For the first time in the history of capitalism, in the wake of the Great Depression, government became involved in capitalism, not just to regulate it but to steer it into a new path and to change the character of the beast, profoundly and forever. At least that would have been the hope of the American government led by President Roosevelt. The mechanism for doing this was the New Deal which as it went along was given a theoretical foundation by John Maynard Keynes who has turned out to be the most influential economist of the twentieth century. And that has turned out to be for good as far as his admirers are concerned and as an anathema from the point of view of those who are opposed to his economic theory. Either way he cannot be ignored. Some eighty years after his death, he is still the elephant in every economics chatroom. Not bad for a mathematician/philosopher who took formal lessons in economics for all of eight weeks.
One of the immediate effects of the Great Depression was a massive increase in unemployment. Without a salary, the unemployed can no longer make a contribution to the amount of money in circulation. This almost inevitably leads to the fall in the amount of money in the economy. It allows it to fall to catastrophic levels as indeed it did in the period following the Great Depression. Keynes argued that the only way to reverse this undesirable situation was to use government funds to create jobs and in doing so, regulate the economy and restore it to good health. This was so important that in his opinion, the government could resort to deficit spending, at least until the situation improved to such an extent that government spending could be brought back to a balanced budget. Without the exegesis created by the Great Depression, Keynesian economics as it came to be known could not have stood any chance of implementation. This is because for the first time, Keynes brought workers into the economics equation in a positive way. After that, they were then recognised as having a voice and a role to play in bringing a modicum of order to the market place. Up till then, the bosses, the owners of capital had shown a stern determination to keep wages low because in their warped imagination, they were sure that the lower the wages they paid to their workers, the greater the profits that accrued to them. Not for one moment did they think that better paid workers could become genuine and reliable consumers of the products of capitalist exploitation. True, Henry Ford had seen the light in this direction long before, but even he was vehemently opposed to trade unions and did all he could to keep them out of his factories. Without unions however, there was no way for the workers to even breathe, talk less of being part of any economic decision making process.
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Keynes may have been the brains behind the New Deal but without the muscle provided by Roosevelt, it would have been dead on arrival. Desperate as the situation was, the forces of conservatism were still quite active and without Democratic party control of Congress and Senate, Roosevelt would have found it impossible to make the New Deal workable. And in the wake of the reduction in the control of both houses in the 1938 midterm elections to the Republicans he found the going very difficult, verging dangerously on the impossible. However, he was saved by the bell, to use a boxing term, when the USA was dragged into the maelstrom created by WWII in December 1941.
The entry of the United States into the war was heaven sent for the New Deal as the ensuing war economy led to full employment and factories began to function at optimal capacity. The farmers were not left out of the effect of this wave of prosperity. Armies had to be fed and so the farmers were kept hard at work to keep the fighting men adequately provided with food. No army in the history of warfare had been better fed than members of the US armed forces through their engagement in WWII. This boosted the economy to such an extent that the economy of the USA was ticking along merrily until the end of the war. The capitalists rubbed their hands in glee as their profits mounted. At the same time the Democrats built up such a healthy head of political steam that the Republicans were locked out of the White House for twenty straight years. During this period, Roosevelt won four presidential elections on the trot and in 1948 his less flamboyant but phlegmatic, successor, Harry Truman won the presidential elections against all odds. It is interesting to note also that General Eisenhower who won the White House for the Republicans in the 1952 election and kept it in 1956 continued on the same economic trajectory as the Democrats. There was no need to change course because the American economy was booming as never before. It has to be said that the economic dominance of the USA was predicated on her unique position as the only major power standing at the end of WWII.
In the period immediately after WWI, the USA went back into isolationism in a bid to protect herself from the economic vagaries that afflicted the leading economies of the world. In spite of this precaution however, she was still dragged into the pits of the Great Depression. This more than ever encouraged the US to develop strict isolationism from the rest of the world. The USA, separated from the conflict in Europe by the width of the Atlantic ocean which raised a bulwark behind which it could shelter whilst maintaining her neutrality. To make her stand unmistakably clear, Congress passed Neutrality Acts through to 1938. But by 1939, it had become obvious that a war in Europe was inevitable. And reading the situation on ground, Roosevelt assured Americans that their sons were not going to participate in any European adventures. But, it was also clear after a little while that American sentiments were on the side of the Allied Powers and her continued neutrality favoured the Axis. Besides, the Americans saw a way to make some money. They came up with what they called the Lend Lease Act which allowed them to sell any material to any country which could pay cash for their orders which were evacuated in their own ships. As far as any transaction did not put the USA at any risk. The major beneficiaries at the start were Britain and France. Both countries had been bruised and battered by their encounter with German forces and desperately needed ammunition for the fight and food for their armies and civilian populations. The Lend Lease Act served to preserve American neutrality even as they prepare to enter the fray and to make some money on the side. Eventually, the veil of neutrality was broken in December 1941 when Japan attacked US naval installations on Pearl Harbour in Hawaii in her desperate attempt to break the stranglehold to which her economy was subjected to through the imposition of American sanctions. In the wake of Japanese bombing of Pearl harbour, Germany her ally declared war on the USA and WWII became a global conflagration.
Like WWI, this rematch was caused by a clash of imperialist ambitions. The British and French were in it to defend their respective empires. Germany attacked Poland and the Soviet Union in an attempt to create what Hitler described as space for German expansion. Japan was determined to create her own empire in the far East; in China, Korea and parts of the British empire including India. Given the scenario, the USA, the leading global capitalist nation had to be in it to protect the overall interest of capitalism. Early in 1942, the USA was engaged in war across the Atlantic in Europe and in the Pacific coast to the east.
Combatants were bogged down in trenches for most of WWI, fighting what they came to describe as a war of attrition in which virtually defenceless men were exposed to pitiless war machines dispensing death and serious injury with awesome efficiency. This time around, the fronts were broad with tanks and all sorts of warplanes being involved in the fighting. This brought virtually the whole of Europe within harm’s way so that cities, manufacturing plants, communications installations and just about any built up areas were targets for destruction from land, sea and air. In an attempt at imperial domination, mankind had reached a state of total war. This was to have a critical effect on the rise and rise of capitalism.
The Americans had entered the war on the side of the Allied forces made up principally of the British empire, the French Empire and the Soviet Union following the collapse of the non-aggression pact between Germany and the Soviets. Ranged against them were the Axis powers; Germany, Japan and Italy under Benito Mussolini who was hell bent on expanding the Italian empire in Africa. The immediate impact of this war was the total destruction of industrial infrastructure in all major industrial countries with the exception of the USA which came out of the war with her industrial infrastructure not only intact but enhanced. There was no stopping her from that point on especially after her paralysing display of the power of her atomic bombs unleashed on the Japanese cities of Hiroshima and Nagasaki in the closing stages of the war.
All in all, the USA had a very good war not just because she drove the Allies to victory but because she was given the authority to bring forth a new world economic and diplomatic order. At the end of the First World War, the Americans, bent on isolationism as a form of defence refused to enforce the formation of the League of Nations. This time around they were the proponents of the United Nations Organisations, the successor to the League of Nations. In addition, they were able to foist on a bemused world, the twin financial institutions of the International Monetary Fund (IMF) and the World Bank. The age of American global economic domination had arrived.