Fear Itself (57 page)

While international and civil liberties concerns proliferated, the country also had to decide how many of the economic powers it had concentrated in the executive branch should be maintained in order to guide demobilization and ensure that prewar Depression conditions would not return. Could U.S. capitalism learn to prosper without the stimulus provided by war production? What lessons should be learned from wartime prosperity? Should future policy rely on centralized economic power and planning, or on the fine tuning of spending and budgets?

Much as presidents and cabinet officers might have wished to address these questions without legislative encumbrances, Congress, we shall soon see, played a decisive role in determining the extent of federal power and the character of public policy. Building on decisions it was already formulating, Congress determined how peacetime capitalism would return once the conflict was over, especially by adjusting the role unions would play in American life. Its investigations, debates, and legislation established the physical reach of the country’s armed forces, the scope and nature of America’s postwar alliances, and the balance between civil liberty and internal security. Congressional lawmaking also resolved how much authority over military and foreign affairs should reside in the executive branch, and it shaped key solutions about atomic weapons.

As such postwar politics took hold, southern preferences continued to matter, especially after Republican congressional gains, first in 1942 and again in 1946, when Democratic Party losses in the North “increased the relative power of southern Democrats.”
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With their ever more pivotal role, these representatives helped conduct the transition to the postwar era, when peace often felt nearly as ominous as war. With their privileged position in Congress, they were able to promote the policies that established the basic terms of America’s market economy, global presence, and patterns of democratic participation. In doing so, they guided the development of a new American state.

PART IV

DEMOCRACY’S PRICE

10
Public Procedures, Private Interests

T
HE CAMPAIGNS AGAINST
Japanese militarism, Italian Fascism, and German Nazism turned the war into what a history of American bombing rightly recalled as “a crusade” in which “America tended to justify its actions in universal terms and pursue its goals with idealistic zeal. There was,” it concluded, “no limitation in the American way of fighting.”
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It would be folly to expect that normal market practices and democratic procedures would carry on as usual during this kind of struggle. What, though, would happen when the fighting stopped?

Unrestricted wartime mobilization was coordinated from the new, four-million-square-foot Pentagon building, situated just outside Arlington Cemetery. Opened in March 1943 after a crash construction effort that took just sixteen months, this massive structure was designed to be temporary.
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Even as American troops spanned the globe, active planning was being conducted to ascertain how best to demobilize the armed forces, return the country to a prosperous peacetime economy, and recover normal democratic processes. With a fierce war being fought on two fronts, broad and detailed prescriptions for military discharges, readjustment centers, job placement, and veterans benefits were being developed in many federal agencies. So, too, were designs for terminating war contracts, disposing of stocks of supplies, scrapping weapons, and returning factories owned by the government to private ownership, control, and use.

Eager then to ready America for its journey back to peace and tranquillity, FDR, in the summer of 1943, enlisted Bernard Baruch to coordinate plans for postwar adjustment. Following a key recommendation made by the February 1944 policy guide he developed, President Roosevelt appointed a Contract Termination Board and a Retraining and Reemployment Administration. Working with these new agencies, the army and navy planned for an orderly release by creating a queue on the basis of a point system that relied on such criteria as time spent overseas and service in combat.
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Congress, too, impatient for a cessation to the hostilities, prepared for the war’s aftermath. A Senate Special Committee on Postwar Economic Policy and Planning, led by Georgia’s Walter George, and an equivalent committee in the House, directed by William Colmer of Mississippi, developed legislation that established how soldiers should be compensated upon leaving the service. Committees led by J. Bennett Clark of Missouri in the Senate and Mississippi’s John Rankin in the House wrote the GI Bill, which offered unprecedented benefits to veterans, including moneys for schooling at the vocational and university levels, job-placement services, loans for small business, and mortgages for homes, but it also included key features of administrative decentralization that sharply disadvantaged southern black veterans.
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Also in 1944, Congress passed the Contract Settlements Act, which defined fair compensation for war-contract terminations. That year, it legislated the Surplus Property Act to superintend the transfer of property back to private hands, and return more than five hundred airfields to local governments, thus establishing the basis for a national system of air travel. It also voted to bar any effort by the federal government to ask the armed services to hold on to its soldiers as a means to prevent postwar unemployment.

The frantic pace of all this planning and legislation was propelled by anxiety. If the war had brought an end to Depression conditions of investment and employment, what would happen when this unprecedented federal investment and spending, not to mention price controls and active manpower policies, were finally withdrawn?

