted decisively by asking Congress to restore funding for government agencies and programs for the purpose of creating an “upward spiral” that would end the recession and then build on what the New Deal had achieved since its inception in March 1933. Accordingly, Roosevelt requested additional appropriations and loans totaling $3.6 billion for relief, public works projects, and other government employment programs, as well as desterilizing $1.4 billion in gold reserves that would pump more money into the economy.⁴³

ROOSEVELT DEFINES FASCISM IN ITS AMERICAN FORM

Two weeks later, on April 29, Roosevelt sent another message to Congress asking that it appropriate $500,000 for specified government agencies to conduct a “thorough study of the concentration of economic power in American industry and the effect of that concentration upon the decline of competition.”44 If Roosevelt viewed his April 14 request for fiscal stimulus as a remedy for the ailing economy, this one took aim at the source. To sustain recovery as the basis for a return to prosperity, it was necessary to restore competition in the marketplace for capital and labor alike. But this could only be done by contesting the steady march of corporate power over the rest of the economy. For Roosevelt, the consequences were ominous. Monopolies and the power of financial capital had delivered serious blows to competitive enterprise, which he considered the backbone of American democracy. To make his point, Roosevelt opened his request with language that is startling today. “Unhappy events abroad,” Roosevelt began, brought home “two simple truths”:

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.

Both lessons hit home.

Among us today a concentration of private power without equal in history is growing. This concentration is seriously impairing the economic effectiveness of private enterprise as a way of providing employment for labor and capital and as a way of assuring a more equitable distribution of income and earnings among the people of the nation as a whole.45

To make his case to Congress, Roosevelt cited statistics from the Bureau of Internal Revenue for 1935 and a report from the National Resources Committee (NRC). According to the IRS, one-tenth of 1 percent of all reporting corporations owned 52 percent of combined corporate assets; 5 percent owned 87 percent of total assets. The same lopsidedness applied to corporate profits. Less than 4 percent of reporting corporations took in 84 percent of all net corporate profits. Roosevelt also connected these disparities to the economic crisis: “The statistical history of modern times,” he wrote, “proves that in times of depression concentration of business speeds up.” Big business had grown even bigger “at the expense of smaller competitors who are weakened by financial adversity.” Moreover, the growing concentration of corporate wealth also fueled a sharp upward distribution of income. Based on the NRC report for 1935–1936,

forty-seven percent of all American families and single individuals living alone had incomes of less than $1,000 for the year; and at the other end of the ladder a little less than 1½ per cent of the nation’s families received incomes which in dollars and cents reached the same total as the incomes of the 47 per cent at the bottom.

Still, statistics alone were insufficient to “measure the actual degree of concentration of control over American industry.” It was necessary to grasp how “holding companies” and reliance on “strategic minority interests” by skilled managers facilitated the growth of financial control over industry “through interlocking spheres of influence over channels of investment”—yet publicly “masquerade as independent units.”⁴⁶

For Roosevelt, the steady integration of financial and management control within the largest American companies had given them dominance over the marketplace, driving out smaller, independent businesses. Monopolization was stifling the productive capacity of the entire U.S. economy. “Private enterprise is ceasing to be free enterprise,” Roosevelt declared, and is becoming a cluster of private collectivisms; masking itself as a system of free enterprise after the American model, it is in fact becoming a concealed cartel system after the European model.” The promise of efficiency in the potential of modern capitalism had turned into “banker control of industry.” In the process, monopolies created rigid and tightly managed prices that made it difficult for smaller, competitive companies to buy what they needed. The result was the decline of competition, job loss, and the destruction of buying power across the board, from the average American businessman to the individual consumer.47

An examination of all extant drafts of the message indicates that the earliest one did not include the word fascism. Nor did a revised draft made in Roosevelt’s own hand. The word appears in what is supposedly the fourth draft, but it is misspelled as “facism.”⁴⁸ Amusingly, the misspelling is corrected in the next revision but then misspelled again in the one that followed. Further inquiry into the private papers of Ben Cohen, Robert Jackson, and another key Roosevelt adviser and speechwriter, Thomas Corcoran, may shed light on the mystery of whose idea it was to include the word fascism in the message. All three huddled with Roosevelt and two secretaries on April 28 to construct a final draft, which the president sent to Congress the next morning. Whoever had proposed the word, Roosevelt certainly agreed.⁴⁹

