A Just and Generous Nation

by Harold Holzer

  The government’s stimulus expenditures increased even further when Roosevelt focused on expanding the military capacity of the nation before and during World War II. Unemployment declined to 10 percent in 1941 and 5 percent in 1942 and less than 2 percent in 1943, 1944, and 1945. The continuation of New Deal domestic stimulus programs supported the American economy for three decades after the end of the war. The postwar unemployment rate remained between 3 percent and 6 percent until 1974 (with only two exceptions, between 6 percent and 7 percent). Before the New Deal, the budget of the federal government was typically less than 4 percent of the nation’s gross domestic product. During the thirty-two-year post–World War II period from 1950 to 1981 when New Deal domestic stimulus policies dominated the economy, federal government expenditures rose to a new high level, at close to 20 percent of an expanding GDP. Growth in GDP rose to an average of 3.8 percent, more than 30 percent higher than the period from 1900 to 1950. The evidence is clear. The Roosevelt New Deal programs inspired by Lincoln’s commitment to government for the people clearly worked to build a high-employment, high-growth, modern middle-class society.

  The increasing demand for able-bodied workers during World War II produced a great migration of rural African American laborers to military-product manufacturing jobs in northern cities like Chicago, Detroit, and New York. While segregation continued in both the North and the South, there was the beginning of an increase in African American middle-class families. At the same time, women began to enter the labor force in greater numbers—forming the initial stage of the change in the working status of women that reached its apex in the five decades after the end of the war.

  The New Deal legacy included programs designed to ensure that risk in the American economy was distributed more equitably among all segments of the population. Its major tools were regulation and insurance. Roosevelt sought to use regulation to prevent business from taking undue risks and engaging in corrupt practices of the kind that had brought on the 1929 stock market crash. At the same time, he put in place social insurance programs—such as unemployment insurance and Social Security—to protect ordinary Americans from the worst perils of modern economic life. The two measures—regulation and insurance—were mutually reinforcing. The combination instilled consumer confidence, especially in banks and financial institutions, in a sense gradually giving business back the customers who had fled when the roof came crashing down in 1929. By reducing or eliminating irresponsible business risk taking and by providing ordinary Americans with an insurance policy against the worst economic misfortunes, FDR rewrote the American social contract in a way that preserved the free-market economy and opened the way to continued prosperity. It was a new effort to apply Lincoln’s vision of positive government action to fulfill the promise of a government “for the people”—a government now reborn with programs that worked directly to build a modern middle-class society. Lincoln’s American Dream was once again front and center, as Roosevelt and his New Deal created the modern American middle-class economy and society.

  One major consequence of the New Deal was a rehabilitation of organized labor and the extension of unions from skilled crafts to the nation’s major industries—a shift that expanded the promises of Lincoln’s, and now Roosevelt’s, American Dream to an even broader segment of the American population. The 1930s were a period of extensive labor unrest, characterized by multiple strikes and intermittent violence. But the pain of unemployment had become so widely shared that public opinion, once hostile to unions, grew more sympathetic. Roosevelt supported legislation sponsored by Senator Robert Wagner of New York to strengthen the bargaining power of unions. Ultimately, the New Deal was responsible for two key pieces of legislation that revolutionized the American workplace. The 1935 National Labor Relations Act created a three-member government National Labor Relations Board (NLRB) with the power to protect workers’ right to organize, to conduct union elections, and to bargain collectively. As a consequence, by 1940 labor union membership rose to 8.7 million, compared to 3.0 million in 1932. The NLRB was also empowered to intervene to stop unfair labor practices. The 1938 Fair Labor Standards Act established the first mechanism for determining minimum wages, mandated a forty-hour workweek with overtime paid at time and a half, and ended child labor by forbidding the employment of children under sixteen.

  Together these elements—government economic regulation, unemployment insurance, Social Security, and protection of workers and their right to organize—would eventually help bring forth a fundamentally new kind of industrial economy in the post–World War II era, one in which ordinary industrial workers could aspire to and attain a middle-class standard of living, in which they enjoyed decent wages, relative job security, savings protected from financial mismanagement and malfeasance, the benefits of home ownership, and a measure of security in retirement. It helped put Lincoln’s American Dream within reach once again of the “prudent, penniless beginner” who started from the low rungs of the economic ladder.

  The most important New Deal initiatives—the commitments to full employment, to unemployment insurance, to Social Security, and to government regulation of financial markets—became an integral part of American economic life. They became so much a piece of the fabric of American economic activity that Americans took them for granted and failed to appreciate how critical they were to reducing the risks inherent in a modern economy. For more than four decades, Roosevelt’s New Deal programs made the world safe for capitalism and in turn made capitalism safe for the ordinary worker and consumer.

  Roosevelt tried to codify the gains that had been made in the New Deal and set forth the terms of the nation’s new social contract in his 1941 Inaugural Address. As he put it:

  The basic things expected by our people of their political and economic systems are simple. They are:

  Equality of opportunity for youth and for others.

