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Did Franklin Roosevelt’s “new deal” weaken or save capitalism?

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Franklin Roosevelt's New Deal saved capitalism.

After the Great Depression, many countries turned to totalitarian regimes to get out of the catastrophic financial situation in which they found themselves. However, in the United States they decided to bet on a change in the politics of the nation and the elections of November 1932 were won by the Democrat F.D. Roosevelt. The Democratic Party was known to carry out an interventionist economic policy, so the new president aimed to stop the negative consequences (unemployment, falling consumption) that had occurred after the "crack" stock market three years ago.

Roosevelt was surrounded by what was called "brain trust", that is, a team of liberal politicians and reformers who had as their inspiration the theories of the English economist John Maynard Keynes. For the new team, the Great Depression was the result of surplus production and insufficient consumption. Therefore, they advocated a "new income distribution", called "New Deal", that would reduce production capacity while increasing purchasing power. There were three main measures that were included within this change of course.

First, there were the financial measures. In order to stop the chain of bank failures, they authorized the Federal Reserve to grant banks credits on deductible securities and effects. In other words, they approved the use of inflation, which is legalized in April 1933.

It also had a social section: the fight against unemployment. In May of 1933, the payment of federal subsidies to the different States was authorized for them to distribute aid to the unemployed. Combined with this policy, large public works were started in the most backward regions of the country. They were not random constructions, but aimed at offering possibilities for future employment, such as in Tennessee, where hydroelectric dams and irrigation systems were created.

In September of 1935 the "Social Security Act" was approved, a law that designed aid for the retired and the unemployed. All these measures were financed by taxes on beverages and the undistributed income of the companies. On the negative side, a budget deficit was generated that ended up disappearing with the recovery of the country.

Finally, the policy of production and income was qualified. After a series of obstacles imposed by the Supreme Court (dominated by the Republican Party), Roosevelt won again in the polls in 1936 and decided to create three new laws: the second AAA (law of agriculture), the National Labor Relations act (fixed union power) and the Fair Labor Standard Act (general framework of labor contracts and 40 hours of work). With this new legislation it was forced to reduce the agricultural and industrial production, while new more solvent rents were set.

The consequences of the New Deal have been perceived to this day. US companies have had strong solid structures for decades. The powers of the federal State were increased in relation to the different States, regardless of the increase in freedom of enterprise. Trade unionism and workers gained more power with the creation of a second trade union center (Committee for Industrial Organization). In addition, the number of unemployed fell from 14 million to 7.5 million between 1933 and 1937.

In short, by 1940, the situation had almost completely reversed and, although it was far from recovering total prosperity, the fact is that Roosevelt saved American capitalism through strict state control. The United States applied a much more conservative policy and it was not until the end of the Second World War that they achieved a new impulse that would restore their well-being and grant them world political hegemony during the second half of the 20th century.








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