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When the unprecedented speed of the recovery between 1933 and 1937 is considered along with the rapid decline in unemployment, it is impossible to argue that the New Deal made the Depression worse. On the contrary, even before the disastrous attempt in 1937 to balance the budget prematurely, the federal government in the 1930s spent too little to combat the Depression, not too much.

The title of the January 1937
Life
two-page photo-spread told the story: “What President Roosevelt Did to the Map of the U.S. in Four Years with $6,500,000,000.” The map depicted the Los Angeles aqueduct and the Grand Coulee, Fort Peck, and Norris dams, the Triborough Bridge and Midtown Tunnel in New York City, a public school in Fort Worth, Texas, and Dinosaur Park and the spectacular Trans-Mountain Highway in Glacier National Park in northwestern Montana.
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The WPA alone between 1935 and 1943 was responsible for 572,000 miles of rural roads; 67,000 miles of urban streets; 31,000 miles of sidewalks; 122,000 bridges; 1,000 tunnels; 1,050 airports; 1,500 sewage treatment plants; 500 water treatment plants; 24,000 miles of sewers; 19,700 miles of water mains; 3,300 stadiums; 5,000 athletic fields; 12,800 playgrounds; 36,900 schools; 1,000 public libraries; 2,552 hospitals; 2,700 firehouses; 900 armories; 19,400 state and local government buildings; 416 fish hatcheries; and 7,000 miles of firebreaks.
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In his autobiography,
An American Life
, Ronald Reagan wrote: “The WPA was one of the most productive of FDR’s alphabet soup agencies because it put people to work building roads, bridges and other projects.”
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The National Youth Administration (NYA) provided assistance to four and a half million young Americans, ranging from work relief to work-study programs, benefiting poor black Americans in particular in spite of political concessions to white racism. The Civilian Conservation Corps (CCC) put unemployed men to work in conservationist projects like reforestation.

All of this, however, fell short of what was needed to provide a stimulus for the American economy commensurate with its problems. Federal credit programs like the RFC and federal employment programs like the WPA and CCC were helpful but inadequate. In a 1940 study for the government, Galbraith concluded that 13 to 15 percent of the total number of unemployed workers were employed by federal public-works programs, with another 18 to 21 percent engaged in work-relief construction jobs.
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Even worse, the federal government’s expansionary fiscal policies failed to offset the contractionary effects of state and local budget cuts and tax increases in all but two of the seven years beginning in 1933.
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The states responded to the revenue shortfalls caused by the Depression by raising sales and excise taxes, including gasoline taxes, and personal and corporate income taxes.
⁹²

In 1956 the economist E. Carey Brown concluded: “Fiscal policy, then, seems to have been an unsuccessful recovery device in the ’thirties—not because it didn’t work, but because it was not tried.”
⁹³

While the New Deal failed to pull the US economy completely out of the Depression before World War II, Roosevelt succeeded in rescuing American capitalism by reforming it. Although the New York patrician did his best to identify himself with Jefferson and Jackson, the heroes of the Democratic Party of his day, Franklin Roosevelt, like his cousin Theodore, arguably was a progressive nationalist in the tradition of Hamilton, Clay, and Lincoln. Roosevelt’s speechwriter Robert Sherwood suggested that the New Deal “was, in fact, as Roosevelt conceived it and conducted it, a revolution of the Right, rising up to fight its own defense.”
⁹⁴

Whether he was an enlightened conservative or a pragmatic liberal, Roosevelt excelled in evoking the hatred of the privileged and the admiration of ordinary Americans. During the Depression, a North Carolina farmer declared, in all sincerity, “I’m proud of our United States and every time I hear the ‘Star-Spangled Banner’ I feel a lump in my throat. There ain’t no other nation in the world that would have sense enough to think of WPA and all the other A’s.”
⁹⁵
“Dear President,” a furniture maker in Paris, Texas, wrote in 1936. “Know you are the one & only President that ever helped a Working Class of People.”
⁹⁶
A North Carolina millworker was more pungent in his praise: “Mr. Roosevelt is the only man we ever had in the White House who would understand that my boss is a son-of-a-bitch.”
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A more eloquent tribute came from Roosevelt’s most important protégé and successor, Lyndon Johnson. In October 1964 in South Gate, California, President Johnson, recalling FDR’s 1933 inaugural address, explained why Roosevelt’s leadership had been so important:

I remember the first President I ever saw, and the greatest President I ever knew. I saw him stand up one day in his braces, with pain in his legs, and anguish in his face, but vision in his head and hope in his eyes. I saw him talk to almost this many people, maybe more. It was a rainy, cold day in March 1933. The banks were popping in the country just like popcorn, just like firecrackers going off at Christmastime. They were closing.