  Jobs for those who can work.

  Security for those who need it.

  The ending of special privilege for the few.

  The preservation of civil liberties for all.

  The enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.

  Not only did Roosevelt define what Americans could expect from their government; he also defined four basic freedoms that all people were due. The world was in the midst of a war that the United States would soon enter, and at stake were these freedoms:

  Freedom of speech and expression;

  Freedom of every person to worship God in his own way;

  Freedom from want;

  Freedom from fear.

  In his 1944 State of the Union message, Roosevelt reiterated his commitment to a “second Bill of Rights”—essentially a replacement of the laissez-faire belief in an inactive government economic policy. Roosevelt’s vision constituted a renewal of Lincoln’s commitment to use the power of the federal government to support the dream of a successful middle-class society.

  One way Roosevelt sought to implement this vision was by passage of the Servicemen’s Readjustment Act of 1944, better known as the GI Bill. Lincoln had encouraged the establishment of land-grant colleges under the 1862 Morrill Act, and now Roosevelt was taking similar steps to encourage American veterans of the war to better their lots in life through education. For the first time, there was a unanimous vote in support of a massive federal program to provide returning veterans with the opportunity to secure the education and training to prosper in the newly developing postwar middle-class economy. The extraordinary bill passed the Senate by a vote of 50 to 0 and the House by 387 to 0. The positive role of government was, for a brief moment, not a partisan issue.

  The GI Bill provided unemployment compensation, mortgage loan guarantees, educational stipends, and business start-up loans for returning World War II veterans. Returning GIs received some $2.5 billion in unemployment payments in 1946 and 1947. From 1945 through 1950, the government provided veterans with more than $10 billion for
college and vocational training.

  Total spending for veterans (nearly $35 billion from 1945 through 1950) stimulated the economy. It also created a massive new college-educated middle class, whose skills would add to the growth and productivity of the economy for a generation. The federal government had been generous to veterans following previous wars. But after World War II, the money for veterans came in a form largely shaped by the social vision that Roosevelt had set forth in his 1944 State of the Union message. Veterans were given immediate cash to tide them over through unemployment. But they were also given specific assistance, in gaining a college education and purchasing a home. Americans were perhaps especially prepared to extend these “rights” of education and home ownership to individuals who had risked their lives in defense of the nation. But the long-term effect of the GI Bill was that it had used government aid to build an entire new generation of middle-class Americans.

  The GI Bill also played a major role in improving and extending access to higher education in the United States. It strengthened higher education by providing billions in indirect subsidies (in the form of the veterans’ tuition stipends) to the nation’s colleges and universities, allowing them to expand exponentially and meet the needs of tens of thousands of new students. Indeed, Roosevelt’s initiative enabled Lincoln’s land-grant colleges to flourish anew and become the basis for America’s modern public state universities.

  Roosevelt had hit upon a nonbureaucratic way of using federal resources to reshape an entire society. Costs of administering GI Bill benefits were relatively minimal. But the program’s impact in shaping America’s modern middle-class society was probably greater—and more effective—than anything that could have been accomplished through central planning or government command-and-control-style bureaucratic regulation.

  Lincoln had anticipated that college education could be a major engine of social mobility in the United States. The children of farmers could gain a foothold on the ladder to economic success through attendance at his land-grant colleges. Roosevelt found a way to give tangible reality to this vision in the twentieth century through the GI Bill. Between 1949 and 2009, enrollment in US colleges rose from 2.4 million to more than 19 million. By 2009 more than 41 percent of young Americans ages eighteen to twenty-four were enrolled in college. And American universities were a beacon to the world, increasingly attracting some of the best and brightest students from other countries. After graduation many of the students from other countries stayed in the United States, which offered them great opportunities to build successful careers and contribute to the economic growth of the American nation.

  The GI Bill was only one of the ways FDR and his immediate successors ambitiously redefined the role of government in the economy. In 1945 congressional sponsors of a proposed “Full Employment Act” sought to enshrine in law the “right” to a job, requiring the government to engage in “compensatory spending” in times of recession to ensure “full employment.” While the “right” to employment was excised from the bill, as was the requirement for “compensatory spending,” the compromise Employment Act of 1946 established government’s responsibility to promote “maximum employment.” The act also required an annual economic report from the president and established the President’s Council of Economic Advisers.

  To be sure, the law did not in any way guarantee full employment. But it was a powerful symbolic statement of the federal government’s new role. Not only was the government’s obligation to intervene in the economy established, but government’s role in the economy was now understood to be a responsibility. Like it or not, the unemployment rate had now become the barometer by which presidents and their administrations were to be judged. As perhaps the leading measure of presidential performance, the unemployment rate forged a direct link between the electoral fortunes of the president and his party, on the one hand, and the fate of the ordinary worker, on the other. It stood as a constant reminder that the economy existed to serve American workers and their families, not vice versa.