Whatever Roosevelt thought about fascism is interesting to ponder. At a press conference in Washington a little more than a week before he sent the anti-monopoly message to Congress, he offered a rambling response to a specific question about the danger of fascism in the United States. He began by noting the threat to society when a breakdown or failure of a long-standing process results in a small group taking control of it. He made them laugh when he said he would not engage in a discussion of America’s “sixty or eighty families,” referring to a widely read book published the previous year by the journalist and writer Ferdinand Lundberg. Instead, Roosevelt pointed to the power of finance capital centered in New York and how that power had prevented economic development in the southern states. He gave two examples. First, the New York ownership of the Georgia Power Company had kept it from expanding throughout the state of Georgia because the owners in New York controlled the money. Second, lumber companies in several southern states wanted to begin making print paper from the yellow pine that dominated their forests. But all the profits were going north where the company owners were. If only profits had remained in the South, Roosevelt said, the lumber companies could invest in production and increase employment in the pulp mills of Mississippi, Georgia, and the Carolinas. Wages and living standards would rise. “I am greatly in favor of decentralization,” he finally concluded, “and yet the tendency is, every time we have trouble in private industry, to concentrate it all the more in New York. Now that is, ultimately, fascism.”50

Certainly there is nothing in his April 29 message to suggest that he believed fascism in the United States would come with the triumph of a populist demagogue, even if the latter had support from elements of Big Business. America got a glimpse at the possibility in Louisiana Senator Huey Long, whose populist rhetoric and growing opposition to the New Deal had swept him to rising national influence. Roosevelt feared Long. No doubt he felt some relief when Long’s political trajectory ended abruptly in September 1935, when Long fell mortally wounded to the floor of the state capitol, after being shot by a relative of a long-standing political enemy, and there were no worthy successors in the wings. But the fascist enemy was more than one man’s threat to the status quo. Roosevelt now declared that fascism in the United States was present in something far greater, Big Business, and it had become increasingly dangerous. This same political force that sought to own the democratic state was responsible for failing to meet the material needs and necessary employment for Americans to sustain decent living standards. This was implicit in Roosevelt’s definition of fascism in its specific U.S. form. American fascism meant business dictatorship and the end of democracy. Roosevelt sounded no different from the Marxists who defined fascism as the rule of finance capital. He and the communists shared much common ground. But Roosevelt actually said more about American fascism when he identified the business system as fascist in its aim to destroy democracy.

After several weeks of deliberation, Congress consented to Roosevelt’s request and created the Temporary National Economic Committee (TNEC) on June 16, 1938. For the next two years, the committee held hearings and called hundreds of witnesses whose testimony amounted to thirty-one published volumes. It commissioned scores of government economists to study economic data and record their findings in forty-three monographs.51 To date, the collected works of the TNEC remain the most comprehensive and thorough study of American business enterprise ever attempted by the federal government. In March 1941, its work completed and funding exhausted, the committee issued a two-volume final report, its findings and recommendations only to be pushed aside as Roosevelt and his advisers went from attacking fascist Big Business to harnessing its powers to prepare for a global war against fascism elsewhere.

FRANKLIN DELANO ROOSEVELT was a man at odds with himself in the winter and early spring of 1938. Stunned by the recession that bore his name and seemed destined to kill the New Deal, he remained in the wings while Ickes and Jackson went public about the looming danger of Big Business fascism—until he could no longer do so. When he finally rose to the occasion, he made contradictory statements and offered unworkable solutions under capitalism. In his April 1938 request to Congress to investigate the power of monopolies, Roosevelt assured American businessmen that the effort was in their best interests and, consequently, for American democracy. “No man of good faith will misinterpret these proposals,” he wrote. “They derive from the oldest American traditions. Concentration of economic power in the few and the resulting unemployment of labor and capital are inescapable problems for a modern ‘private enterprise’ democracy.” For Roosevelt, nothing could be clearer: American capitalism was good in itself because it was competitive and democratic. It became bad capitalism when ruled by monopolies and the business system. Accordingly, he claimed, his proposals “should appeal to the honest common sense of every independent business man interested primarily in running his own business at a profit rather than in controlling the business of other men.” Nor was this an indiscriminate program of “trust-busting.” Instead, it aimed

to preserve private enterprise for profit by keeping it free enough to be able to utilize all our resources of capital and labor at a profit.

