The Shape of US Populism

Henry C.K.  Liu

Part I: Legacy of Free Market Capitalism
Part II: Long-term Effects of the Civil War
Part III: The Progrssive Era
Part IV: A Panic-Stricken Federal Reserve
Part V: The Great Depression, the New Deal and the 2007 Credit Crisis

Part VI: The Birth of the New Deal

This article appeared in AToL on May 22, 2008


The New Deal was a continuation of the populist movement of the1890s and the progressive movement of the 1900s, combining many aspects of the political philosophy of Teddy Roosevelt and Woodrow Wilson. The Populists from the Mid-Western farm belt in the late 1880s wanted public funds to be spent in physical and social infrastructure, such as transportation and education. They wanted to to reduce transportation cost of farm produce by breaking the monopolies of the private railroad companies profiting from government subsidy. Progressivism essentially targeted two evils: political corruption in the form of special privileges granted by government to organized wealth, and secondly to stop the growth of monopolies with market regulations. Unlike populists, progressives were pragmatists detached from fixed ideological worldview that might have seemed fanatical or irreconcilable. Progressivism extended populism beyond the farm belt.
In the time of Jefferson and Hamilton, the young nation was primarily a country of small farm owners, with an abundance of open land where equality and democracy could best be promoted by restricting the power of government to allow free play of individual initiative.  The establishment of a rich upper class, on the other hand, required positive government intervention. Early liberals generally were suspicious of big government and opposed the extension of its powers, while the exponents of upper class leadership favored strong centralized authority. As the national economy developed and industrialized, these positions on governments shifted. With the growth of big corporations that employed large number of wage-earning workers, the declining wealth of farmers, common individuals began to find it difficult to achieve economic independence and security by his own means without government protection, while big business wanted free markets to exploit its privileged positions gained from earlier government assistance.   
But in the 1930s, the Democratic Party was still dominated by Southern conservatives and political machines of the Northern industrial cities, both opposing a strong Federal government for separate reasons. Support for Roosevelt was strong among organized labor, small farmers and middle class reformers and the idealistic intelligentsia.  There was constant conflict between the conservative and progressive wings of the Democratic Party and some of the bitterest opponents of the New Deal were conservative Democrats. Some of the strongest supporters were liberal Republicans.

Roosevelt’s natural air of confidence and optimism did much to reassure a dishearten nation. His inauguration on March 4, 1933 occurred literally in the middle of a terrifying bank panic, a challenging backdrop for his famous words: “The only thing we have to fear is fear itself.” Such inspiring words were a exultant contrast five decades later to Carter’s disconcerting “malaise” speech of “crisis of the soul and confidence” to a restless nation facing rising gasoline prices at $1.25 a gallon, with gold rising to $300 an ounce but with the US enjoying a trade surplus with emerging China for another 14 years. The US now, with gas at $4 a gallon and gold over $1,000 and Trade deficit with China running to over $200 billion a year, would now thank God for the good old days of 1979.  Carter desperately imposed wholesale resignation on his entire cabinet in 1979, the third year of his first and only four-year term. In doing so, he deprived himself of valuable support and assistance in dealing with the Iran hostage crisis that cost him a second term.
Capitalism Was Saved in Eight Days
Roosevelt, on the very next day of his inauguration, declared a national “bank holiday”, closing all banks indefinitely until bankers and government could regain control of the situation, to prevent further runs on banks. Congress was completely compliant and gave the new President virtual dictatorial power in a national emergency. The Emergency Banking Bill, which strengthened, reorganized and reopened all still-solvent banks, was passed overwhelmingly by Congress with little debate. On March 12, Roosevelt announced that all sound banks would reopen. On March 13, deposits at those banks exceeded withdrawals -- a tremendous relief to a worried nation. “Capitalism was saved in eight days,” said Raymond Moley, a founding member of the President’s Brain Trust. It was a counterpoint to John Reed’s “Ten Days that Shook the World”, a chronicle of the October Revolution. 
Moley, a professor at Barnard College had recruited several Columbia professors to form a “Brain Trust” to advise Roosevelt during his 1932 presidential campaign. The group, derisively ridiculed by a skeptical anti-intellectual press, subsequently went to Washington to fill key posts successfully in Roosevelt’s New Deal program. Yet Moley broke with Roosevelt in mid-1933 to become a pro-Republican journalist and the most vocal conservative critic of the New Deal. On April 22, 1970, Republican President Richard M. Nixon awarded Moley the Presidential Medal of Freedom with the citation that “his exceptional ability as a political analyst is matched by a deep love of his country, and of the principles of democratic government.”

The bank “holiday” demonstrated the need and effectiveness of government intervention in an economic crisis. Hoover had allowed two previous bank panics to run their natural courses, which contributed to over 10,000 bank failures and $2 billion in lost deposits. The bank holiday in 1933 secured Roosevelt’s political reputation of decisive action, and convinced both Congress and the public that the New Deal was the right road to follow. Conservatives still consider government intervention as a corrupting element in free markets that encourages rising moral hazard and that government bailouts are the pain killers that will ultimately destroy free market capitalism. Pain is not punishment; it is a necessary warning against approaching danger. Without pain, free markets cannot self-correct preemptively before it reaches total meltdown.
FDR’s Bank Holiday and The Bernanke Fed’s Bear Stearns Bailout
Many present-day economists, including Stanley Fischer, the MIT-trained International Monetary Fund chief economist who left in 2001 to join Citibank as vice chairman and onto the Bank of Israel as governor in 2005, consider the Fed’s intervention in the 2007 credit crisis that escalated into an unprecedented rescue of Bear Stearns, an investment bank normally regulated by the SEC and not the Fed, as marking a “turning point” in the latest financial market turmoil.  Yet the Fed’s Bear move could be seen as a continuing pattern of escalating central bank market intervention rather than a turning point. Fischer as first deputy managing director of the IMF played a central role in the international monetary agency’s ineffective handling of the Asian financial crisis in 1997 and Russian bond default in 1998 which had added to, rather than moderating the severity of the damage.
“It is not over. There will be more occasions when we think that the world is going to go to hell in a hand basket. But for the first time since last summer it is clear that the authorities are beginning to contain the financial sector crisis in the US,” Fischer told the Financial Times recently. “My guess is that when the history of this crisis is written, the Bear Stearns rescue will be seen as a turning point. It was done very well and very decisively.” The statement sounds very much like famous last words. More likely, history will record the Bear Stearns move as the Fed pushing the panic button.
The Fed intervention was in fact done amid confusion. Information since available on the details of the rescue suggests that the Fed failed to notify Bear Stearns of it abrupt decision over the weekend to make discount window borrowing accessible to investment banks. Had Bear Stearns been armed with knowledge of the availability of that critical option, it might have gone to the Fed discount window for funds rather than to negotiate with JP Morgan which as a commercial bank had ready access to the discount window. The Fed insistence on JP Morgan capping the offer price of $2 per share to Bear Stearns was to bring home the impression that the rescue was not a bail out of Bear Stearns, but a move to prevent a market meltdown from counterparty effects from a Bear Stearns default. But the deal neglected the fact that Bear shareholder approval was necessary for the proposed transaction with JP Morgan and that such approval was unlikely at an offered price below what Bear shareholders could get in a bankruptcy filing. In the end, JP Morgan had to offer a new price of $10 per share to acquire 40% of the voting shares to ensure Bear shareholder approval, thus diluting the Fed effort to avoid any appearance of bailing out Bear Stearns shareholders. It was anything but a deal “done very well”. 

Back in 1987, Greenspan and Corrigan of the NY Fed executed a cleaner deal strong-arming all the major banks not to withhold payments for fear of counterparty default because then the number of counterparties was small and their identities were known, while in 2008, the number of counterparties was huge and their identities obscured by complex structured finance.
In 2008, Bernanke and Tim Geithner of the NY Fed executed a messy deal of questionable need. The Fed as a lender of last resort is mandated to support commercial banks and deposit-taking institutions that are critical parts of the retail payment mechanism if failing to do so threatens serious negative externalities in the entire market through contagion effects, such as classic bank run by depositors, even then only if the banks in question are otherwise solvent. Other institutions are also deemed too important to fail because they play a key role in the wholesale payments, clearing and settlement system and if their failure would cause systemic consequences. Institutions are provided with liquidity on non-market terms or bailouts by the Fed when they face cashflow problem, but not insolvency, because their failure would trigger a systemic chain-reaction of contagion effects on the entire market.

