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The contradictory imperatives of New Deal banking reforms

Ellen D Russell, University of Massachusetts Amherst


This dissertation examines the contradictory imperatives of New Deal banking reforms to explore both their notable successes and subsequent erosion. From the perspective of overdeterminist Marxian class analysis, we explore the conflicting objectives of New Dealers as they reflect the logic of a nascent Keynesianism. We argue that the Keynesian project for economic growth and stability required the availability of cheap money capital to promote vigorous investment. However, the provision of money capital on attractive terms can exert downward pressure on the profitability of financial capitalist firms, and commercial banks in particular. The potentially detrimental implications of this agenda on commercial bank profitability was particularly dire given the crisis in commercial banking that prevailed during the great depression. This dilemma obliged New Deal banking reforms to institute a complex pastiche of policies, some of which enhanced and some of which constrained the profitability of commercial banks. We examine certain aspects of New Deal banking legislation, such as the Glass-Steagall Act (which prohibited the blending of commercial banking with other financial capitalist activity such as investment banking), the creation of deposit insurance, and the imposition of interest rate controls, to discern their contradictory implications for commercial bank profitability. In conducting this analysis, the dissertation has applied and extended the class analysis of financial capital provided by overdeterminist Marxism in order to discern the various struggles both among financial capitalists and between productive and financial capital shape the profitability of financial capital. Using this framework, we argue that the success of the New Deal banking reforms in the post-war period initially produced a “pax financus” in which the competitive struggles amongst financial capital were moderated. However, the success of these reforms also produced incentives to undermine the New Deal regulatory framework via a regeneration of competitive struggles among financial capitalists. As these struggles intensified, financial innovations designed to circumvent regulatory restrictions changed the conduct of commercial banking and other financial capitalist activity. As these developments progressed, there has been a resurgence in the diversified financial conglomerates (financial holding companies) reminiscent of those that flourished just prior to the Great Depression.

Subject Area

Economic history|Finance

Recommended Citation

Russell, Ellen D, "The contradictory imperatives of New Deal banking reforms" (2005). Doctoral Dissertations Available from Proquest. AAI3163700.