- Raising the cost and reducing the supply of wage-labor
- Draconian income taxes on very high levels of income
- Severe regulation of finance capital
Taken together, these policies shifted an enormous amount of economic demand to the working class and created the professional-managerial middle class.
Needless to say, the capitalist class was not too happy about this. The hostility of the capitalist class to consumer capitalism is actually somewhat puzzling: the ruling capitalist class — people with enough money to not have to work and live on interest and dividends (profit) — actually increased in size, as did the professional-managerial middle class. (Middle classes are typically supportive of their ruling class, at least until the ruling class starts directly threatening their livelihood.)
(I've been watching Mad Men lately. One of the founders of the advertising agency is a big Ayn Rand fan. Ironic, given that New Deal consumer capitalism — Rand's bête noire — is the foundation of the character's wealth. Indeed consumer capitalism is the only way an advertising agency has any economic purpose.)
Why was FDR successful in establishing consumer capitalism? Why did he even try? How was he able to establish a cohesive faction of the capitalist ruling class to support him? (Populism be damned: had the capitalist ruling class closed ranks against FDR, he would have failed.) Why has the capitalist class turned its efforts for decades in eroding New Deal consumer capitalism?
Most importantly, the liberal capitalists, such as Paul Krugman, want to restore New Deal consumer capitalism. Hardly surprising: morally speaking, consumer capitalism is the best kind of capitalism we can hope for. Can we do so?
To answer this question, we have to compare and contrast the material economic conditions and the political climate then and now. Even before the Great Depression, there was a powerful anti-capitalist labor movement: socialists, progressives, anarchists and communists. The people themselves were becoming organized, focused, disciplined and committed to demanding their interests, and they were willing to fight for them. Even though there were a lot of factions within the labor movement, these factions were relatively cohesive and united against a common enemy: the capitalists. Furthermore, in the wake of the almost-successful socialist revolutions in Western Europe and the successful Bolshevik revolution in Russia (and the failed attempt to oppose it through the Russian Civil War) let a substantial portion of the American capitalist class to realize they were fighting for their lives, and victory was by no means certain.
It's a little harder to see today, especially for middle-class Americans, but in the 19th century market forces for labor power pushed the price of labor power to its true cost: most workers in the 19th century really did make just enough to survive. Every time there was a depression due to lassaiz faire capitalism's inherent cyclical swings (e.g. 1837-1842 and 1873–1879 (and subsequent recessions lasting until 1896)) large numbers of the working class without cushion or safety net were reduced to abject poverty and even starvation. The First Imperialist War also caused tremendous suffering, especially in Europe, to little or no obvious benefit to the working class.
Capitalism was then hit by two hammer blows: the Great Depression and the rise of fascism. The Great Depression is notable because it is the first catastrophic economic failure of Imperialism, finance capitalism plus colonialism at a whole new scale. Finance capitalism made the positive feedback systems in capitalism much faster, and colonialism and the nascent global economy made the catastrophic effects felt world-wide to an unprecedented degree.
It's important to understand that depressions are not in themselves contrary to the class interests of the capitalist class, in just the same sense that losing a battle or even a war was not contrary to the class interests of the feudal aristocracy. In both cases, the position and privileges of the ruling class were not threatened. The only class interest threatened by catastrophe among the ruled classes is social unrest and overthrow of the existing order, a relatively rare occurrence that happens only when the fundamental material economic circumstances have profoundly changed.
The rise of fascism put the American capitalist class in a quandry. On the one hand, they correctly realized that communism was the greatest threat to their class interests, and the chief enemies of the fascists were Stalin in the Soviet Union (vs the Germans) and Mao Zedong (vs the Japanese) in China. The fascists were fundamentally capitalists, and achieved power by appealing to capitalist class interests. On the other hand, both the Germans and Japanese threatened the short term class interests of the American capitalist class. Had the Germans managed to successfully colonize Western Europe and the Slavic states, had the Japanese successfully colonized China and South East Asia, the imperialist ambitions of the United States would have been severely limited, holding only Latin America as colonial possessions.
(Few at the time were really worried about the moral atrocities of the Germans and Japanese, and besides, Hitler didn't do anything in principle to the Jews that we didn't do the Indians, the only differences were of scale and efficiency. Roosevelt might have been concerned about the plight of the Jews, but he certainly didn't bend Heaven and Earth to save them, while he did bend Heaven and Earth to get in a war with the Japanese.)
In the first half of the 20th century, the capitalist class was still not particularly well internationalized. In the short run (in the long run, we're all dead) the Germans and Japanese — precisely because they themselves were successful capitalists — posed a greater threat to specifically American capitalist interests. Better to first defeat the Germans and Japanese and then turn our attention to the communists of the Soviet Union and China. Which is basically what happened.
The Second Imperialist War caused profound changes in the economic circumstances: direct competition from Western Europe was substantially diminished. More importantly, the colonial competition from Western Europe was completely eliminated: The United States faced only much less severe competition from the Soviet Union and China. Furthermore, the re-industrialization of Western Europe itself provided enormous scope for American economic growth. All of these factors led to a profound labor shortage; thus by internal capitalist competition the price of labor power rose well above its cost.