Bear Stearns did not fall within these criteria. It was not a deposit-taking institution. It played no role in the retail payment mechanism and was of no significance to the proper functioning of the wholesale payments, clearing and settlement system. There was no case for Fed rescue for Bear Stearns except the risk of systemic contagion effects, in which case the Fed should nationalized the investment bank at zero price per share and prevent it from defaulting any counterparty obligations. At most, the Fed can grant Bear Stearns shareholders the right to post-receivership claims on surplus value after the Fed as trustee has satisfied all Bear obligations.
Geithner told a U.S. Senate banking committee:  “On the evening of Thursday, March 13, 2008, I took part in a conference call with representatives from the Securities and Exchange Commission, the Board of Governors of the Federal Reserve and the Treasury Department. On that call, the SEC staff informed us that Bear Stearns’ funding resources were inadequate to meet its obligations and that the firm had concluded that it would have to file for bankruptcy protection the next morning. Absent a forceful policy response, the consequences would be lower incomes for working families, higher borrowing costs for housing, education and the expenses of everyday life, lower value of retirement savings and rising unemployment.”
Under questioning by Senator Christopher J. Dodd, Democrat of Connecticut, the committee’s chairman, both Fed Chairman Bernanke and Geithner said they played no role in setting the price, which was one of the most controversial elements of the deal.

