The forgotten business support for the New Deal and Bretton Woods

[YoungDemCA]

Excerpted from "The Rise of the Right in the U.S." by Chris Wright.

To understand how the New Deal system declined, it’s necessary to understand what it was in the first place. And here we encounter another of FR’s challenges to liberal orthodoxy. “At the center of [the New Deal coalition around Roosevelt] were not the millions of farmers, blacks, and poor that have preoccupied liberal commentators,nor even the masses of employed or striking workers who pressured the government from below (and later helped implement some of the New Deal’s achievements), but something else—a new power bloc of capital-intensive industries, investment banks and internationally oriented commercial banks.” Ferguson describes in Golden Rule how this bloc was forged in the 1930s, but I’ll skip the very interesting history. The point is that, unlike labor-intensive industries such as textiles, firms in capital-intensive industries were not profoundly threatened by labor turbulence and organization. They could thus afford to join a coalition with organized labor starting around 1935, thereby making possible the relatively left-wing “second New Deal” (exemplified by the Wagner and Social Security Acts—which businesses in the new Roosevelt bloc, far from opposing, helped write). “Because most large capital-intensive firms (with the important exception of the heavily protectionist chemical industry, which did not belong to the bloc) were world, as well as U.S., pace-setters, they stood to gain from global free trade. They therefore allied themselves with leading international financiers, whose own minuscule workforce presented few sources of tension, and who had supported a more broadly internationalist foreign policy and lower tariffs since the end of World War I. Together, members of this bloc provided the needed business support for the two broad policy commitments: liberalism at home, internationalism abroad—centrally identified with the New Deal.”

This bloc was a small part of the business community in the 1930s, but it was immensely powerful. It included many of the largest and fastest-growing corporations in the country, including General Electric, IBM, Pan Am, oil companies like Shell, Standard Oil of New Jersey and Standard Oil of California, and banks like Chase National Bank, Bank of America, Goldman Sachs, and Lehman Brothers. The controlling interests in these businesses also dominated leading American foundations,and so could exercise major influence on political opinion and public policy. Once this bloc had come together and allied with Roosevelt, it dominated policy for a generation. “The administration embarked on a historic program of trade liberalization and efforts at currency stabilization,” which after World War II took the form of the famous Bretton Woods system that lasted until the early 1970s. As you may know, “Bretton Woods established the dollar as the ‘vehicle’ currency to be used in the conduct and financing of international trade, and brought order to foreign-exchange markets by establishing a system of fixed exchange rates among the world’s currencies, tied to the dollar; the dollar, in turn, was convertible to gold.” The various institutional innovations of Bretton Woods helped make possible the incredible growth of the American and world economy in the postwar period.

http://media.wix.com/ugd/9b146c_743baaa4bc944411b3539c57c24eefb5.pdf

(p. 6-7.)