For about 20-30 years, New Deal consumer capitalism proceeds relatively stably. Strict regulation of finance capital and the power of the Federal Reserve Bank moderates capitalism's worst cyclical positive feedback effects. Given a labor shortage, the material economic interests of the working class (not counting, of course, blacks, women, and most of the residents of our colonial possessions) are more-or-less in harmony with the economic interests of the capitalist class.
In the early 1970s, New Deal consumer capitalism started to unravel, from both economic and political causes.
Economically, we had reached the limits of colonial expansion; American labor became less necessary for capitalizing and industrializing both our colonial holdings as well as Western Europe. Instead of being cheap sources of raw materials for internal industrial manufacturing, our colonies started to build manufacturing capabilities of their own. Slowly but surely, the systemic global shortage of manufacturing labor that characterized the 50s and 60s became a labor glut. Industrial production also achieved steady gains in true efficiency (producing more commodities with less actual labor), also reducing the labor shortage.
The dramatic expansion of the professional-managerial middle class also took away much of the working class's leadership. (I'm an "elitist" in the sense that I think there are profound differences in people's intelligence, wisdom and ambition; I'm an "egalitarian" in the sense that I think stupid, foolish and lazy people deserve human dignity and comfort.) Those members of the working class with intelligence and ambition got "picked off" into the professional-managerial middle class, either directly by obtaining a professional position or indirectly by becoming trade union leaders. As noted above, people in the middle classes predominantly identify with the interests of the ruling class, whom they must appease to keep what privileges they have.
The Civil Rights movement, the Feminist movement and the Anti-War movement had profound economic and political consequences. Economically, the Civil Rights and Feminist movements aimed to remove a class of people, black people and women, from the pool of forced cheap menial labor. No one cleans another person's toilet for peanuts unless the alternative is starvation (or lynching). Gains in true efficiency (washing machines, dishwashers, easier-to-clean dishes and kitchen surfaces) also reduced the labor necessary to maintain a household and raise children: sheer boredom was an important motivation for professional-managerial middle class women's participation in the Feminist movement.
These movements also had profound political consequences. You don't enslave, oppress and exploit a class of people for centuries (blacks) or millennia (women) without developing deep feelings that the oppressed class are profoundly and ineluctably sub-human; giving them the same rights and privileges as real people generates the same feelings of disgust as bestiality. These movements changed the polarization of American society from class lines to moral lines, according to Jonathan Haidt's categorization: the "left-wing", in whom empathy and fairness dominate their moral beliefs, and the "right-wing", where loyalty, authority and purity dominate. Indeed this polarization is actually reducing the effect of alternative components: right-wingers are beginning to see empathy and fairness not just as less important, but actually evil; and left-wingers — perhaps not quite to the same extent — see loyalty, authority and purity as evil. (Being iconoclastic, anti-authoritarian and personally deviant, I have to admit a certain sympathy for the deprecation of the right-wing "virtues".) But left or right, a working or middle class person conditioned to think politically along moral lines will not think and act in his own economic interests.
In the 1930s, we had a strong, disciplined working class movement focused on its economic interests. Today, we do not. In the 1930s working class leaders were forced to stay in and lead the working class. Today most of the potential working-class leaders have been for two generations co-opted into the middle class. In the 1930s, we had the potential for tremendous capitalist/imperialist expansion. Today, we have no such scope for expansion. (Our latest attempt at colonial expansion, the Afghanistan/Iraq wars, have failed miserably even by capitalist standards, in much the same sense that First Imperialist War was both impelled by and a miserable failure of feudal ambition.)
Also, at the detailed level, Republican Herbert Hoover (who would today be a leftist Democrat) presided over the inevitable — and inevitably ineffective — initial half-measures to alleviate the social unrest caused by the Great Depression, and thus linked those failures directly to the capitalist class. Today, however, it is Democratic president Obama who is presiding — almost equally ineffectively — over the initial half-measures to alleviate the present depression. Since we are now polarized along moral lines, Obama's failure will link these failed half-measures not to either the working or capitalist class, but to the "left-wing" moral position giving importance to empathy and fairness. Instead of seeing a backlash against the capitalist class as we did in the 1930s and 40s, we're going to see a backlash against liberal "left-wing" virtues in much the same sense as happened in Germany in the 1920s and 1930s after the failure of the socialist revolution and the relatively liberal capitalist Weimar Republic.
None of the material forces (other than impending material hardship) that caused the creation of New Deal consumer capitalism are present today. Material hardship by itself causes only some sort of radical change: under very similar circumstances in the beginning of the 20th century, material hardship caused New Deal consumer capitalism in the United States, Fascism in Germany and communist revolution in Russia. More importantly, the moral senses of loyalty, authority and purity are more deeply embedded in the human mind — they reach much farther back into our evolutionary history — than the relatively modern virtues of empathy and fairness, which require more abstract reasoning. We can thus expect that in the short and medium term, the right wing will win the political battle, driving the left-wing into a persecuted underground. It will be only after the right-wing virtues, when the limited and relatively sphexish nature of the right-wing virtues collide with complex, abstract economic realities, that the left wing will again have a chance to become resurgent.