Authors: Ira Katznelson
Fiscal policy scored the decisive victory. Key decisions included the choice to do away with the National Resources Planning Board (NRPB) and thus make the Bureau of the Budget the central coordinating site for economic affairs. These choices also included the postwar creation of a Council of Economic Advisers, and a shift in responsibility for the U.S. Employment Service from the Department of Labor to each of the forty-eight states. Labor questions, too, were shaped not all at once but in a series of wartime and postwar legislative decisions, culminating in 1947 with the Taft-Hartley Act. Although unions remained an important source of influence as the best-funded mass-based constituency group within the nonsouthern wing of the Democratic Party, the new law confined their possibilities and prevented labor from becoming a fully national political force. As a result, organized labor became a good deal less than its advocates had hoped and its adversaries had feared.
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I.
A
FTER THE
death of the National Recovery Administration in 1935, democratic planning faced steep barriers. By contrast, with the publication by John Maynard Keynes of
The General Theory of Employment, Interest and Money
in 1936, interventionist fiscal ideas gained growing traction both within the academy and in public life. Yet the planning impulse did not disappear. During the late 1930s and early 1940s, policy intellectuals and politicians revived the idea that government could, indeed must, directly intervene in sectors of the economy, including their labor markets.
A symposium of economists, sociologists, and political leaders convened in 1937 to discern how “planning, so far from being inimical to the democratic way of life,” might come to stand “as one of its chief justifications and ultimate fulfillments.”
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With these guiding words by the prolific urbanist Lewis Mumford, a group of twenty-nine other distinguished contributors—including the economist Wesley Clair Mitchell, the sociologist W. F. Ogburn, the anthropologist Margaret Mead, the political scientist Harold Lasswell, and the philosopher Sidney Hook—probed the prospects for democratic planning even before the economic downturn hit the country. Mitchell called on the social sciences to specify how government can be “a positive force for the public good” by identifying proper relations between government and business.
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Ogburn appealed for the development of regulatory means consistent with democracy to exercise control over the pace and direction of social change (“the logical means to control is planning; and adequate control must be based on planning in and for a changing society”).
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Mead looked to primitive societies as sources of motivation to a reliance on cooperation rather than competition.
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Lasswell cautioned about the dangers of propaganda even in nondictatorial systems of planning, which he thought to be inevitable.
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Hook stressed the importance of a “
democratic
conception of a socially planned order.”
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This diverse group captured both the sweep and the ambiguities that were inherent in the idea of democratic planning. As the decade was ending, the centrist Brookings Institution published an extended analysis of steps that could build effectively on the New Deal’s “shifts in the relationships of government to industry.” Running some thirteen hundred dry pages, its two volumes ambitiously called for “a considerable extension of government power over economic life” to mold business firms, provide knowledge for effective planning, mold labor markets, adjust labor disputes, manage natural resources, and organize a welfare state.
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The agency best suited for these tasks was the NRPB, “the most nearly comprehensive planning organization this country has ever known.”
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The board had been founded in 1933 as part of the Public Works Administration and was made a presidential board the next year by an executive order issued by Franklin Roosevelt. Assigned the task of advising the president on long-range planning, what then was called the National Planning Board announced its purpose in 1934, in its first report:
The experience of our day shows that no system, political or economic, unless it faces frankly the grave realities of modern economic and governmental life and boldly takes the initiative in broad plans for a better day, can be protection against explosion that wrecks and twists, while social discontent struggles to build some new structure promising more to the body and soul of those who feel themselves disinherited by the existing order of things.
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Drawing on a national community of social scientists and policy experts, the board’s wide remit included public works, transportation, electric power, housing, welfare concerns, technology, natural resources, and the structure of the economy.
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Looking back from the vantage point of 1939, the economist Allan Gruchy observed how such distinguished colleagues as Gardiner Means and Wesley Clair Mitchell had been developing an appealing approach to planning that promised to improve economic efficiency and achieve social values. Like that of the defunct NRA, this type of planning sought to build cooperation between business and labor in the public interest.
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Guided by a commitment to social citizenship, its longtime member Charles Merriam observed how the NRPB was organized to “plan primarily for freedom,” and he stressed that “democratic planning aimed not at curtailing but at enlarging liberty.”
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This, of course, was not a unanimous view. Just as Merriam was writing these words, Friedrich Hayek was publishing
The Road to Serfdom,
which presented planning as a tragic illusion for democrats.
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What both Merriam’s and Hayek’s writings signify is that planning was a subject for vibrant debate about economic and social policy, and whether it could serve as an instrument to protect democratic freedoms from dictatorial models. To be sure, the NRPB’s importance should not be overestimated. In the main, it did not plan but, rather, called for planning by gathering information and offering proposals. Moreover, as it was dismantled at the height of World War II, the NRPB proved short-lived.
Yet its role, both practical and symbolic, was significant nevertheless. In 1939, Congress simultaneously established the NRPB and the Bureau of the Budget (BOB) in the Executive Office of the President. These agencies were to be the president’s “principal management arms.”
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They were designed to work together. “The planning function,” the NRPB’s report of 1939 insisted, “is the natural and twin companion of the budget function. Long range plans are necessary to budget making.”
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From this vantage point, the NRPB was both a collaborator and a competitor with the BOB. From its founding in 1921, the BOB had largely been restricted to promoting and enforcing norms of efficiency within the public sector. The vast majority of its work until 1939 centered on collecting departmental budget requests, preparing the budget document, conducting studies of management techniques, and submitting proposals to make government more effective. This limited set of responsibilities continued during the early years of the New Deal. The BOB experienced only trivial growth during the first two Roosevelt terms, and it did not begin to grow substantially before the decade ended.
