The New Deal is often seen as a radical break in American history. However, historians argue it follows a longer, but largely forgotten, tradition of a robust "developmental state" in the U.S., particularly during the Reconstruction era. This historical amnesia is perpetuated by modern economics programs that don't require students to study economic history.
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The term "economic security" has evolved. FDR used it to mean a social safety net. The Clinton administration defined it as safe global free trade. Today, it's viewed through a national security lens, treating economic and technological strength as a core component of national power, similar to military or diplomacy.
Central bank independence is a relatively new concept from the 1990s. Historically, central banks operated as junior partners to the government, executing industrial policy. The move to subordinate the Fed to the Treasury is a return to a long-standing historical model.
History shows the U.S. has a unique ability for systemic reform in response to crises, such as when the Gilded Age's excesses gave way to the deep structural changes of the Progressive Era. This suggests a capacity to overcome today's political fractures.
The original study of economics was "political economy," which understood the economy as inseparable from politics, law, and history. The late 19th-century rise of neoclassical thought deliberately separated these fields, treating the economy as a natural, pre-political system, akin to a law of physics like gravity.
Core components of today's financial landscape, including FDIC insurance, Social Security, and even the 30-year mortgage, were not products of gradual evolution. They were specific policies created rapidly out of the financial ashes of the Great Depression, demonstrating how systemic shocks can accelerate fundamental structural reforms.
The idea of an independent Fed is a relatively modern concept, dating effectively to 1951. Historically, from its creation in 1913, the Fed has consistently acted as an arm of the state, financing wars and executing government policy, making the current shift towards explicit statecraft a return to its roots.
In 1933, President Roosevelt's administration confiscated citizens' gold at $20/ounce, then immediately devalued the dollar by repricing gold to $35/ounce. This accounting maneuver created a massive profit for the government, which was then used to fund New Deal stimulus programs.
The prevalent Milton Friedman-style, shareholder-only capitalism has only been the dominant model since about 1970. This neoliberal approach is just one phase in capitalism's history, not its fundamental, unchanging definition. This historical context opens the door for a new consensus to form.
Historian Sven Beckert frames capitalism as a constantly shape-shifting system. Its dramatic evolution over 1,000 years—from colonial models to Keynesianism—suggests the current neoliberal order is not a permanent state but will likely be replaced by a substantially different version.
The crisis was a tipping point in American political thought. The preceding era was defined by the 'Great Society' belief in robust government services. The bailout's conditions, forcing deep cuts, signaled the dawn of a new 40-year consensus prioritizing austerity and fiscal conservatism over public spending.