   The railroad men had come running down to Washington and the insurance companies and all these captains of finance, all these smart conservatives, and the roof had caved in. People were burning their corn. Cotton was selling for 5 cents. You couldn’t find a job and relief lines were longer than from here to that airport I landed at, and that is 15 miles away.

   But this man stood up in that time when things weren’t near as good as they are today, with the braces on his legs, out of his wheelchair, and he grabbed that microphone, and he stuck his chin up, and his jaw out, and he said, “The only thing we have to fear is fear itself,” and he electrified a nation, and he saved a republic.
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The United States is like a giant boiler. Once the fire is lighted under it there is no limit to the power it can generate.

—British Foreign Secretary Sir Edward Grey to Winston Churchill
¹

Winning the war is a matter of oil, bullets and beans.

—Admiral Chester Nimitz
²

I
n 1940 in the
New Republic
, John Maynard Keynes wrote: “It seems politically impossible for a capitalistic democracy to organize expenditures on the scale necessary to make the grand experiment which would prove my case—except in war conditions.”
³
That grand experiment took place in the United States, following the Japanese attack on Pearl Harbor on December 7, 1941, and the formal entry of the United States into World War II.

In December 1943, President Franklin D. Roosevelt told journalists that “Dr. New Deal” had given way to “Dr. Win the War.” Earlier, on December 29, 1940, almost a year before the Japanese attack on Pearl Harbor brought the United States directly into the war, Roosevelt in a radio address to the American people called for the United States to mobilize its industrial power to aid the British and other victims of Axis imperialism: “American industrial genius, unmatched throughout all the world in the solution of production problems, has been called upon to bring its resources and its talents into action. Manufacturers of watches, of farm implements, of Linotypes and cash registers and automobiles, and sewing machines and lawn mowers and locomotives, are now making fuses and bomb packing crates and telescope mounts and shells and pistols and tanks.”

The president continued: “But all of our present efforts are not enough. We must have more ships, more guns, more planes—more of everything. . . . I want to make it clear that it is the purpose of the nation to build now with all possible speed every machine, every arsenal, every factory that we need to manufacture our defense material. . . . We must be the great arsenal of democracy.”
⁴

PREPAREDNESS

Even before the United States entered the war, the country rapidly expanded and reoriented the economy toward war production. In June 1939, Congress passed the Strategic Materials Act, to stockpile critical materials. In August, the War Resources Board was created.

In September 1939, Britain and France declared war on Germany following the joint German-Soviet invasion of Poland. At the time, unemployment in the United States averaged 17 percent and only 1.4 percent of GNP was devoted to military expenditure.
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Late in 1939, Congress amended the Neutrality Acts to permit the shipment of arms and other aid to Britain and France. Roosevelt asked Congress for a two-ocean navy and billions more for national defense.

Defense spending increased again following Germany’s invasion of France in May 1940. In June 1940, as Hitler’s armies overran France, the federal government drew up a National Roster of Scientific and Specialized Personnel, many of whom worked on the Manhattan Project, which will be described in chapter 15. In August 1940, the Defense Plant Corporation, funded by the Reconstruction Finance Corporation (RFC), was created to build defense factories and other facilities. In September 1940, Congress created the first peacetime draft in American history with the Selective Service Act. Also in September 1940, the destroyers-for-bases agreement provided Britain with fifty obsolete US destroyers, in return for ninety-nine-year leases by the United States of specified British military bases around the world.

The Roosevelt administration hoped that the Axis powers of Germany, Japan, and Italy could be defeated without direct US participation in the war by a combination of American aid and economic warfare. On March 11, 1941, Congress passed the Lend-Lease Act, which permitted the president to send arms or supplies to aid in the defense of any country that he deemed was “vital to the defense of the United States.” Under the lend-lease program, the United States provided $50 billion in aid, much of it in the form of weapons, tanks, locomotives, and other supplies, to its allies Britain, the Soviet Union, France, and China. Two-thirds of lend-lease aid went to Britain and its empire.