  Franklin Delano Roosevelt arrives at the Lincoln Memorial for a morale-boosting visit in the midst of World War II—on the Civil War president’s 135th birthday, February 12, 1944. FDR embraced Lincoln and became the first Democrat to win the African American presidential vote, so long faithful to the party of Lincoln.

  FROM THE LINCOLN FOUNDATION COLLECTION, COURTESY OF THE ALLEN COUNTY PUBLIC LIBRARY AND INDIANA STATE MUSEUM AND HISTORIC SITES

  The American economy that emerged after Roosevelt’s presidency differed profoundly from the limited-government, laissez-faire system of the pre–New Deal era. As the economy slowed in postwar recessions, federal revenues naturally dropped, but federal expenditures continued at a high level. And now the government was large enough for these expenditures to matter. Federal government expenditures had risen from less than 4 percent of gross domestic product before World War II to a continuing postwar level of close to 20 percent. Roosevelt’s programs provided a substantial stimulus to the economy during recessionary periods by sustaining aggregate demand with increased federal spending. Unemployment insurance was the most obvious support during economic declines. As unemployment went up, federal disbursements for unemployment payments went up simultaneously. This “automatic” support for aggregate demand kicked in immediately when recessions occurred and employment declined. And the US Federal Reserve Bank was now authorized to encourage economic growth by lowering interest rates under its dual mandate to support maximum employment and support stable prices.

  The post–World War II federal budget had become, in short, a kind of counterdepression machine. It automatically produced additional government spending whenever the economy began descending into a slump. The result was a pronounced moderation of downturns. The fiscal stimulus from increased government expenditures was an important hedge against an economic tailspin.

  Through each of his initiatives, Roosevelt had taken Lincoln’s vision of a government “for the people” a major step forward. Lincoln had fought to preserve America’s middle-class economy before industrialization took hold. That vision had foundered in the post–Civil War industrial boom. But now, the Roosevelt administration was creating a modern version of America’s middle-class economy, one in which the federal government would protect and support ordinary Americans in an increasingly complex and risky industrial and postindustrial economy.

  Like President Lincoln, President Roosevelt was called upon to confront the question of equal opportunity for African Americans who were still predominantly living in the southern states. Franklin and particularly Eleanor Roosevelt certainly did have a desire to improve the condition of African Americans. Franklin Roosevelt was mindful of the need to ensure that African Americans would benefit economically from his New Deal programs. Eleanor was both a private and a public advocate of equal treatment of African Americans. Her unprecedented sponsorship of a concert by the gifted African American singer Marian Anderson at the Lincoln Memorial was widely recognized as a recognition that African Americans should be treated on par with all other American citizens.

  Like other presidents before him, Franklin Roosevelt clearly understood the political benefit of embracing the Lincoln tradition. As governor of New York, Roosevelt is reported to have bluntly confided to a journalist that one of his goals was for “us Democrats to claim Lincoln as one of our own.” He proceeded to do just that. And this gave him the opportunity to compete successfully for the African American vote, which had remained rock solid for the Republican Party since the end of the Civil War. By 1936 the majority was Roosevelt’s—and has been Democratic ever since.

  In the first year of his administration, FDR had quoted Lincoln to justify the New Deal domestic policies. When World War II loomed, Roosevelt quoted Lincoln again. He hired Robert E. Sherwood to write his speeches, knowing full well he could rely on the man who had written the play Abe Lincoln in Illinois and was intimately familiar with the sixteenth president’s writings and speeches. The
decision paid off: soon Roosevelt’s own remarks echoed with references to what Lincoln would and would not do in the face of the Nazi threat. FDR positioned himself much like the hero of Sherwood’s drama—inclined by nature not to fight, but ready to do battle once sufficiently angered.

  Like Wilson, FDR stepped back into time and myth by traveling to Lincoln’s log-cabin birthplace in Kentucky. Before long, the Democrat Roosevelt had convinced Americans that no politician had more in common with the poor prairie rail splitter than this wealthy New Yorker. By the dawn of World War II, most Americans had come to believe that Roosevelt and Lincoln represented a prominent line of continuity in American leadership.

  Roosevelt was not the last president to amplify his connection to Lincoln. Ever since FDR, his real and would-be successors, regardless of party or philosophy, have sought the same brass ring.

  Eleven. GOVERNMENT IS THE PROBLEM

  REJECTING LINCOLN’S LEGACY

  FRANKLIN ROOSEVELT’S PROGRESSIVE GOVERNMENT policies were designed to create a modern economy he believed consistent with Lincoln’s dream of a successful middle-class society. Not everyone accepted Roosevelt’s ambitious new definition of the role of government in the economy. But FDR succeeded in forging a new economic consensus that would survive mostly intact under both Democratic and Republican presidents for more than three decades after his death.

  In the month after the death of her husband on April 12, 1945, Eleanor Roosevelt sealed the link between Presidents Roosevelt and Lincoln by describing her late husband’s legacy as a continuation of Abraham Lincoln’s “unfinished work.”