In response to the same question, Treasury Undersecretary Robert Steel said that Treasury Secretary Paulson who could not attend the committee hearing due to a scheduled visit to Beijing to attend Sino-US strategic dialogue, had insisted during the negotiations that the price should be low because the deal was being supported by a $30 billion taxpayer loan, to make the broader point to the markets that the government did not want to encourage risky behavior by other large institutions, a sentiment known as “moral hazard.” 
The failure to keep the intended low purchase price turned even Senator John McCain, the Republican candidate for the 2008 presidential election, critical of the terms of the Bear Stearns deal. McCain said on television that he has “always been committed to the principle that it's not the duty of government to bail out and reward those who act irresponsibly, whether they're big banks or small borrowers.” The Wall Street Journal reported that McCain “displayed a strong populist streak over the housing crisis this weekend, blasting what he called the ‘outrageous’ and ‘unconscionable’ compensation of Bear Stearns and Countrywide executives and their ‘co-conspirators.”  McCain was quoted as saying: “I think it’s outrageous that someone who is the head of Bear Stearns cashes in millions and millions of dollars in stocks.” James Cayne, chairman and former CEO of Bear Stearns Cos., recently sold the vast majority of his stake in the company to JP Morgan at $10.84 a share, generating $61 million. As one of the largest shareholders., Cayne also lost a lot of money with the firm’s collapse. His stake was once valued at about $1 billion when the stock was trading at $171.50 per share.
Jacob Frenkel, vice-chairman of AIG, the US global insurance group, who preceded Fischer at IMF and the Bank of Israel, said the Fed had shown it was prepared to broaden dramatically its regulatory “clientele” to preserve the stability of the financial system. “The expansion of its clientele and the expansion of the range of assets have given a huge boost to the confidence of the market,” he said. “I think that the last month has been a crossing of the Rubicon.”  Frenkel seems to be confusing moral hazard with confidence. When Julius Caesar crossed the Rubicon, Rome’s days as a republic were numbered.
Still, the Financial Times reported that Fischer also suggested that central banks should do more to try to “prick asset bubbles” to prevent such crises from recurring. “The monetary policy view that you should not react to asset prices is wrong. Asset prices, including stock prices, affect growth and inflation and it is fully consistent with the monetary policy goals of providing price and financial stability to take asset prices into account in setting asset prices.” This amounts to a direct challenge to Greenspan’s mantra that it is not the central bank’s role to “prick asset bubbles”, only to clean up after they burst.
Closing rank with Greenspan, Frenkel said a policy to prick putative bubbles would be difficult to implement. “There is no way the Fed or any other monetary authority can prick all the bubbles that come its way. And so the real choice is which system do you want: one in which the Fed pricks three bubbles out of five or five out of three bubbles. Because we know for sure that we will not be able to solve four out of four.” This view echoes that of Allan Greenspan, the former Fed chairman now frantically defending himself from being blamed by many for following a policy that allowed serial bubbles to form. Still, most traders would agree that scoring three out five or overshooting five out of three is a preferable strategy than taking all incoming until death.
Greenspan Continues to Deny Responsibility
Greenspan wrote early April in the Financial Times that he is “puzzled” why so many commentators seek to explain the US housing bubble in terms of Fed actions when many other economies with different central banks and different monetary policies also saw rapid house price gains.  The answer is simple. The Fed is the head of the global central bank snake with the fiat dollar as the world’s key reserve currency. The Fed dominates monetary policies of all other central banks which must be reactive either with compensatory interest rate policy or currency revaluations. When the Fed eases, global liquidity increases and asset prices rise everywhere. Other central banks merely have options on which channel to react through; they do not have the option of decoupling from Fed policy or the dollar.
In early April, Greenspan wrote in defense of his policy: “We will never have a perfect model of risk”, explaining that: “We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.” Waiting for “speculative fever to break on its own?”  Pediatricians prescribe Motrin to break a child’s high fever because letting the fever run its course can cause permanent brain damage.
Alice Rivlin, first Director of the Congressional Budget Office from 1975 to1983, a persistent and vociferous critic of Reaganonmics responded: "Greenspan is right, of course, that we will never have a perfect model of risk in a complex economy. But the culprit was not imperfect models. It was failure to ask common sense questions:
Q: Will house prices keep going up forever?
A: Not likely.
Q: What will happen to the value of mortgage-backed securities when housing prices stop rising or fall?
A: They will go down.
We didn’t need fancy models to answer questions like that. We just needed to ask them."
Rivlin, a long-time defender of the economically helpless, stopped one step too soon. The culprit was not merely the bankers who did not asked these common sense questions. The bankers knew very well the common sense answers; but they comforted themselves by also knowing that securitization let someone else holding the bag of bad securities. The problem was not imperfect risk models; it was faith in the myth of a perfect hedge.
The factors behind the 2007 credit crisis were: 1) under-pricing of risk during years of debt bubble; 2) excessive leverage by market participants to magnify profit on the way up which inevitably magnifies loss on the way down; 3) conventional bank capital reserve requirements inadequate for overleveraged exposures; 4) defective risk management models; 5) inoperative credit ratings; 6) unidentified and dispersed counterparties and 7) circular hedges.  The sudden re-pricing of risk and de-leveraging caused market failures.
Top Economists Lost Personal Fortunes in 1929
A few days before the 1929 crash, the celebrated Irving Fisher, highly respected economist at prestigious Yale University who had worked out the widely accepted equation of exchange between money and price levels, famously predicted that: “Stock prices have reached what looks like a permanently high plateau.” Fisher stated on the day after the crash that the market was “only shaking out of the lunatic fringe” and went on to explain why he felt prices still had not caught up with their real value and should go much higher. Two days later, he announced in a banker’s meeting that “security values in most instances were not inflated.” For months after the crash, he continued to assure investors that a recovery was just around the corner.
Both Fischer and Keynes were personally fully invested in 1929. They not only failed to anticipate the crash but continued to deny it after the market imploded, suffering significant loss of personal fortune, leading Keynes to remark: “Markets can stay irrational longer than participants can stay liquid.”
While Keynes, the shrewd speculator, fell short on the ability to get out of the market near the top, he did have the unique ability to buy near the bottom. In 1932 he started buying stocks and bonds yielding 15%, and gold stocks, even though he did not consider gold a rational investment.  But Keynes was practical enough to adopt a trading pattern independent of his insights on economic theory. Having lost all personal wealth, Keynes turned to manage money for insurance companies and became spectacularly rich as a result, being worth over 600,000 pounds sterling at the time of his death in 1946, even though he had been completely wiped out in 1929 and then again in 1937 when he lost three-quarters of his net worth.
Populist and Socialist Impacts from Europe
Reaction to the appalling social effects of the Industrial Revolution led to the “Socialist Calculation” debate in Europe at the end of the 19th Century. With crushing poverty in fast growing cities from the socioeconomic effects of the industrial revolution and decaying rural areas from the collapse of agricultural feudalism, critics of laissez-faire market capitalism argued that free markets are prone to failure because it drives investment towards what is most profitable rather than what society most needs, and that the market mechanism generally fails also to distribute the created wealth equitably, thus creating a structural supply/demand imbalance. They asserted that a responsive government controlled by the people rather than by capitalist special interests, with progressive regulation over the means of production and patterns of distribution, could allocate resources, goods and gains in a more efficient and equitable manner for the good of all.
The debate was between socialists, Marxists and other populist reformers on one side and proponents of laissez-faire market capitalism on the other who argued that markets could allocate resources and rewards more efficiently than even an infinitely wise government could. Even granting that claim, markets by definition do not act to produce populist goals because of uneven market power among market participants. Free markets are threatened by unequal market power. Disparity in political power leads to dictatorship which is more efficient than democracy. Disparity in market power leads to monopoly which is also more efficient than free markets. Yet efficiency is not an argument for injustice.
In the second volume of Capital, Karl Marx observes that because the number of interlinked market conditions required for steady-state growth is too large, too complex and too contradictory, capitalism cannot avoid structural breakdowns. Soon after Marx’s death in 1883, as Marxist parties grew in number and as Western European states adopted democratic politics, many Marxists began to accept the possibility of the national state responsive to popular will as a progressive agent of change. This populist trend was part of the movement of revisionism, sometimes attacked by orthodox Marxists as opportunism. This revisionist period in European socialism coincided with the populist era in the US although there is no evidence that the two movements had any direct connection, except a parallel populist reaction to industrialization through capitalism.
The First World War brought about irreversible socioeconomic changes in Europe that continued after the war itself and even outlasted its geopolitical consequences. After Marx’s death in 1883, orthodox Marxism was represented by Friedrich Engels, and after Engel’s death in 1995, by Prague-born Viennese Karl Kautsky. A post-Marx revisionist challenge to orthodox Marxism came from Eduard Bernstein who argued that socialism can only replace capitalism as a conscious choice of the people channeled through political education, rather than merely preparing for inevitable revolution from structural contradictions. A similar populist position was taken by Sidney and Beatrice Potter Webb and the Fabian Socialists in Britain and Jean Jaurès in France who was assassinated for opposing the war three days before its outbreak by an ultra-nationalist.
As centrist leader of the German Social Democrats, Kautsky was denounced by Lenin as an ideological renegade. Kautsky in turn accused Bolshevism as a conspiracy movement that initiated revolutionary changes for which there were no economic presumptions in Russia.
Bernstein’s opportunist trend in international Social Democracy began at the end of the nineteenth century in Germany. Bernstein believed that a socialist infrastructure within capitalism would evolve from workers rights struggles and worker pension funds as a powerful source of capital.  This belief seems to have been validated by developments in advanced economies towards the latter part of the 20th century. Today, global capital markets are dominated by pension funds from both advanced and emerging economies. Whether socialist goals can be achieved through capitalistic markets remains an unresolved question that still awaits further field data. At this juncture, it appears that economic populism has become an unintended byproduct of free market capitalism.
Rise of National Socialism in Germany
In Germany, the rise of the National Socialists was enhanced by their ability to cut across class lines to reach a mass constituency and to transform them into the first real Volkspartei in German history.  The electoral successes of the Nazi movement did not simply reflect national resentment against the harsh terms of the Versailles Treaty or the hardships of the Depression. Germany, when presented the completed document without the benefit of a hearing, refused to sign the Versailles Treaty. No self-respect political figure would lend his name to such a shameful document. Two unknown representatives from a coalition of Social Democrats and Catholic parties finally consented to bear the burden of historic shame.
The Nazi rise to power was the result of a general populist awakening. World War I was the defining event in populist activism to various degrees around the world and definitively in Germany. Total war had spawned an unprecedented level of both voluntary and involuntary comradeship among the German people and an outpouring of populist self-expression had articulated the common experience of struggle and defeat.
The outbreak of World War I in 1914 unified the historical political divisions in German society. Catholics, Lutherans, Jews, conservatives, liberals, socialists, and particularly the middle class, were all filled with a new sense of nationalism. As the war dragged on, old divisions resurfaced. Subsequently, suspicion of Roman Catholics, Social Democrats and Jews grew. In 1916, the German High Command conducted a Judenzählung (Jewsih Census) that disproved allegations of lack of patriotism among German Jews, but the survey was not made public, despite the fact that most German Jews viewed the war as an opportunity to prove their commitment to the fatherland.
On the other hand, big business capitalists such as Krupp, the steel making giant, were found to be manufacturing and selling arms for both warring sides for profit. Companies skirted wartime price control by switching to uncontrolled goods, which created shortages that led to tensions between the more resourceful cities and the countryside and, more importantly, exacerbated hardships and bred social discord. By 1917, there were over 500 labor strikes across Germany resulting in over 2,000,000 total man-days of work lost. Striking workers were looked upon as unpatriotic by management while big business traded with the enemy all through the war. The German psyche was fixated on the “stab-in-the-back” myth (Dolchstoßlegende) to attribute Germany’s defeat in war to internal political conspiracy rather than military shortcomings.
The end of imperial Hohenzollern rule opened a valve for democratization to circles well beyond the constituencies of the left. Petit bourgeois and peasant populism championed the Volksgemeinschaft, the people’s community that rejected the egocentric claims of special interests, the multinational outlook of the imperial sovereign, the internationalist network of the aristocracy, the proletarian centricity of Marxism and the profit-driven big-business capitalism, while insisting on localization of politics to respond to the needs of the common man and on structural socio-political reform toward a people’s state. In the people’s community, class struggle is condemned and private property is tolerated only as long as it benefits the whole community.
Following Kaiser Wilhelm’s abdication, the self-indulgent Weimar Republic witnessed the proliferation of petit-bourgeois organizations in sufficient scale to contain the radical left. Denying the validity of class struggle, though still divided along the occupational lines, the new populism anticipated a “national socialist” consensus, the political realization of which proved beyond the ability of Weimar bourgeois parties to achieve. The militant Freikorps were too nihilistic to construct an effective political strategy. Instead, the National Socialists became the first party to actualize the populist consensus percolating below the surface since 1914. To the electorate, the Nazis stood for social inclusiveness, economic productivity, and a racially-infused ethnic nationalism that championed the resurgence of Germanic destiny.
Field Marshal Paul von Hindenburg, victor of the Battle of Tennenberg in 1914 against two powerful but ill-led Czarist Russian armies, defeated a rising Hitler in a runoff presidential election in 1932 but was obliged by popular demand to appoint Hitler chancellor in January 1933.  Hindenburg at first regarded the Nazi Party as a convenient tool that could be manipulated to undermine the harsh terms of the Versailles Treaty and to act as an ideological antidote against the Marxist left, and to provide an effective way out of the Depression. The Enabling Act (Ermächtigungsgesetz: Gesetz zur Behebung der Not von Volk und Reich (Law to Remedy the Distress of the People and the Nation), was passed by the Reichstag on March 23 and signed by President von Hindenburg the same day, in reaction to the Reichstage fire, granting the Chancellor the authority to enact laws without the participation of the Reichstag for four years. After Hindenburg’s death in 1934, Hitler declared the office of President vacant and made himself “Fuhrer”, combining of the office of president and chancellor.
