on state legislatures … especially by curtailing the distributive functions of the legislatures … [and] den[ying] municipalities the power to incur debt.”14
This conservative attitude to redistributive spending automatically rendered any attempt by the government to hire the unemployed an impossible proposition because it required taxation to support. Accordingly, the Panic of 1873, two recessions in the 1880s, and the Panic of 1893 sowed distress throughout the land without much effort by the federal government to prevent unemployment. The arrival of the Progressive movement changed little. Progressives were more willing than Gilded Age liberals to challenge the prerogatives of corporations or embrace regulation, but they shared many of the same prejudices against activist fiscal policy. The new expert-driven model of government was supposed to ensure that governments would be efficient and frugal. Spending would not be dominated by working-class graft. Public works especially would be judged by the businesslike standards of “self-liquidation” (whether projects would generate enough revenue to repay costs), not by human need.15
The Great Depression of 1929–1933 (and the years of failed attempts to solve it using the tools of liberal political economy) shattered the edifice of orthodoxy. New economic theories and public policies emerged out of the wreckage, designed to remedy the economic collapse. Some nations took advantage of this opening and some did not.
Great Britain, the birthplace of liberal economics, went off the gold standard under a Conservative government after an ostensibly socialist Labour government opted for the balanced budget over the needs of the unemployed. France clung to the gold standard, even after the election of a Popular Front government. The German Social Democratic Party dithered, rejecting the “WTB” Plan for mass public works put forward by three leading trade unionists (Wladimir Woytinsky, Fritz Tarnow, and Fritz Baade; hence the initials). However, the party was unsure whether to cheer the death of capitalism or answer the immediate needs of the working class. Unique among European center Left parties, the Swedish Social Democratic Party rose to power on the back of a call for government job programs.16
In the United States, despite calls from his own President’s Committee for Employment (PECE) and the President’s Organization on Unemployment Relief (POUR) in the early 1930s, Herbert Hoover absolutely refused to countenance federal public works or relief for the unemployed. He vetoed a series of relief and public works bills put forward by Senator Robert Wagner (D-NY).17 Even when Hoover was forced to sign into law the Reconstruction Finance Corporation, his insistence that public works be “self-liquidating” meant that only 9 percent out of an appropriation of $1 billion was actually spent during his presidency.18
Franklin Delano Roosevelt’s victory in 1932 created the perfect opening to break this stalemate: Roosevelt had pledged a “New Deal for the forgotten man,” and he had huge congressional majorities to lean on. In the midst of the economic calamity of the Depression, interest groups on the Left attempted to capitalize on this political moment. Economic planners sought to restructure the American economy. They sought to eliminate the forces of ruinous economic competition, rebalance economic sectors, or foster cooperation between business, labor, government, and consumers, all with the aid of technocratic expertise. Labor economists, especially the members of the Commons School at the University of Wisconsin, pushed to rationalize and humanize the labor market through the use of sanctions, standards, and incentives. Advocates for the abolition of child labor, the provision of public electric power, land conservation, and other causes readied their arguments. On the Left, production-for-use advocates showed a willingness to blur the lines between socialism and capitalism if that meant reducing unemployment and material destitution.19
Departures from orthodoxy were not unchallenged in the 1930s. Advocates for sound money and balanced budgets still held prominent positions in the executive branch, Congress, and the Democratic Party. Outside the Democratic Party, the true believers in Hoover’s associational approach (where trade associations and other groups of corporations would cooperate to set economic policy with the blessing of the government) struck the alarm over creeping socialism.20 Andrew Mellon proclaimed that deflation should continue so that prices would hit rock-bottom and then recover on their own. These convictions still commanded respect in the national press.
Direct job creation policy emerged out of this chaotic mix, pioneered by a network of radical social workers and (mainly amateur) social scientists clustered in New York City social work circles. Franklin Roosevelt had been one of the few governors to throw himself into the breach of the Depression, founding New York’s Temporary Emergency Relief Administration (TERA). As governor, he tapped the New York social worker Harry Hopkins (then the head of the New York Tuberculosis and Health Association) to lead TERA. Hopkins brought in assistants from outside the field of economics to help organize the new agency. Under his direction, TERA became one of the first modern statewide relief agencies. It was a remarkable and novel effort but was ultimately only able to cover one in ten poor families in New York, because his budget was limited to $20 million while the need was far greater.21 Historians of the New Deal looking to understand Roosevelt’s economic policy often focus on the so-called brain trust, a small group of New York City–based economists. But they were not the architects of FDR’s job programs. Hopkins and his TERA colleagues had set the stage for the emergence of direct federal job creation.
Following the 1932 election and the passage of the Emergency Relief Act of 1933, which created the Federal Emergency Relief Administration (FERA) and financed it with $500 million, Hopkins was brought on board to lead the new agency.22 In the FERA halls, the air was filled with unorthodox and dynamic ideas. His first day on the job and still without an office, Hopkins set up a desk in the hallway and, within two hours, wrote out $5 million in relief checks to a long line of governors, mayors, and social welfare officials. By the end of his second day of business, he had hired staff (many of whom were the same assistants who had helped him run TERA), sent out memoranda to forty-eight governors on how to set up state relief agencies, and dispatched emergency aid to seven states that were about to run out of money.23 Ultimately, FERA would help fifteen million families.
However, as a new model for social welfare, FERA had serious limitations. The Emergency Relief Act mandated that federal funds be matched by state governments at a rate of three dollars of state money for every federal dollar—an ill-conceived attempt to increase state spending on relief. As those states with high concentrations of poverty tended to be among the poorest, the neediest areas were unable to afford the required spending.24 FERA relief came in the form of grant-in-aid—households received food and clothing donations, which kept families together and out of the workhouse, but that prevented them from spending money, which would have stimulated economic recovery. The local administration of relief left plenty of room for discrimination against blacks, other minorities, or members of the wrong political party. Worst of all, even with federal subsidies incentivizing states to improve their ridiculously low benefit levels, each family on relief only received a bare fifty cents per day, hardly enough to lift anyone out of poverty.25 Hopkins objected to every one of these policy provisions, but they were the law of the land.
Most consequentially, FERA failed to provide a solution to the crippling psychological trauma of unemployment. “Relief was going out in great amounts,” Hopkins noted, “but men were going restless…. FERA field reporters sense the psychological impact of four years of depression … a dangerous feeling of hopelessness and dependence—a spreading of listlessness.”26 These social injuries were exacerbated by the dehumanizing rituals of applying for traditional relief. “It is a shameful business from beginning to end,” Hopkins lamented. “Here these citizens are…. [T]hey go to this relief office, timidly, ashamed, pride hurt, to go and ask a person they had never seen in their lives before [for help], and tell him the enormous secrets of their family life and economic conditions.”27
Hopkins directed his FERA staff to begin drawing up a new method for better meeting the needs of the unemployed masses, and the result was the first American experiment in direct job creation, one