Another form of economic aid took the form of international cartels sponsored by the US government. During World War II, the United States engaged in dozens of commodity agreements in industries like coffee, sugar, and wheat, designed to stabilize prices. Most of these were with commodity-exporting Latin American nations whom the United States wanted as allies. In the words of one scholar, “By 1945, much of U.S. foreign trade ran through what were in effect government-controlled cartels.”
⁶

By the final quarter of 1941, 16 percent of US GNP was being spent on defense—the equivalent of the highest levels during the Cold War conflicts in Korea and Vietnam.
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The United States hoped to thwart Japan’s attempt to consolidate its empire in China without war by starving Japan of crucial war matériel. On October 16, 1940, Roosevelt imposed an embargo on scrap iron and steel exports to countries other than Britain and nations in the Western Hemisphere. This was followed on July 26, 1941, by a US embargo, joined by Britain and the Netherlands, on oil exports to Japan.

Japan faced a choice between abandoning its imperialism or attempting to seize oil and other resources in the British and Dutch colonies in Southeast Asia and neighboring countries. Choosing to persist, Japan hoped to buy time to consolidate its position in Asia by crippling as much of the US Navy as it could, as it had done in May 1904, when it destroyed much of the Russian fleet in the Russo-Japanese War.

On December 7, 1941, Japan attacked the US fleet at Pearl Harbor, Hawaii. On December 11, Germany declared war on the United States.

DRAFTING THE ECONOMY

When World War II began in 1939, the United States was unprepared, with an army of 200,000, a navy of 125,000 and a Marine Corps of 20,000. In 1939 and 1940, American soldiers used trucks to simulate tanks and broomsticks to imitate rifles.
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Because of failures of mobilization during World War I, the United States had been forced to rely on munitions supplied by Britain and France. General John J. Pershing complained: “It seems, ‘odd’ that with American genius for manufacturing from iron and steel, we should find ourselves after a year and a half of war almost without these mechanical contrivances which had exercised such a great influence on the western front in reducing infantry losses.”
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Following World War I, Congress charged the military with responsibility for ensuring that such a debacle did not occur again. As World War II approached, however, mobilization plans were abandoned and the Roosevelt administration improvised. After several abortive efforts, the administration settled on the Office of War Mobilization in May 1943. Donald Nelson, formerly the chief merchandising executive of Sears, the world’s biggest distribution firm at the time, was appointed by FDR as chairman of the War Production Board in January 1942.

To the disappointment of many on the political Left who wanted a socialized defense sector, the Roosevelt administration chose to mobilize private corporations to produce war matériel, as the Wilson administration had done during World War I. Before the war, the United States had produced 78 percent of the world’s cars and 64 percent of the world’s trucks and buses.
¹⁰
After Pearl Harbor, civilian automobile production halted and automobile factories were modified to produce tanks, planes, jeeps, and other vehicles. The Ford Motor Company, for example, made bombers at its eighty-acre Willow Run site outside Detroit as well as tanks instead of cars. Charles Lindbergh described Willow Run as the “Grand Canyon of the mechanized world.”
¹¹

Academic American economists played a role in shaping American strategy during the war. In 1942, American policymakers engaged in a secret debate about the feasibility of a US-British invasion of German-occupied Europe in 1943. In a classified report for the War Production Board, two economists, Robert Nathan and Simon Kuznets, concluded that it would not be possible to produce the necessary matériel until 1944 at the earliest. The army’s chief military supply officer, General Brehon Somervell, was furious. He denounced “this board of ‘economists and statisticians’ . . . without any responsibility or knowledge of production.” He called for the suppression of the report, which should “be carefully hidden from the eyes of all thoughtful men.” But the argument of Nathan and Kuznets prevailed, and D-Day was a success in 1944 instead of a disaster in 1943.
¹²

STATE CAPITALISM

The United States used state capitalism as well as private capitalism to mobilize the economy for war. The federal government expanded manufacturing capacity both directly, by building factories and war housing, and indirectly, by means of loans and tax breaks to private companies.