Marx on Capitalistic Free Trade; Lenin on Imperialism
Marx argued that free trade would accelerate the structural contradiction within capitalism and bring about its evolution towards socialism. Lenin observed that imperialism as the highest stage of capitalism would delay perpetually its evolution towards socialism and such delay could only be overcome by political revolution. When the end of WWII, the war to save democracy, failed to bring about the end of Western imperialism around the world, national liberation struggles against residual imperialism broke out like forest fires. But the Cold War split the national liberation struggles between capitalist and socialist paths, diluting its strength and delaying its final victory for another half century. After the Cold War, economic globalization promoted by the sole remaining superpower became the dominant trend. Opponents of globalization see it as having taken the path of neo-imperialism.
Almost two decades after the Cold War ended in 1991, signs that globalized free trade are facing structural collapse are clearly visible and populist resistance to free trade has become increasingly vocal even in the advanced economies that benefit most from it.  Bernstein viewed protectionism in early 20th century Germany as helping only the financial elite to protect domestic industry from foreign competition at the expense of the laboring masses, as cross-border movement of capital was restricted by all governments.
Today, with globalization of deregulated financial markets and unrestricted cross-border movement of capital and funds, voices advocating protectionism tend to come from the laboring masses in the advanced economies whose members are seeing their jobs shipped overseas by transnational corporations controlled by global capital and their wages pushed down by cross-border wage arbitrage.
Russian Populism
Ukranian economist Michal Tugan-Baranovsky (1865-1919) whose 1894 book provided one of the first coherent and thorough economic theories of business cycles, suggested that capitalism, despite in many contradictions, could achieve steady-state growth, so the breakdown of capitalism was not inevitable, as practical experience up to his time had shown. If anything, capitalism was entering an ameliorative phase in the early 1900s through humanist reform by incorporating many of aspects of socialism.
Tugan-Baranovsky argued that cycles are driven by an independent investment function and that, ultimately, overinvestment becomes the cause of recessions and that there is not necessarily a secular movement towards “destruction” but rather only wave-like patterns boom and bust in capitalist economies. In another 1905 work, Tugan-Baranovsky extended this observation to argue that there are conditions whereby capitalist economies can arrive at a “stationary state” and thus arrest their move towards terminal crisis. Tugan-Baranovsky eventually adopted the views of his previous opponents, the Russian Populists (Narodism) on co-operative economies.
The Russian political intelligentsia was “fired with a vast and general zeal for struggle” against Narodism, which Lenin described as “the ideology of Russia’s peasant democrats.” (On Narodism, Lenin Collected Works, Progress Publishers, 1975 Moscow, Volumn 18, pages 524-528.) Lenin wrote: “The theory of Narodism is the theory of the bourgeois white-washing of capitalism with the aid of catchwords like ‘labor economy’; it is a theory which plays down, obscures and hinders the class struggle by means of these very same catchwords, by advocating restriction of the mobilization of the land, and so forth. … Narodism stands for bourgeois democracy in Russia.” (The Bourgeois Intelligentsia’s Methods of Struggle against the Workers, V. I. Lenin, Collected Works, 4th English Edition, Progress Publishers, Moscow, 1964 Vol. 20, pp. 455-86.) Narodism arose in Russia after the emancipation of the serfs in 1861 under Tsar Alexander II, which signaled the coming end of the feudal age in Russia. This coincided with the US Civil War which began in 1861. Noticing that freed serfs were being sold into wage slavery in which the bourgeoisie had replaced landlords, Narodism aimed to become the political force of populism to counter regressive developments in Russia.
Narodniks rallied in response to the growing conflicts between the peasantry and the prosperous kulaks (rich large farm owners) who hired peasant labor to work their large farms. Narodniks generally aimed nostalgically to reverse modern agricultural capitalism back to primitive agricultural socialism by opposing industrialization. By rejecting industrial socialism as a goal, they rejected industrial capitalism as its prerequisite. Russian Norodism had common threads with US populist communal agrarianism. Both resisted industrialization due to its socioeconomic consequences.
Narodniks viewed the peasantry as the revolutionary class that would overthrow feudal monarchism and identified the village commune as the embryo of agricultural socialism. However, they believed that the peasantry would not achieve revolution on their own, but instead that history could only be made by heroic leaders. Narodnik writers, such as Vasilij Voroncov, called for the Russian intelligentsia to “bestir itself from the mental lethargy into which, in contrast to the sensitive and lively years of the 1870’s it had fallen; and to formulate a scientific theory of Russian economic development.” The upper-class Narodnik intelligentsia needed to provide a concrete system of economic ideals and goals that would uphold the paramount importance of the village commune. These writers called for immediate movement towards revolutionary action that went beyond philosophical and political discussion.
In the conclusion of What Is To Be Done? - written between the end of 1901 and early 1902, Lenin divided the history of Russian Social Democracy into three periods. The first period spanned a decade from 1884 to 1894, a period of embryonic development of the theory and program of Social Democracy in the absence of a working class movement. This period coincided with the period of populism in the US. 
The second period embraced four years, from 1894 to 1898, during which Social Democracy appeared as a social movement from an upsurge of the masses to become a political party. The third period was “a period of disunity, dissolution, and vacillation, and the voice of Russian Social Democracy began to break, to strike a false note.” This period coincides with the period of cooptation of populism into the two-party system in US politics.
Lenin wrote that “it was only the leaders who wandered about separately and drew back; the Social Democracy movement itself continued to grow, and it advanced with enormous strides. The proletarian struggle spread to new strata of the workers and extended to the whole of Russia, at the same time indirectly stimulating the revival of the democratic spirit among the students and among other sections of the population. The political consciousness of the leaders, however, capitulated before the breadth and power of the spontaneous upsurge; among the Social Democrats, another type had become dominant – the type of functionaries, trained almost exclusively on ‘legal Marxist’ literature, which proved to be all the more inadequate the more the spontaneity of the masses demanded political consciousness on the part of the leaders. The leaders not only lagged behind in regard to theory (“freedom of criticism”) and practice (“primitiveness”), but they sought to justify their backwardness by all manner of high-flown arguments. Social Democracy was degraded to the level of trade-unionism by the Brentano adherents in legal literature, and by the tail-enders in illegal literature.”
Lujo Brentano (1844-1931), the German bourgeois economist, the author of a variety of bourgeois distortion of Marxism known as Brentanoism, advocated “social peace” in capitalist society, the possibility of overcoming the social contradictions of capitalism without resorting to class struggle, maintaining that the solution of the working-class problem lay in the organization of reformist trade unions and the introduction of pro-labor legislation and that the interests of workers and capitalists could be reconciled.
A theory analogous to that of Brentanoism was propounded in Russia by the chief representative of “legal Marxism”, P. B. Struve, in an attempt to use Marxism in the interests of the bourgeoisie. Lenin pointed out that “Struveism” takes “from Marxism all that is acceptable to the liberal bourgeoisie and rejects its living soul, its revolutionary nature. Struve ascribed to capitalism aims which were foreign to it, namely the fullest satisfaction of man’s needs; he invited people to learn from capitalism, and openly advocated Malthusian ideas.” According to Lenin, Struve was the “great master of renegacy, who, darting with opportunism, with ‘criticism of Marx’, ended in the ranks of counter-revolutionary bourgeois national-liberalism”.
Lenin observed that the “Credo program” had been put in operationwhen the “primitive methods” of the Social Democrats caused a revival of revolutionary non-Social Democratic tendencies.  Proponents of Economism, or opportunism, grouped around the “program Credo, written in 1899 by Y. D. Kuskova. Economism was an opportunist trend in Russian Social Democracy at the turn of the 20th century, a Russian variety of international opportunism. It limited the tasks of the working class movement to the economic struggle for higher wages, better working conditions, etc., asserting that the political struggle was the affair of the liberal bourgeoisie. They denied the leading role of the party of the working class, considering that it should merely observe the spontaneous development of the movement and record events.
According to Lenin, deferring to the “spontaneity” of the working-class movement, Economism belittled the importance of revolutionary theory and class-consciousness, and claimed that socialist ideology could develop from the spontaneous working-class movement. Adherents of Economism denied the necessity for bringing socialist consciousness into the working-class movement from without, by the Marxist party, and thus, they actually cleared the way for bourgeois ideology. They championed the existing scattered, isolated study circles with their parochial amateurish approach, encouraged disunity in the Social Democratic ranks, and opposed the creation of a centralized working class party. Economism threatened to turn the working class away from the path of class, revolutionary struggle, and to convert it into a political appendage of the bourgeoisie. Thus Bernstein’s famous opportunist statement: “The movement is everything, the final aim is nothing." The Credo of 1899 advocated that workers should confine themselves to the economic struggle, leaving the political struggle to the liberals.
Lenin concluded that scientific socialism ceased to be an integral revolutionary theory and became a hodgepodge “freely” diluted with the content of every new German textbook that appeared; the slogan “class struggle” did not impel to broader and more energetic activity but served as a balm, since “the economic struggle is inseparably linked with the political struggle”; the idea is formed of a party did not serve as a call for the creation of a militant organization of revolutionaries, but was used to justify some sort of “revolutionary bureaucracy” and infantile playing at “democratic”. Thus Lenin proclaimed: “we may meet the question, ‘What is to be done?’ with the brief reply: Put an End to the Third Period [of Social Democracy in Russia].”
Bernstein and the revisionists were opposed by all prominent figures of the orthodox Marxism: Kautsky, Rosa Luxemburg, Georgy Plekhanov and others.  But the orthodox response was not uniform and itself was transformed in the ensuing debate. Kautsky first replied that there was no theory of breakdown in Marx’s work on capitalism, and in 1902, he acknowledged there was a theory of “chronic depression”, not a big-bang breakdown, but rather one that stressed the increasing severity of recurrent crises.
In 1913 Rosa Luxemburg argued that it was not obvious what Marxist “surplus-accumulation” was supposed to achieve, particularly if would come a point when there would be nobody to buy more goods produced by expanded production and thus realize further surplus.  In her critique of the Marxist worldview, Luxemburg argued that crisis is only inevitable in a closed system, but that in an open system (i.e. a system with exogenous consumption), the crises can be averted by obtaining new buyers in non-capitalist pre-industrial countries.  Imperialism, she argued, was the competition of capitalist nations for precisely these consumers. Beginning in the 1990s, globalization of trade and finance provided market capitalism with an expanded open system. Two decade later, the open system is showing signs of reaching its limits to once again become a closed system. Crisis then again becomes inevitable.
Modern-Day German Populism
German president Horst Köhler, former director of the International Monetary Fund (IMF) taking on a populist tone, expressed in a Stern magazine interview published on May 15, 2008 the contempt among German politicians towards bankers as a result of the current credit crisis. He likened bankers to “alchemists”, accusing them of “massive destruction of assets” and described global financial markets as “a monster” that urgently needed reining in.
Public opinion polls in Germany have shown the public as increasingly viewing big business as unwilling to share its profits with the general population, resulting in rising prices and stagnant wages. Such public opinion has emboldened trade unions in their quest for record wage settlements this year. This has led to an escalation in industrial action, and persuaded many politicians, including members of the government, to back higher pay claims.
Lenin, Bukharin, Luxemburg Churchill, Bush and the Revisionist Debate
Both Lenin in 1916 and Nikolai Bukharin in 1917 disagreed with Luxemburg’s theory and provided their own view of imperialism.  Imperialism, they argued, is the outcome of capitalist competition for profit derived from rents, not necessarily the outcome of crisis avoidance, even though that might be the result.  They regarded the First World War precisely as a “hot” version of competitive capitalism.
Today, the second Bush administration’s neo-conservative “transformational” foreign policy to “enlarge” capitalistic democracy in the world as a strategy to prevent war is based on an questionable assumption that democratic nation states do not wage war on each other, a myth created by Winston Churchill to masked the two World Wars, both conflicts caused by a challenge on the British Empire by a rising Germany, as a moral struggle between the Democracies and Fascist states. German expansionism did not begin with the Nazis. It was a key cause of World War I. Churchill was merely waving the democracy flag to induce an ideological US to side with Britain against a rising Germany again in WWII. There was no democracy in the non-white colonies of the British Empire.
Bukharin, editor of Pravda, was regarded as the foremost theoretician of the Russian Bolshevism in its early years and a promoter of the “sociological” approach to Marxist theory championed by Austro-Marxists.  Yet his 1917 book contained an attack on the Austro-Marxist School. Bukharin as leader of the left opposed Russia’s withdrawal from the war but later sided with Lenin. His 1918 piece on imperialism was written soon after Lenin’s 1916 pamphet: Imperialism, the Highest Stage of Capitalism.  In 1920 Bukharin wrote “The ABC of Communism”. He was the main promoter of the New Economic Plan (NEP) in the USSR, which emphasized small-scale peasant farming and the use of market incentives in a socialist context.  After Lenin's death in 1924, Bukharin became a full member of the Politburo, and the president of the Third Communist International (Comintern) in 1926.
Despite his internationalist tendencies, Bukharin elaborated on the thesis of “Socialism in one country” put forth by Stalin in 1924, which argued that socialism, the transitional stage from capitalism to communism, could be developed in a single country, even one as underdeveloped as Russia. This new theory stated that revolution needs no longer be encouraged in the capitalist countries, since Russia could and should achieve socialism alone. The thesis became the central theme of Stalinism. The Cold War was as much a conflict of superpower expansion as a struggle to contain communist expansion. Bukharin was purged for his opposition to collectivization by Stalinists in the trials of 1938 and subsequently executed. 
The revisionist debate energized a group of Viennese lawyers and scholars known as the Austro-Marxists, including Max Adler, Otto Bauer, Rudolf Hilferding and Karl Renner.  Renner focused on the problem of nationality and the sociology of law.  His 1904 text remains the classic Marxian work on the role of law in society.  During World War I, Renner broke with the left wing of the Austrian Social Democrats represented by Bauer, and attempted a re-orientation of Marxian thought to account for the rise of white-collar workers and the growth of the State.  Renner was the first Chancellor of the Austrian Republic in 1918 and President of Austria in 1945. 

