The term Green New Deal might remind Americans of high-school history class. What was the original New Deal about, again? Most kids are taught that it was a decidedly left-wing project to end the Great Depression, a series of big-spending government programs such as the Public Works Administration, with its schools and stadiums. That impression colors the debate over the Democrats’ important new proposal: Conservatives warn of catastrophic federal debts while liberals insist that top-down investment was and is crucial to managing disaster.
But the high-school narrative is not quite right. It leaves out the parts of the New Deal that encouraged private investment.
At the center of this other New Deal was the Reconstruction Finance Corporation (RFC), an independent agency within the federal government that set up lending systems to channel private capital into publicly desirable investments. It innovated new systems of insurance to guarantee those loans, and delivered profits to businesses in peril during the Depression. Unionists, farmers, and consumers benefited as well, all without the government needing to spend a dime of taxpayer money.
The story about the New Deal we have in our heads—that it was tax-and-spend liberalism at its worst (if you are conservative) or best (if you are liberal)—may obscure policy opportunities today. We can spend taxpayer money to address climate change, and we probably should, but that is not the only option. If we are going to fund a Green New Deal, we need to acknowledge how the original New Deal actually worked.
After the stock-market crash of 1929 and the mortgage crisis of 1932, bankers’ capital sat idle. “Our excess reserves are very big,” James Perkins, the head of National City Bank wrote to his colleague Amadeo Giannini, the head of Bank of America in 1934, and “it is almost impossible to find any use for money in credits that we are willing to take, and the rates are terribly low.” Perkins’s situation was not unusual. According to Perkins, excess reserves across the country totaled more than $1 billion (in 1934 dollars). The country’s banks and corporate coffers overflowed with capital that financiers felt unable to invest profitably. Without an outlet for those funds, even the still solvent banks would fall apart eventually—and so would the country. Capitalism depends on the investment and reinvestment of capital.
President Franklin D. Roosevelt’s genius was that he knew he had to get capitalism moving again. But the man who actually figured out how to do that was, ironically, inherited from the Hoover administration: Jesse Jones.