American Socialism: Social Democracy, 1945–1975

Posted on November 7, 2011 by


Socialism is the economic and political philosophy of the working class. While capitalism attempts to maximize wealth for a privileged few, socialism attempts to maximize the wealth of every member of society.

Strangely, many Americans today insist that America has always been a capitalist country. These same persons argue that every attempt to socialize an economy has resulted in economic collapse. Nevertheless, America and most of the developed world was socialized between 1945 and 1975. In fact, America began to transition over to Socialism in 1933.

The socialism that the world embraced was Social Democracy. But, Cold War rhetoric forbade the use of the term socialism. America, as a result, coined the term “mixed economy.”

The capitalist excess during the Gilded Age turned many Americans toward socialism to restore the economic balance enjoyed in the earlier agrarian-based capitalism that America was originally founded upon. Teddy Roosevelt articulated a new balance in what he called the Square Deal. But, capitalist influence on the political process began to erode Roosevelt’s Square Deal almost as soon as he left office. When the stock market collapsed in 1928, capitalist dislike began to take on new dimensions.

Franklin D. Roosevelt was elected to restore his older cousin’s Square Deal. FDR referred to his version as the New Deal. From that point on, America began to enjoy the economic prosperity associated with Social Democracy.

Social Democracy was derived from three main sources:

  • A call for using the state as a re–distributive mechanism;
  • The intellectual ideas of socialism; and,
  • The economic ideas of state intervention associated with the doctrines of John Maynard Keynes.

The entire developed world was impacted by the Great Depression. Employment became an important issue. Since the world nearly unanimously rejected uncontrolled Free Market capitalism, three political movements struggled for supremacy – fascism, communism, and social democracy. In America, Roosevelt inaugurated social democracy in the New Deal with its emphasis on public works programs and welfare measures to stimulate economic activity.

The end of the Second World War heralded the triumph of Social Democracy. The classical liberal ideas about an uncontrolled market economy seemed unsustainable in light of the experience of the depressed 1930s. The fusion of these tendencies produced the postwar dominance of Social Democratic governments.

International similarities
The essential characteristics of Social Democracy were similar throughout Europe and America. The welfare expenditure of the state and its programs were steadily expanded to provide standard services to all citizens regardless of income or other status. These services included: in most countries education at least to secondary and often University level; universal health care; aged pensions and unemployment benefits; training and retraining programs for labor to adjust to economic change; public housing for rental; universal no fault insurance; sick and vocational leave; and, depending on the case, subsidized transport, holidays, sporting, and care facilities for the infirm, abandoned, or aged.

These services were funded by high tax rates on the wealthy who was recognized as the cause of the Great Depression, and who acquired their wealth by historically underpaying the working class.

The government services were often supplemented by an extensive system of State Owned Enterprises (SOEs), which might include employee representation in the management structure at all levels. SOEs were typically operated in the transport, hospital, energy, utility provision, and even major manufacturing sectors like automobile, steel, banking, and aerospace.

The effect of the encroachment of the democratic socialist state on the liberal capitalist order was at first positive. Wages and other entitlements for workers who provided the electoral support for these regimes, gradually rose. Unemployment generally fell to almost zero and the trade cycle was flattened by Keynesian demand management techniques involving budget deficits and rapid money supply growth. The size of the state also increased as a proportion of the national economy. In addition, even in those sectors of the economy where SOEs were not evident, the level of state regulation of private enterprise rose progressively to match diverse social democratic demands about labor conditions, employment levels, environmental protection, and product quality.

Large portions of state controlled wealth was used to raise living standards in the undeveloped parts of the world. This economic investment caused short-term cash flow problems within the developed world. And, politicians playing on the greed of a now affluent middle-class encouraged the return to 1900 century capitalism.

For the past 30 years, American capitalists have been skimming profits away from the American economy and hoarding that wealth. The past 30 years have returned America to a situation in which it found itself in the 1920s. And, things can only be expected to get worse for American workers until America rebalances its economy by once again embracing the Social Democracy embraced by our grandparents’ generation.

“Socialism.” Political Theories for Students. Ed. Matthew Miskelly and Jaime Noce. Vol. 1. Detroit: Gale, 2002. 339-359. Gale U.S. History In Context. Web. 6 Nov. 2011.