After the failure of the German Revolution of 1918 which led to the end of the imperial system and the establishment of a republic, revolutionary goals inspired by socialist ideas failed.  While all socialist were republicans, not all republicans were socialists. In January 1919, the leadership of t
he Social Democratic Party of Germany (Sozialdemokratische Partei DeutschlandsSPD), Germany’s oldest political party founded by August Bebel and Wilhelm Liebknecht, whose Gotha Program was criticized by Marx in his Critique of the Gotha Program, resisted socialist policies. Fearing an all-out civil war, the SPD leadership, in line with other middle-class parties, rejected complete stripping the old imperial elites of their power. Instead they sought reconciliation with them under a new democratic framework. In this endeavor they sought alliance with the army and allowed the Freikorps (nationalist militias) to suppress the “Spartakist” uprising by force. Rosa Luxemburg and Karl Liebknecht, leaders of the Spartakist, were captured in Berlin on January 15, 1919 by the Freikorps Garde-Kavallerie-Schützendivision, tortured and shot. The German socialist revolution formally came to an end with the adoption of the new Weimar Constitution on 11 August 1919.

While revisionists opted to justify their new-found position and to alleviate the fears of the middle classes, by embracing the revisionist idea of socialism being a "conscious choice" of the proletariat, not an inevitable outcome.  The great exceptions were Henryk Grossman (1929) who argued that capitalism simply has to collapse because it is trapped into a declining rate of surplus value; and Otto Bauer (1936), critic of Kautsky’s agrarian policy, contributor to an understanding of the connection between nationalism and class conflict. Bauer was the leader of the left wing of the Austrian Social Democratic Party.  Bauer served in the early government of 1918-19. These theorists set forth a new, formalized “breakdown of capitalism” theory arising from under consumption. Michal Kalecki’s theory of distribution cycles were developed largely in response to the Marxian debate on “under consumption” crises.
The Austrian School
The Austrian School of economics emerged around Carl Menger, a pioneer of the Marginal Revolution in 1871 at the University of Vienna. Ludwig von Mises and Friedrich von Hayek were later adherents. Joseph Schumpeter, an early member, later turned towards Walrasian marginalist ideas.  Oskar Lange of the University of Chicago argued that prices are merely monetized rates of exchange of one good for another. The issue of “finding” correct prices and market stability points can be solved by the government acting as the mythical Walrasian “auctioneer”. This was precisely what the Fed did when it announced on December 12, 2007 the Term Auction Facility (TAF) program, under which the Fed would auction term funds to depository institutions against the wide vantiety of collateral that can be used to secure loans at the discount window. 
Furthermore, on the issue of socialist economies’ lack of profit incentives, Lange reiterated that in a modern capitalist economy, with the growing division between ownership (stockholders) and management (CEOs), the incentives were similarly distorted. In this respect, Lang closed ranks with the Institutionalists. Deploring the universal pretensions of much of economic theory, the Institutionalists stressed the importance of unique historical, social and institutional factors which make economic “laws” contingent on these institutional factors. Much of everything in the economic world, they argued, was not immutable but rather conditioned by the influence of an always changing history - whether acting on the individual directly, or indirectly through the special institutions and distinctive society which surround him.
Friedrich Hayek argued that a state-run economy could not achieve full efficiency in resource allocation as in a capitalist one largely because the information conveyed by the price-mechanism of a market economy was greater than the information any planner could possibly acquire and manage. Hayek focused on information and self-organizing markets as arguments for the logic of free markets. Ironically, it was Marx who predicted that the number of interlinked market conditions required for steady-state growth was too large, the relationship too complex and the goals too contradictory for capitalism to avoid structural breakdowns. Joseph E. Stiglitz shared the Nobel Memorial Prize in Economics in 2001 with George A. Akerlof and A. Michael Spence “for laying the foundations for the theory of markets with asymmetric information.” Regulation against insider trading is a  pilar of free financial markets.
Linear Programming and Input-Output Models
The USSR adopted the techniques suggested by Lange, leading to the development of linear programming by Leonid Kantorovich which demonstrated that efficient allocation in a planned economy required effectively the same of use of prices as in a competitive market economy. Linear programming is the optimization of an outcome based on sets of constraints using a linear mathematical model. Linear programming theory falls within convex optimization theory and is also considered to be an important part of operations research. It is widely use in corporate planning in all market economies. Wassily Leontief was awarded the Nobel prize in 1973 for his work on input-output models in which an economy with a number of industries each using input from itself and other industries to produce a product. The Leontief input-output model, the determination of shadow prices, etc., is used in business application to maximize profit in a factory that manufactures a number of different products from the same raw material by determining the optimum mix of products using the same resources. Studies of efficiency in a multi-market scenario suggest that a planned collectivist economy could do no better than a private free market system in the idealized Walrasian world, but it might also do no worse. However, socio-economic justice can most likely be better served.
Economic Utility of Socio-Economic Justice
When the economic value of socio-economic safety nets in private market economies is recognized, planned collective economies tend to perform better, particularly if equality is assigned reasonable monetary value to reflect its economic value. In a private free market economy, resources are marshaled toward the highest price, not always toward the highest need, even by private entities, because those most in need may not have the money to pay the highest price which is why they are in financial need. Thus shortages can occur until prices rise. Or to put it another way, those in highest need are often forced to pay the highest price in a market economy, or to put it still another way, allocation by price can amount to a built-in inefficiency because rising needs could create price inflation. Thus the satisfaction of basic human needs, such as health care, education, social security, environment protection, tend to be priced out of the reach of most consumers so that the rich can have first claim to preserve the advantage of having more money, or as economist would call it, the marginal utility of money. For example, there is a surplus of hospital beds in the US while large segments of the middle class cannot afford hospital care or adequate medical insurance. In a private free market, members of the middle class will never have enough money to satisfy all their needs.  This self-evident truth is the foundation of economic populism.
FDR Strategies for Recovery