It is a program whose basic purpose is to stop the progress of collectivism in business and turn business back to the democratic competitive order.

It is a program whose basic thesis is not that the system of free private enterprise for profit has failed in this generation, but that it has not yet been tried.

Roosevelt’s utopian vision of a fully democratized, competitive capitalism was unmistakable. There were no permanent contradictions in capitalism, only temporary abuses that were rectifiable:

Once it is realized that business monopoly in America paralyzes the system of free enterprise on which it is grafted, and is as fatal to those who manipulate it as to the people who suffer beneath its impositions, action by the government to eliminate these artificial restraints will be welcomed by industry throughout the nation.52

Here was the classic middle-class utopia now raised to what could only be a moral platitude in the era of monopoly-finance capital. The authors of the final report of the TNEC followed Roosevelt closely in this regard by concluding in March 1941 that “America must find the way to bring about a permanent decentralization if the ideals of a democratic social and economic structure for all our people are to be achieved.” But only after the global war on fascism was won. As the TNEC findings showed, the concentration of wealth and power was fueled even more by war preparations.53 Amazingly—or not—Roosevelt and the TNEC still clung to the principle of laissez-faire despite acknowledging that it now belonged to the monopolists who had destroyed it.

By the late 1930s, Roosevelt had seemingly become trapped by his own pragmatic thinking. Ever since he became president, he seemed forever caught between serving the capitalist order and believing that the New Deal would create a new morality in government that would fulfill the hopes of the “forgotten man,” a term Roosevelt employed as a presidential candidate in 1932 to describe the ordinary American worker savaged by the Depression. If not sufficiently aware of this irreconcilable contradiction, he never retreated from his defense of democracy as he understood it. Roosevelt was ever fearful of Big Business, which he considered the source of American fascism. He chose to run for an unprecedented third term because he viewed the Republican nominee, Wendell Willkie, as the personification of such a threat. During his first cabinet meeting after the Republican convention, Roosevelt said that Willkie represented “a new concept in American politics—the concept of the ‘corporate state.’” As Richard Moe has written, Roosevelt “knew that it was a huge stretch to try to connect Willkie with fascism,” yet he was certain that Willkie would become “a front for big business interests” and agreed with Harold Ickes who declared that “Willkie means fascism and appeasement.”⁵⁴ In his message to party leaders in Chicago after the start of the Democratic Party convention, Roosevelt made clear that the party could not “straddle ideals” in the face of this looming threat:

In these days of danger when democracy must be more than vigilant, there can be no connivance with the kind of politics which has internally weakened nations abroad before the enemy has struck from without.

It is best for America to have the fight out here and now.

I wish to give the Democratic Party the opportunity to make its historic decision clearly and without equivocation. The party must go wholly one way or wholly the other. It cannot face in both directions at the same time.55

After his reelection Roosevelt recognized that liberalism’s defense of the capitalist system still required fulfilling the basic needs of Americans. This was his motive for a “second bill of rights” which became increasingly important to him in his final years as president. It was present in his State of the Union message in 1944, in an “Economic Bill of Rights” that would make employment, housing, educational opportunities, and other benefits essential for human well-being as a right of citizenship.

At the time of his death, Roosevelt had taken the social-democratic impulse as far as possible within the framework of monopoly-finance capital. He seemed always on the fence between serving capital on the one hand and human needs on the other. An eternal pragmatist in defense of capitalism, he was in some sense its most significant victim. His utopian vision of a triumphant good capitalism could only be saved by eliminating bad monopoly capitalism.

While the United States did not go fascist, the threat still remained since the power of fascist monopolies and financial institutions was growing, just as the TNEC final report stated. That America escaped fascism to become in Roosevelt’s own words the “Arsenal of Democracy” in the global struggle against fascism elsewhere is something to ponder. Is it perhaps a supreme irony of contemporary world history that the germ of fascism inhered in the heart of capitalist modernization in a nation renowned in the world as the beacon of democracy?