Economy, Technology

The FDR Model: Increasing the Productive Powers of Labor

Most Americans get the picture on the real state of the American economy. For all the talk of the vast numbers of jobs created, the surge in the stock market, and low inflation, they understand that their standard of living, and prospects for the future, are in decline—and they want something done.
Ironically, U.S. and Federal Reserve officials are finally, in their own way, expressing some agreement with this popular perception. Numerous statements have recently been released bemoaning not just the low economic growth (as reflected in GDP), but also, the very low growth in productivity of the U.S. economy. The figures are indeed shocking; see “Why We Must Ally with the BRICS: America’s 50-Year Economic Nightmare Since Kennedy”: (
As of late 2014, total capital investment in the Chinese economy was growing at a 16% rate per year, the United States’ at less than 4%, and Europe’s at less than 1%. And what does capital investment have to do with the increase in productivity? Everything.
As the founder of the American System of Political Economy, Alexander Hamilton repeatedly emphasized, it is the growth in the productive powers of labor which provides the source of wealth, and therefore the increase in standard of living at present and in the future, for an economy. Contrary to most economists today, who count productivity as increasing the intensity of labor per unit capital (what used to be called “speed-up”), real productivity depends upon investments and upgrades in not only employment, but capital equipment (especially machine tools), and basic economic infrastructure. We concentrate here on the crucial role of infrastructure, which determines the potential for any productive enterprise to grow. What’s the use of a factory or farm, if you have no water, no road to get produce here and there, no electricity for advanced equipment, no educated workforce? All of these things are provided by man-made improvements in nature—infrastructure.
Thus you may be shocked to learn that the “golden age” of productivity of the U.S. economy in the 20th Century was the 1930s, the period of the Presidency of Franklin D. Roosevelt! Over that decade, total factor productivity, as it’s called, increased at an annual rate of 3.3% (“Sources of TFP Growth in the Golden Age,” National Bureau of Economics Research, 2005) Today, it is calculated by the National Bureau of Economic Research (NBER) as at 1%.
The NBER attributes this rate of growth under FDR as “due to the very strong growth in electric power generation and distribution, transportation, communications, civil and structural engineering for bridges, tunnels, dams, highways, railroads, and transmission system: and private research and development.”
By his own declaration, of course, FDR’s primary objective to deal with the profound suffering in the country when he took office in 1933, was to put people back to work. Neither he, nor his chief lieutenant Harry Hopkins, wanted to rely on “relief” or handouts; they understood the importance of working for a living as a source of human dignity. However, unlike what you learn in the distorted economic picture presented by John Maynard Keynes, not just any old job would do. The jobs which FDR created were heavily vectored toward productive purposes which boosted the productivity of the economy as a whole, specifically, infrastructure.
We can only outline the contours here. Most prominent, of course, were the major projects outlined by FDR in his Sept. 21, 1932 campaign speech in Portland, Oregon (
which was devoted to the question of increasing the accessibility of electrical power as a key driver of the economy. He outlined four major projects which the Federal government should take responsibility for: 1) the Boulder (later, Hoover) Dam; 2) two Colombia River dams (Grand Coulee and Bonneville); 3) the St. Lawrence Seaway; and 4) the Tennessee Valley Authority Project. All of these projects but the St. Lawrence Seaway were completed during his presidency, and vastly increased the accessibility and affordability of electricity to industry and households. Both led to a dramatic increase in productivity of labor.
These major projects were supplemented by those funded by the programs of Civil Works Administration and the Public Works Administration, which were much more short-term projects. While these programs are often condemned as “make-work,” they were nothing of the sort. They carried out a total of 45,000 projects between 1933 and 1939 alone, building bridges, tunnels, sewage treatment plants, hospitals, playgrounds, and tens of thousands of schools. (
Not to be overlooked as well is the creation of the Rural Electrification Administration, which funded cooperatives throughout the country with low-cost loans, and dramatically increased the access to electricity in rural America from 10% in 1936, to 90% by 1950.
Look around. We are still living on much of the infrastructure that FDR created in the 1930s and 1940s—and that’s a major problem for our low productivity. The horrors of our urban water supplies—of which Flint’s problem are only one example–should be enough to make the point. To get out of this depression, we need FDR’s approach to productivity—funded, of course, by a return to a credit system such as the RFC, or a new Hamiltonian National Bank.


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