In 1933 Roosevelt’s strategy for dealing with the Great Depression consisted of two prongs. First, relief for those most in need by a redistribution of newly created wealth more equitably, away from the already rich who needed it less, to the poor who normally received less than their fair share which was why they were poor. Being not a revolutionary, Roosevelt never entertained redistribution of existing wealth. The second prong was structural economic reform through the creation of new institutions with radical redistribution of power such as union protection programs, the Social Security Act, full employment programs and programs to aid tenant farmers and migrant workers. Most of Roosevelt’s early macro policies involved shifting spending from one program to another within a balanced budget. He did not accept at first Keynes’ recommendation of deficit spending, and did not do so until World War II spending forced him to. Counter-cyclical demand management was the outcome rather than the program of the Roosevelt New Deal.

The First 100 Days

Roosevelt’s legendary “First 100 Days” concentrated on the first prong of his strategy: immediate relief. From March 9 to June 16, 1933, FDR sent a compliant Congress a record number of bills, including banking reform laws, emergency relief programs, work relief programs and agriculture subsidy programs, all of which passed easily. These included the creation of the Federal Emergency Relief Administration, the Civilian Conservation Corps, the Reconstruction Finance Corporation, and the Tennessee Valley Authority. Congress also gave the Federal Trade Commission broad new regulatory powers, and provided mortgage relief to millions of farmers and homeowners.

The success of the First 100 Days was important, because it got the New Deal off to a strong and immediate start to give it an image of effectiveness. Later, the conservative Supreme Court would declare many of the New Deal programs unconstitutional, and Roosevelt’s political prestige as a problem solver would decline as his policies failed to end the depression, particularly when compared to the economic success of Nazi Germany. Many New Deal programs continued well into the 1980s before being dismantled by neo-liberal deregulation first adopted by Democrat president Jimmy Carter who by 1982 had deregulated airlines, trucking, railroads, oil and interest rates, and set up much of the deregulation machinery that Reagan would later use to apply supply-side economic theory to national policies. The New Deal was finally buried by another Democrat President Bill Clinton who declared in a radio speech on January 27, 1996: “The era of big government is over.”
The New Deal Spirit
The New Deal was not all about economics. Woodrow Wilson, the progressive Democrat, had issued the executive order that officially racially segregated the Federal Government. One legacy of post-Civil War Republican ascendancy was that Washington’s large black population had access to federal jobs, and worked with whites in largely integrated circumstances. Wilson, a Virginian, brought Jim Crow laws to Washington. Segregation in Federal government agencies and programs had not been recognized as a key failing of US race relations in the decades before the Civil Rights Act of 1964 signed by Lyndon Johnson, a populist Texan, of Pat Wrightman tradition. Wrightman, the voice of populism, served in the US Congress from 1929 to his death on March 7, 1976, serving as chairman of the House of Representatives Committee on Banking and Currency for 40 years, for 20 of which, he introduced legislation to repeal the Federal Reserve Banking Act of 1913.
Wilson and Federal Government Segregation
The Federal government under Wilson used its immense power to impose a segregated pattern of race relations among its employees and through its social programs upon the whole of American society well beyond the Mason-Dixon Line and throughout the world in its diplomatic network and military facilities. Both the First and Second World Wars, the wars to defend democracy, were fought with a segregated military and a segregated diplomatic institution. This pattern structured the relationship between African Americans and the United States Federal government, whether as employees in government agencies, inmates or officers in federal prisons, inductees in the armed services, consumers of federally-guaranteed mortgages, jobseekers in Federal Employment Service offices, or visitors to National Parks in which the facilities were segregated or, in some cases, off limit to African American visitors all together. In all these instances, segregation did not simply imply physical separation, but also profound prejudice, glaring inequality and discrimination. Instead of thwarting segregated race relations, the Federal government participated in their maintenance and diffusion.
The Ickes: Two Generations of Civil Rights Activism

Harold LeClair Ickes, Secretary of Interior in the Roosevelt administration, took the courageous action to end racial segregation in the Federal Government. Ickes also stepped in after the Daughters of the American Revolution barred Marian Anderson from staging a performance in Washington's Constitution Hall in 1939 because of the color of her skin. Ickes offered the African-American diva the Lincoln Memorial in its place and the gesture received such overwhelming support that 75,000 turned up to hear her sing from the top of the memorial’s steps. In 1955, Anderson made her debut with the Metropolitan Opera. She was appointed an alternate delegate to the United Nations in 1958 and in 1963 was awarded the Presidential Medal of Freedom.
Harold McEwen Ickes, the son, a life-long civil right activist, was deputy White House chief of staff for President Bill Clinton. Ickes chaired Clinton’s presidential campaign in New York in 1992. Before that, he was a senior advisor to African-American David Dinkins’ successful mayoral election in 1989. In 2000, Ickes was a senior advisor to Hillary Clinton’s New York campaign for the Senate. He is now a senior advisor to Hillary Clinton’s uphill presidential campaign.

