Hanging in the balance: Global capitalism and the American welfare state

Scholars of the American welfare state have long remarked on a paradox in the Great Society: while on the one hand the Great Society was launched amidst strong liberal declarations of a "war on poverty," on the other hand the actual Great Society programs themselves were rather conservative in character. Traditionally scholars have pointed to a myriad of domestic-level political, ideological and economic variables to explain this discrepancy between rhetoric and reality. In this paper, I argue that it was international-level variables---specifically the structure of the postwar global monetary order and the changing position of the United States therein---that constrained political elites in the 1960s towards a more conservative expansion of the welfare state. Drawing from original archival materials from the Kennedy and Johnson presidential administrations, this paper argues that, faced with a mounting balance of payments crisis and run on the gold supply, political elites in the Kennedy administration opted to pursue a "commercial Keynesian" growth agenda that eschewed government spending and favored tax cuts for private corporations. Commercial Keynesianism was seen as the optimal macroeconomic policy because it promised to revive flagging economic growth at home while maintaining confidence in the dollar abroad. Once commercial Keynesianism set the basic macroeconomic agenda, it established the parameters within which Great Society welfare programs were crafted. Having played a major role in determining the emergence of Great Society programs, international economic pressures also facilitated their demise. The increasing transnationalization of financial markets, combined with shifting patterns of international price movements and interest rates created new pressures on the dollar and once again compelled American officials to adjust domestic policies---this time towards contraction---in order to maintain confidence in the international monetary order. Lessons from this case are used to refine our understanding of American hegemony and the relationship between national states and the international economy.