These two presidential agencies represented overlapping and potentially complementary but distinct impulses: planning and fiscal policy. The NRPB sought to facilitate what it hoped would be a more egalitarian nation, while the BOB emerged as a confident instrument of fiscal policy. What is clear when we follow the scale of their budgets and the size of their staffs is that, at first, there was an implicit tilt toward planning as the master idea. At the time, the NRPB’s budget was twice that of the BOB ($709,827, compared with $362,484), and its staff was some 50 percent larger (143 employees, compared with 103).
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In 1939, as a former staffer recalled, the Bureau of the Budget was “a very small, very hidebound organization which viewed its main function as a ‘no man’ or as a sort of green shade manipulator of the figures in the budget book.”
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Its forty-five professionals conducted their work with just one calculator and one adding machine.
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This balance altered dramatically in the next half decade. By 1943, the BOB’s budget grew to twice the size of the NRPB’s ($1,194,575, compared with $1,035,370); its staff became three times larger (352, compared with 129). By 1944, the NRPB was reduced to a skeleton staff of six and a budget of a mere $75,132 (compared with 360 and $2,415,425). By war’s end, it was gone.
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By then, the BOB’s budget was higher than $3,110,000 and its staffing, located in the Executive Building adjacent to the White House, stood at 512. With the death of the NRPB, the BOB swiftly became “the most vital part of the Executive Office,” as Wayne Coy remarked shortly before joining the Federal Communications Commission, after having served as an assistant budget director during World War II.
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The start of the European war in 1939 had provided new goals for the agency. These included eliminating resource shortages and production bottlenecks, and creating emergency systems for transportation, manpower policy, energy, and industrial production. Understanding that defense spending could be a powerful means to revitalize depressed areas, the BOB encouraged targeting such investments to economically stagnant counties, taking note of how the location of “defense facilities raises social and economic problems.”
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The new federal agency that placed these production facilities, the Plant Site Board of the Office of Production Management, was guided by the BOB’s recommendations.
The NRPB’s most significant and assertive activities concerned planning for postwar America. The board’s spate of writings during the early years of World War II remains the most comprehensive elaboration ever produced in the United States on the role democratic planning might play within the country’s political and economic institutions. Well before the United States entered World War II, President Roosevelt directed the agency in November 1940 to initiate studies of postwar planning. Its Post-War Agenda Section was particularly concerned to prevent a return to prewar economic conditions, especially the country’s high rate of unemployment. Taken together, the pamphlets and reports the board issued constituted an ambitious effort to articulate a vision of how the national state should direct markets, ensure high levels of employment, and provide comprehensive social welfare.
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In a credo issued in 1942, the board announced the aim of cleansing capitalism from “irresponsible private power, arbitrary public authority, and unregulated monopolies.” Through planning, it insisted, the federal government could help secure “a greater freedom for the American people.”
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As the board pressed this case, the Bureau of the Budget also grew in stature and responsibility. With the shift of the BOB from the Treasury to the Executive Office of the President in 1939, the agency entered a vigorous stage of expansion under the aegis of its new director, Harold Smith. A capable Michigan reformer and state budget director, Smith often used the simile of a central nervous system in describing the BOB’s role. Its dominant perspective was a Keynesian one, using budget surpluses and deficits as means to grapple with the business cycle, a position that members of the pivotal Fiscal Division and Smith often articulated. Speaking at Allegheny College in 1940, Smith characterized the federal government as “a great service enterprise which not only gives protection and care to individuals, but also undertakes to influence the business cycle in such fashion as to minimize its impact upon our citizens.” The budget, he argued, was government’s key tool, “the most accurate measure of this significant transition in the responsibility of government.”
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A key BOB manager, Donald Stone, who led the Division of Administrative Management, explained that this approach differed from that of the more interventionist NRPB. The board “mainly is concerned with long-range problems of the physical and human resources of the country,” while the BOB is responsible for finding fiscal means with which to stabilize employment and prices in the here and now.
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The BOB developed the concept of a national budget to promote a low-inflation, high-employment economy. Its economists, including its chief fiscal analyst, the New School’s Gerhard Colm, turned the budget into an economic policy instrument that utilized fiscal tools to deal with these fundamental macroeconomic issues. Of the agency’s five increasingly capable divisions, the Fiscal Division grew most rapidly.
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By mobilizing the expertise of those in the economics profession, and by incorporating their skills and knowledge into the heart of the bureau, this division’s professional staff placed budgeting within the context of larger economic and financial trends. Prior to 1939, the professional service of the bureau had been staffed exclusively by lawyers. That year, Smith engineered a radical transformation by employing fifteen economists out of the total professional staff of nineteen; by 1946, thirty-nine full-time economists were on his staff.
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Once simply the accounting arm of the federal government, the bureau became a crucial site of fiscal intelligence and policy.
As late as 1942, President Roosevelt continued to anticipate that the NRPB and BOB would work in tandem to steer the U.S. economy during and after the war. In transmitting the board’s
Report for 1942—National Resources Development
to Congress in January, he announced how this served as the first instance in “establishing the custom of an annual planning report as a companion document to the Budget of the United States.”
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Congress, however, imposed a different result. In a dramatic turn of events, the board was abolished and the BOB was placed in a position of commanding authority. Once again, the South’s role in directing the nature of the debate and in determining legislative outcomes proved pivotal.