Talking Points Memo reports top Clinton aide Harold Ickes admitted pushing the Rev. Jeremiah Wright issue with super delegates: “Super delegates have to take into account the strengths and weakness of both candidates and decide who would make the strongest candidate against what will undoubtedly be ferocious Republican attacks,” Ickes continued. “I've had super delegates tell me that the Wright issue is a real issue for them.” In a reference to Wright’s controversial views, Ickes continued: “Nobody thinks that Barack Obama harbors those thoughts. But that’s not the issue. The issue is what Republicans [will do with them]...I think they're going to give him a very tough time.” Asked whether he was specifically bringing up the Wright issue to super-delegates, Ickes said: “I’ve said what I've said...I tell people that they need to look at what they think Republicans may use against him. Wright comes up in the conversations.” Wright’s Black liberation theology views have been causing problems for Obama’s message of racial harmony in its campaign of “hope and change” for the presidency. The Reverent Wright issue has been largely manufactured by the Hillary Clinton campaign, not by the Republicans. If Republican candidate John McCain can overcome the burdensome legacy of George Bush, there is no reason why Obama cannot overcome the issue of Reverent Wright, except for the tenacity of Hillary Clinton to win at any cost.
A 1997 profile by Michael Lewis in the New York Times relates how in 1965 Ickes’ car carrying civil right workers was attacked in Tallulah, Louisiana by a group of white men. Ickes told his two blacks colleagues to run for their lived and faced the gang by himself. The men fired a shotgun over his head; Ickes responded as he had been trained, curling up in the fetal position. Fighting back would have gotten himself killed. When the local sheriff finally arrived after the attack, he arrested Ickes for disturbing the peace and let the attackers go free. Ickes lost a kidney from the beating. Of all people, Ickes should understand the sociological context of the Black liberation theology espoused by Wright, and to dismiss fear mongering. It is pathetic that internecine intra-party politics is pushing a second generation civil rights activist to work against the prospect of the first African-American president.
The pathetic fact is that after two generations of courageous struggle for racial justice, Ickes sincerely believes that the nation is still not ready for a Black president unless the candidate openly denies his blackness as embodied in Black liberation theology. What is even more pathetic is that Ickes may be correct in that assessment. The issue for whether Obama is electable rests on how effectively he can detached himself from associating with Black liberation theory, not on whether BLT is acceptable to US voters.   
Hillary Clinton’s expected victory in West Virginia, by a margin of roughly two to one, has provided a belated adrenaline boost to the Clinton camp and new life into its devious argument that Barack Obama will face insurmountable challenge in winning the hearts and votes of the blue collar base of the Democratic Party in a general election. West Virginia is now viewed as a Republican state, having twice voted for George W. Bush, and many of its white working-class voters are typical of those in more active swing states, such as Ohio and Missouri and possibly Pennsylvania. According to exit polls, about 20% of Democratic voters in West Virginia considered race to be a key factor in their decision to vote against Obama.
Soviet Influence on the New Deal
The New Deal was also affected by the experience of the Soviet Union. In 1928, the Soviet Union, under a new state planning commission called “Gosplan”, worked out the First Five-year Plan, putting an end to Lenin’s New Economic Policy (NEP). This plan succeeded in rapidly developing capital industries but failed to reorganize agriculture. Many US management engineers were recruited by the Soviet First Five-Year Plan. Returning to the US in the depth of the Great Depression, these US experts brought with them a fresh enthusiasm for national planning within the capitalistic system that excited public interest. In 1931, a book about Russian planning, New Russia’s Primer, even made the Book-of-the-Month Club. Many of these returnees joined the New Deal movement.
Kondratieff Long Wave Theory
Nikolai Dmyitriyevich Kondratieff (1892 - 1938), a proponent of the Soviet NEP, helped develop the Soviet First Five-Year Plan in 1917, for which he analyzed factors that would stimulate Soviet economic growth. Kondratieff favored the populist strategic option for primacy of agriculture and the industrial production of consumer goods, over the development of heavy industry. In 1926, Kondratieff published his findings in a report entitled: Long Waves in Economic Life. Based on studies on prices and interest rates between 1789 and 1926, Kondratieff put forth the theory of long-wave cycles of boom and bust ranging between 50-60 years in capitalist economies. He was purged in 1928 and executed in 1938 and his place in history was rehabilitated in 1987. Kondratieff enjoys today a large following among market analysts worldwide.
FDR Pragmatism
Franklin D Roosevelt became president of the United States on March 4, 1933. Neither informed on economics nor an ideologue central planner, not even a businessman by virtue of being independently rich from birth, FDR was dedicated to public service with Yankee pragmatic confidence. He was assisted by his “brain trust”, a group of progressives such as R G Tugwell and Raymond Moley of Columbia, Henry Wallace, an agricultural reformer, Herbert Fei, Adolf Berle and Donald Richberg, experts in law and economics. The FDR administration marked the involvement of academics and scholars in US government in the ancient Chinese tradition.
FDR, liked to describe himself to a quarterback in a football team, made all final decisions towards apolitical goal, some decision mutually contradictory to balance ideological excesses within a unified strategy. FDR faced urgent problems that required immediate action: a systemic banking crisis, a market collapsed in agriculture with widespread farm bankruptcies and a stalled industrial economy with high unemployment. His first term was consumed with rescuing the capitalistic order from its structural faults, rather than to promote the establishment of a new system of central economic planning. He saw government intervention in failed market as not only a legitimate mandate, but also a matter of national security.
Two days after he became president, FDR issue an executive order to forbid the export of gold and directed banks not to pay out gold in exchange for currency, essentially to ignore the Gold Standard established since 1900. The Emergency Banking Act (adopted March 9, five days after inauguration) authorized the Reconstruction Finance Corp to buy bank preferred stocks, a back-door nationalization measure. See my June 13, 2002 article in AToL: National Planning and the American Myth.

Celebrated Sung dynasty neo-Confucian reformer Wang Anshi (1201-86) revived Chinese state socialism beyond historical natural socialism in Chinese society. Henry Wallace, as US secretary of agriculture during the administration of President Franklin D Roosevelt, adopted Wang’s idea of subsidized farm credit and price guarantee and applied them to New Deal programs during the Great Depression of the 1930s. Wallace, a liberal Republican turned Democrat, later became Roosevelt’s third-term vice president but was replaced by Harry Truman in FDR's fourth term as a result of conservative opposition domestic and foreign, including British prime minister Winston Churchill, who complained of Wallace's being soft on communism. Had Wallace been still vice president when FDR died in office in his fourth term, he would have been president instead of Truman, no atomic bombs would have been dropped on Japan, and the Cold War might have been avoided. See my July 22, 2006 article in AToL: WAGES OF NEO-LIBERALISM - Part 4: Development financing and urbanization.
The Agricultural Adjustment Act (AAA), passed in 1933, is premised on idea that low farm prices are the result of overproduction.  Government sought to increased farm prices by paying farmers to reduce production by reducing acreage.  While the original AAA was declared unconstitutional by the Supreme Court, a new act correcting for the Court’s concerns was passed in 1935.  The irony of reducing food production to keep prices high in a society and a world in which many children went to bed hungry was not missed by critics.   The problem of US agriculture was and is insufficient demand in the form of purchasing power, not insufficient supply.  The centerpiece of the crop reduction program was acreage allotment. It helped large and well-capitalized agribusiness, but not small farmers. Landlords needed less labor under a system that paid them to leave their land idle. Tenants farmers and sharecroppers faced eviction and homelessness.  The fundamental problems of the economic depression were weak consumer demand due to falling wages and unemployment.  In the long run, the effect of the AAA was beneficial mostly to large farm operators.
Populist Monetary Movement
Title III to the Agricultural Adjustment Act, the Thomas Amendment, drafted by Democratic Oklahoma Senator Elmer Thomas, (1876-1965) , blended populist easy-money views with the theories of the new economics. Thomas wanted a stabilized “honest dollar” devoid of deflationary effects, one that would be fair to both debtor and creditor. It sought to assure that the face value of loans to farmers could be repaid at maturity by selling the same amount of farm produce at price when the loans were taken out.
The Amendment gave the president broad discretionary powers over monetary policy and  mandated that whenever the President desired currency expansion, he must first authorize the Open Market Committee of the Federal Reserve to purchase up to $3 billion of federal obligations. Should open market operations prove insufficient the President must have the US Treasury issue up to $3 billion in new money, or reduce the gold content of the dollar by as much as 50 percent, or accept 100 million dollars in silver at a price not to exceed fifty cents per ounce in payment of World War I debts owned by European nations. The aim was to prevent deflation, not to fight inflation.
The Thomas Amendment was rarely applied. The Treasury received limited amounts of silver in payment of war debts from World War I. With the mandate of the Amendment, Roosevelt ratified the Pittman London Silver Amendment on December 21, 1933, ordering the United States mints to buy the entire domestic production of newly mined silver at 64.5 cents per ounce. Roosevelt’s most dramatic use of the Thomas amendment came on January 31, 1934 when he decreased the gold content of the dollar to 40.94%, in effect devaluing the dollar by 60%. The result was that wholesale prices continued to climb. In the long run, the most significant expansion brought on by the Thomas Amendment may have been the growth of governmental power over monetary policy. 
Bimetallism and Populism
Bimetallism had become a focus of political conflict at the turn of the 19th century. The metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money, as stated by Gresham’s Law of bad money driving out good. This occurred in the United States throughout the 19th century as the official bimetallic standard became in effect a silver standard. Newly discovered silver mines in the American West caused an effective decrease in the value of money. In 1873 Congress passed the Fourth Coinage Act which embraced the gold standard and de-monetized silver at the same time as these new resources of silver were beginning to be exploited. This was later referred to by Silverites as “The Crime of ’73,” as it was judged to have led to deflation, causing problems for farmers with large mortgages that could not be repaid by selling their produce at depreciated prices. In addition, improvements in transport meant it was cheaper for farmers to ship their grain to Europe, and they over-expanded production until there was a glut on the market. The Panic of 1893 was a severe nationwide depression that brought the money issue to the fore. The “silverites” argued that using silver would inflate the money supply and mean more cash for everyone, which they equated with prosperity. The gold advocates said silver would permanently depress the economy, but that sound money produced by a gold standard would restore prosperity. The gold advocates won decisively in 1896 and 1900. The Democrats and Populists lost heavily in the 1894 elections, which marked the largest Republican gains in history.
Many of the western silver mines closed, and a large number were never re-opened. A significant number of western mountain narrow-gauge railroads, which had been built to serve the mines, also went out of business. The depression was a major issue in the debates over Bimetalism. The Republicans blamed the Democrats and scored a landslide victory in the 1894 elections. The Populists lost political power and had to support the Democrats in the 1896 presidential election which was fought on economic issues and was marked by a decisive victory of the pro-gold, high-tariff Republicans led by William McKinley over pro-silver William Jennings Bryan.
The New Deal and National Planning
The 1933 National Industrial Recovery Act (NIRA) set up the New Deal’s fundamental strategy of centralized planning as a means of combating the Depression.  Industrial sectors were encouraged to avoid "cutthroat competition" (selling below cost to attract dwindling customers and drive weaker competitors out of business) which may have been good for individual businesses in the short-run, but resulted in increased unemployment and an even smaller customer pool in the long-run.  The government temporarily suspended enforcement of anti-monopoly laws and sponsored what amounted to price-fixing as an emergency measure.  Similar efforts were made to stabilize wages within industries as well.  Again, the basic problem left unanswered was overall weak consumer demand.   The NIRA did address this in a limited way with the Public Works Administration which funded various public employment schemes; however, the number of jobs created by the PWA was miniscule compared to the number of jobless workers.       
Support and Opposition for TVA
The “First” New Deal created the Tennessee Valley Authority (TVA -1933) that heralded the future populist approach of the “Second” New Deal of helping the people directly, not through private big business.  The TVA provided government financing to transform the economies of seven depressed, rural Southern states along the Tennessee River.  The program included dam-building, electric power-generation, flood and erosion control.   It provided relatively high-wage jobs in construction in a region Roosevelt called “the nation's number one economic problem.”  Critics saw creeping socialism in the TVA venture even though private free market had not helped to eliminate poverty in the region since the end of the Civil War; liberals saw it as a successful example of government solving socio-economic problems that private enterprise had fail to solve.
Yet both the left and the right exploited the rise of populism to promote their separate agenda. Roosevelt’s programs of government intervention were opposed by the extreme right as represented by the Liberty League, a speaker's bureau funded by the Du Pont family and other big business interests which sought to fuse a partnership between the segregationist Georgia Democrat governor Eugene Talmadge and other conservative leaders to create a grassroots right-wing populist opposition to the institutional approach of the New Deal.  Liberty League speakers toured the country accusing Roosevelt of instituting creeping socialism. Talmage’s son, Herman Eugene, succeeded him as governor at his death in 1947 and was elected to the senate for four consecutive terms and only lost a fifth term run in 1980 after having been denounced by the Senate in 1979 for financial misconduct.
Despite organized opposition, the New Deal helped Georgia out of its post-Civil War poverty and brought to it advances in rural electrification, education, health care, housing, and highway construction. Georgia’s farmers, in desperate straits from decades of depression and low cotton prices, were echoing the demands of the 1890s Populists for activist government in agricultural policy. The New Deal also had a particularly personal face in Georgia; Warm Springs was Roosevelt’s southern White House, where he founded a rehabilitation center for polio victims. He met and worked with many Georgians of diverse politics and died there on April 12, 1945.
Dr. Francis Townsend, a California physician, argued in favor of a federally-funded old-age pension as a means of ending the Depression.  He argued that turning the nation's elderly population into robust consumers would solve the underlying problem of weak demand.  Dr. Townsend's clubs began springing up across the country as his message of care for the elderly meshed with people's desire for a rapid end to the Depression. 
The flamboyant senator from Louisiana, Huey P. Long, joined Roosevelt’s critics with his “Share Our Wealth” plan.  Long proposed a guaranteed household income for each American family paid for by high taxes on the wealthiest.  Long’s rising popularity until his assassination in 1935 further demonstrated to FDR the discontent of the people.
US populism also found voices in the extreme right. Right-wing radio personality Roman Catholic priest Father Charles Coughlin denounced government assistance to the needy and claimed the New Deal led the country toward a Communist dictatorship.  He suggested Nazi Germany as a correct model for the US and blamed the Depression on an international Jewish conspiracy.  At the height of his popularity, millions listened to his radio sermons each week.