The purpose of the Reconstruction Finance Corporation (RFC), which itself had been modeled on the War Finance Corporation of World War I, changed from recapitalizing banks and businesses and funding public works projects to funding the expansion of industry for military purposes. The RFC created and funded a number of wartime agencies, including the Defense Supplies Corporation, the Defense Plant Corporation, the Metals Reserve Company, the Petroleum Reserve Corporation, the Rubber Development Corporation, the Rubber Reserve Company, and the US Commercial Company.

The government invested heavily in aluminum production. Before the war, Alcoa had been the only major producer of aluminum, which was used in airplanes. The federal government built new plants and brought Reynolds Metals Company into the industry. The Bonneville and Grand Coulee Dams generated electricity used to make aluminum for aircraft production and other military uses.

When the war ended, the federal government owned more than half of the country’s aluminum-production capacity. The government turned some of its facilities over to Alcoa’s competitors Kaiser Aluminum and Chemical Corporation and Reynolds Metal Company.

SYNTHETIC RUBBER

After the Manhattan Project, to be described in chapter 15, the greatest crash program undertaken by the federal government during World War II was the effort to produce synthetic rubber. In 1942, Japan’s conquest of much of Southeast Asia cut the United States off from its major suppliers of natural rubber, leaving it with an eighteen-month supply. Without rubber, the United States could not run its civilian economy, much less mount a successful global war effort.

At the beginning of 1942, only one small synthetic rubber plant existed in the United States and only 540,000 tons had been stockpiled. In September 1942, a committee headed by Bernard Baruch declared the existence of a synthetic-rubber shortage emergency.

The federal government rapidly built synthetic-rubber factories, which were leased to private operators by the Defense Plant Corporation. The factories generated 8,383 long tons in 1941; 22,434 in 1942; 231,722 in 1942; and 753,111 in 1944.
¹³

Three-fourths of the synthetic rubber manufactured in the United States during World War II was buna rubber, which derived its name from the chemicals in its makeup:
bu
from butadiene and
na
from natrium (sodium). Buna rubber was first synthesized in Germany in the 1930s. The circumstances by which the United States obtained it gave rise to a conspiracy theory about the alleged collaboration between Rockefeller oil interests and Hitler which, like other conspiracy theories, refuses to die.

In 1929, IG Farben, one of Germany’s industrial firms, developed a process to create oil from coal. In order to obtain access to the patents for this process and other innovations, Standard Oil of New Jersey created two joint ventures with IG Farben, called the Standard/IG Company and the Joint American Study Company (Jasco), in which Standard owned 80 percent of the stock and IG Farben 20 percent. Jasco ended up owning the patent rights to the process for artificial synthesis of buna rubber.

Between the outbreak of World War II in 1939 and the US entry in 1941 following Pearl Harbor, Standard and a number of other American firms with similar joint ventures, foreign subsidiaries, or membership in international cartels in particular industries found themselves in a difficult situation. The US government was officially neutral and could not abrogate the contracts without in effect declaring war on Germany, something it was unwilling to do, while it was difficult for the companies to disentangle themselves. The Japanese attack on Pearl Harbor, followed by Germany’s declaration of war against the United States on December 11, solved the problem. The US Alien Property Custodian seized the American assets of IG Farben, including not only its stock in Jasco but also IG Farben’s two important American subsidiaries, General Aniline and its marketing company General Dyestuffs, which controlled 40 percent of the American dyestuffs market.

IG Farben’s buna rubber was easier to make than neoprene, another kind of synthetic rubber developed by DuPont. Immediately following the Pearl Harbor attack, Standard Oil in December 1941 put its buna rubber technology patents into a pool to help American rubber production.

The matter should have ended there. But Thurman Arnold, the Justice Department’s chief antitrust lawyer, chose this moment to sue Standard for its ties to IG Farben. Protesting its innocence, Standard reluctantly settled with the Justice Department, only to find itself subjected to trial in public opinion. Before Senator Harry Truman’s committee overseeing wartime mobilization, Arnold blamed Standard Oil for the rubber shortage in the United States: “We believe that the cartel arrangements with Germany . . . are the principal cause of the present shortage of synthetic rubber.”
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Arnold’s charges, recycled by journalists and historians, became the basis of enduring conspiracy theories about sinister ties between Hitler’s Germany and Standard Oil, which had long been demonized in the press by Ida Tarbell and others.