The memory of the dire prewar economy lingered, especially the prewar economy before military spending and conscription first kicked in, and hung like a dark cloud over the nation. Americans could not fail to recall how 1938 had been an especially terrible year for American capitalism. During the first four years of the New Deal, economic growth had averaged a robust 9.6 percent. Though still uncommonly high, unemployment had begun to fall from a high of 25 percent to just over 14 percent of the labor force. By contrast, the U.S. gross national product declined by 5.3 percent by the end of 1938, and unemployment leapt to a shocking 19 percent. Tremors of fear were back. The American people, Walter Lippmann wrote at the start of June 1939, had once believed “with Roosevelt that they were organizing securely an abundant life for all the people.” With those hopes dashed, “the generation to which we belong is now frightened.”
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During the fraught spring of 1939, the New School’s cohort of émigré scholars had gathered to consider “the struggle for economic security in democracy.” They understood, arguably better than anyone else, that more was at stake than whether this or that adjustment to economic policy might make the economic crisis less severe. The central question was whether liberal democracy could achieve palatable economic results, a question, as Erich Hula put the point, made ever more pressing by “the stubborn fact . . . that the totalitarian dictatorships have more or less succeeded—so far, at least—in doing away with unemployment.” Would equivalent results be possible within the framework of democratic institutions?
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A corollary puzzle had also vexed prewar commentators. The leap in organized class consciousness during the half decade before U.S. participation in World War II had been begun to reshape powers and possibilities in American life.
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Contributing to a distinguished 1938 collection of essays assessing “civilization in the United States,” which included chapters by Jacques Barzun on race, John Cowles on journalism, and Karl Menninger on psychiatry, Louis Stark, the labor analyst, concluded in 1938 that the union surge might further “stimulate organization on a scale hitherto undreamt even by the most optimistic.” By sowing the “formation of a new political orientation of labor and agriculture,” union activity promised to reactivate the type of democratic corporatism and planning that had characterized the short-lived radical moment of the early New Deal.
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These challenges facing capitalism, labor, and the direction of American democracy returned to front and center as the war wound down. Tense, fearful uncertainty in the midst of unpredictable political horizons raised huge questions about the shape, control, and management of U.S. capitalism. Paramount among these concerns was the role that would be played by the country’s burgeoning unions. Over the course of the 1940s, moreover, the important choices the federal government would have to make about economic management clarified. This process of selection produced two enduring outcomes for the direction of U.S. capitalism. Fiscal policy trumped other options, and shifts to labor law tightly constrained what unions could do and where they could expand. During this phase of the New Deal, key features of domestic economic policy—including democratic planning, central government management of sectors of the economy, and corporatist patterns of bargaining among business, labor, and government—were cast aside. Concurrently, the class-based labor movement that had mobilized so assertively after the passage of the Wagner Act in 1935 diminished and focused more narrowly on wages, benefits, and working conditions. As a result, the repertoire of policy instruments the New Deal had utilized during the NRA period and more intensively during the war no longer could serve as models for a long-term peacetime economy. Further, with a corporatist role for U.S. unions blocked as well, political life came to be dominated by a pattern of interest-group politics that the era’s political scientists came to call “pluralist,” a form of democracy marked more by competition among organizations and lobbyists than by a sense of the public interest.

The development of these policies was vehemently contested, notably in Congress. There, southern members critically shaped each of the key results. With the region’s segregated social order coming under enormous stress, they acted to curtail Washington’s capacity to direct investment and employment. Most important, they fought successfully to place tight reins on labor’s ambitions. The South produced these results as the pivotal agent in two quite different congressional alliances, one with fellow Democrats, the other with Republicans.

Against the opposition of most Republicans, southern Democrats joined with party colleagues to promote an active fiscal role for the national government. But with what they believed to be a racial crisis under way, they no longer were willing to back more hands-on economic interventions. The Democratic Party could continue to come together only by endorsing active macroeconomic policies. Fearing the federal power that long-range planning required, southerners shied away from enhancing the government’s capacities to intervene directly in capital and labor markets. Shunning such initiatives, southern members acted to strip Washington’s planning institutions of their staffs and budgets. By contrast, they were happy to rely on budgeting—that is, on taxation and setting overall spending levels—as means to buttress the economy. Fiscal policies could support economic growth and development without licensing incursions into the South’s economic arrangements and race relations. Because planning grew in importance during World War II as the federal government authoritatively deployed huge sums for investment and induced workers to move in massive numbers to defense production jobs, it became ever more important from a southern perspective to establish rules that sharply distinguished between the requirements for national security and the long-run domestic economy.

A different but equally effective alliance remade the framework within which organized labor could operate. A constellation of southern Democrats and Republicans affected the contours and limits of social class by altering the legal framework within which organized labor could make choices and deploy resources. As unions gained strength during the tight labor markets caused by World War II, their organizing efforts aggressively moved below the Mason-Dixon Line. These successes posed powerful, if mostly indirect, challenges to the southern hierarchy by threatening to undercut the labor market underpinnings of the racial order. In these circumstances, southern representatives shifted positions. Having gingerly supported lawmaking that enhanced and coordinated working-class action in the early and mid-1930s, the embattled South acted to disarm unions in order to diminish the threat it believed labor posed to the economic underpinnings of the region’s racial order.

The contest between fiscal and planning instruments played out in more than one legislative battle. Each cluster of ideas and institutions grew stronger during World War II. The diverse group of wartime agencies utilized both sets to plan, bargain, target, cajole, tax, and spend. During the war, pay-as-you-go taxation was implemented, together with a dramatically increased income-tax scope and higher rates. Budgeting became more developed and complex. Equally, direct planned management of markets became a key feature of domestic mobilization, as the government authoritatively moved billions of dollars in capital from place to place and induced workers to travel in order to find work that would support the war effort. Markets in capital and labor were organized by direction, with key decisions being taken either by executive officials from the president on down or by a process of negotiation among representatives of business, labor, and government.

During the war, a domestic battlefront took shape that pitted against each other planning and fiscal policy as ways to manage capitalism. For sure, these were not pure opposing categories. Both possessed visions of an active state, and in this manner were very different from the market-centered laissez-faire that had been discredited by the Great Depression. Planning included fiscal instruments, and the advocates of fiscal policy in part had to plan. Notwithstanding, each was a distinct orientation, understood as such by key actors at the time. What was unclear was what mix of policies, arrayed in which hierarchy, would govern over the long haul.