The Liberty League showed Roosevelt that he would not get any support from the big business right, nor can he depend on it for solutions to the Great Depression. Roosevelt was not anti-big-business as he was frustrated by the inability of big business to solve real economic problems that it had created in the first place. The popularity of Coughlin showed Roosevelt that the suffering public could be exploited by the extreme right to destroy the American political system. The Southern Democrats were vehemently against the New Deal for its progressive civil liberty outlook, particularly on racial integration. These developments of diverse opposition pushed FDR toward the liberal Republicans for support of the new Deal. In 1932 the Socialist presidential candidate Norman Thomas had tripled his 1928 showing as hard times rejuvenated the Socialist critique of the capitalist system.  Thomas posed no serious electoral threat to FDR, but Roosevelt was sensitive to the rising popularity of socialism, as were the liberal Republicans.  
The Second New Deal
These developments push Roosevelt to launch the “Second” New Deal (1935-40s), which aimed at reviving the economy from the bottom up. It aimed to end the Great Depression by spending public money at the bottom of the economy to revive consumer demand.  The Works Progress Administration (WPA) was a massive federal jobs program to create employment for the purpose of boosting consumer demand.  The jobs varied but consisted of mainly of construction of public roads, buildings and parks.  Over the course of its life (1935-43) over eight million workers were employed on WPA projects. This was the first “counter-cyclical demand management” measure on a national scale.
Responding in part to Townsend’s advocacy for senior citizens, the 1935 Social Security Act set up a modest worker-funded but federally-guaranteed pension system.  Though falling far short of the level proposed by Townsend, Social Security did act as a safety net for older workers, promote increased consumer demand and earned a place as a fixture on the US political and social landscape. The Social Security regime, conceived as a worker-supported pension program, is now in actuary crisis as the demographics tilts toward a older population. Until social security is viewed as part of national security and funded as such, the program will head toward insolvency.

Another significant component of the Second New Deal was the National Labor Relations Act of 1935. Known also as the Wagner Act after its sponsor, Senator Robert Wagner of New York, this law prohibited employers using intimidation and coercion in breaking up unions.  It set up the National Labor Relations Board to guarantee the right of collective bargaining for workers.   The result was the formation of the Congress of Industrial Organizations (CIO) whose auto worker and coal miner units soon saw their wages increase significantly.  Again, higher wages among the masses of the working class was the centerpiece of the “Second” New Deal to restore the economy from the bottom up.
Nixon: “We are all Keynesians Now.”
Many programs of the New Deal, such as Social Security, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and Labor Mediation Practices have become permanent institutions in US society and stabilizing forcing in the US economy. Yet the role of the new Deal in ending the Great Depression was not definitive. War production with deficit financing solved the problem of overcapacity in the US economy. The long-term political consequences of the Great Depression and New Deal was the rise of the “Roosevelt Coalition” of farmers, union members, working class families, Northern blacks and liberals made the Democratic Party the nation’s dominant party for almost six decades.  Further, the political consensus that developed after World War II held government responsible for the health of the economy, creating an unspoken mandate for an unprecedented level of federal economic intervention even among the Republican right. This extensive expansion in the role, size and power of government in US social and economic life was aptly summed up in Republican President Richard Nixon’s famous 1971 remark, “We're all Keynesians now.”
New Deal Statism
Earnst Cassirer, in the chapter on Hegel in his The Myth of the State, wrote: "Hegelianism has had to pay the penalty of its triumph." It is an observation very applicable to Statism. The state apparatus of the New Deal, as constructed under Franklin D Roosevelt, evolved naturally into the postwar military-industrial complex so loved by the Conservative right wing. Hans Morganthal (Politics Among Nations) developed the theme that US postwar foreign policy was “imperialistic” in the non-pejorative sense of the word, because it was expansionist and empire-building for the postwar Pax Americana. Of course, both an interventionist government and a military-industrial complex are necessary for an "imperialistic" foreign policy. This is the foundation for the coalition of the neo-liberals and neo-conservatives, which is opposed separately by the paleo-conservatives and the radical left for opposing reasons.
Next: Populism and the 2008 Presidential Election