The New Dealers

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Jordan A. Schwarz. The New Dealers: Power Politics in the Age of Roosevelt. New York: Vintage Books, 1993. Pp. XI + 411. ISBN 0-679-74781-8 (pbk.).


Contents

Summary

This book is about the evolution of state capitalism during the era of the New Deal. Jordan A. Schwarz is an unabashed believer in state capitalism, which he defines as “massive government recapitalization for purposes of economic development” (P. XI) particularly in the southern and the western regions of the U. S., Schwarz not only believes that public investment was successful where private investment failed but also contends that this investment was an important antidote to possible extremism that was evolving in Europe under Fascism and Communism.

Schwarz tells his story by selectively recounting the contributions of men who contributed to the shaping of the public investment policies of the New Deal. He begins with those who served in the Wilson administration, such as William McAdoo, Herbert Hoover, and Jesse Jones, who brought their experiences from the World War I mobilization into the philosophy of the New Deal. Then, Schwarz recounts the stories of some of the people, including Louis Brandeis, Felix Frankfurter, William Douglas and David Lilienthal, who established the legal underpinnings of state capitalism. Finally, he details the careers of men of the South and the West who made their public image to a great extent using the largess of the New Deal to fund major investments in their regions. Schwarz picks three Texans, Sam Rayburn, Lyndon Johnson, and Wright Patman and a transplanted westerner, Henry Kaiser to tell the story of the effects of regional investments.

Throughout the work, Schwarz emphasizes not only the importance of state capitalism but what he describes as a credit revolution, by which he apparently means changes to the credit system of major lending institutions which made capital more accessible as well as new formal credit payment plans with smaller payments over a longer period, allowing a greater range of people to make large purchases. Another overarching theme of the book is the anger among Westerners and Southerners towards New England's dominance of capital and other financial resources.

By using the manuscript collections of at least sixty persons, Schwarz has carefully researched his work and has gained an understanding of the intentions of the men who reshaped American capitalism. He argues that the investment in cheap electricity for the South and West during the depression aided the rapid re-armament of America during World War II and provided a model for the state investment in the defense industry during the Cold War.

Commentary

Curtis Vaughn, Fall 2007

Jordan Schwarz has not attempted to write a comprehensive political history of the New Deal. He recognizes the broader efforts of historians such as William E Leuchtenburg and his book, Franklin D. Roosevelt and the New Deal, 1932-1940 and does not attempt to replicate this work. Instead, Schwarz remains comfortably within the topic of state capitalism and even offers that another book might be written about the rise of state welfare during the New Deal. By remaining in the context of his subject, Schwarz is able to take a well-studied period and offer some new insights.

In its beginning, the book challenges the idea that the New Deal was in fact “new” at all. Schwarz ties the ideas of the New Deal to the Wilson administration by starting with a discussion of William McAdoo, Wilson’s son-in-law. McAdoo was a southerner from Knoxville, Tennessee, who moved to New York to find sufficient capital for his ventures. He was an ambitious man who believed that all economic problems stemmed from a lack of financing. His ideas about the aggressive role that the federal government could play in the economy did not help him in his bid for the Democratic nomination for president, but these concepts were used by Roosevelt when he took office in 1932. Likewise, the experience of Herbert Hoover and Bernard Baruch with the War Industries Board during World War I in stabilizing prices was used early by Roosevelt in his attempt to create viable markets during the depression. Another idea from Wilson’s New Freedom, carried by Louis Brandeis into the New Deal, was that “government should preserve the independent entrepreneur by regulating competition” (P. 110).

In order to expand these Wilsonian notions in the New Deal, William O. Douglas among others created a new concept of law that emerged out of the Yale Law School—legal realism. As a revolt against traditional formalism, legal realism asserted “an objectivity that conformed with social reality” (P. 157). Schwarz contends that the Securities and Exchange Commission was an example of the new legal thinking in which public outrage over Wall Street excesses directly led to regulation of securities trading.

Possibly the greatest social reality facing the country was the poverty of the South and West that was at the heart of the country’s failure to recover from the depression. The poster project of the new concept of public investment was the Tennessee Valley Authority. If cheap electricity could be provided to the South by TVA, demand would increase for durable consumer goods such as refrigerators, pumps, and electric stoves. In order to assure that these goods were affordable, the New Dealers even created the Electric Home and Farm Administration to provide financing for these products. The success of the TVA was directly related to the work of David Lilienthal who was a northerner transplanted to Knoxville, Tennessee. The work of William McAdoo to find financing for the South became a reality under Lilienthal.

The last chapters of the book explore the irony that much of the public largesse of the New Deal is spent in the South and the West, the bastions of individuality in the country. Schwarz ends his stories of the people of the New Deal with Henry Kaiser who makes his fortune first building the great dams of the west and then building armaments for World War II using the increased western electrical capacity. For Schwarz, what was new in the 1930’s was the individual who could thrive in a regulated competitive structure enhanced by public investment from the federal government.

Chuck Crum, Fall 2009

Jordan Schwarz investigates the policies of the New Deal. He examines the genesis of New Deal programs in American culture and the resistance inherent to them in American culture. He examines their success or failure, and their impact on America today. He chooses an interesting, if somewhat unorthodox, method in writing biographical sketches of some of the important actors of the time. In these stories he weaves his economic tale. He shows the various forces and interests at work. He looks at the beginning of the New Deal ideas, which he claims date back to the Wilson administration and World War I. Ideas of state capitalism and state cartelism emerge. State cartelism was not growth oriented. It tried to stabilize along static lines that defeat price competition. This is why the early New Deal failed. The New Dealers Dr. Jordan looks at tried to build infrastructure in underdeveloped parts of America. Expanded credit supported by public capital. This insured demands for homes and appliances. This is public credit augmenting private instrument. Jordan looks at those New Dealers who worried not so much about relief but about making capital improvements in America.

He starts with William Mcadoo of the Wilson administration and his state capitalism. This is government money invested, credit extended by the government to private enterprise to stimulate growth. It starts with the Federal Reserve Act of 1913. This state capitalist experiment went through four phases. The first is the Federal Reserve system, then preparing for war, then mobilizing for war which brought new government intervention in the marketplace and supply and demand and lastly, a retreat from interference in free enterprise when the war was over. The New Dealers took up this mantle after the Depression hit. Wilson further changed America with the income tax. There were efforts to stabilize cotton prices, and then government built ships, and then came a railroad czar. Under the guise of a war crisis, the United States was slowly having state enterprises, though avoiding the socialism it hated. This was really the beginning of the New Deal. He turns next to Herbert Hoover and Bernard Baruch with what he calls ‘state cartelism’. This is different from ‘state capitalism’ in that the state is more directly involved with the market in fixing prices and production. Hoover and Baruch saw the government stabilization that occurred during the war as a good idea that would work in peacetime. Although they rejected socialism, they thought voluntary associations would work. They passed a farm bill that established a cooperative with federal funds to purchase farm surplus and sell it overseas. This was a state cartel. Baruch was for it although Hoover thought it too socialist. It did bring farm problems to the federal government, an important first step. They brought controls to aviation that allowed standardization and regulation. The question revolved around the role of the federal government- banker or owner or agent of cooperation and regulation. Government did finance overseas adventures, but not at home, where they preferred free enterprise. This was the state capitalism of Mcadoo. An agrarian crisis was caused this cartel, one of the many times that Dr. Schwarz glosses over what does not fit his economic theory. When the Depression hit, Hoover did not go into public relief for fear of pork barrel and deficit spending. In order to distinguish Hoover from his New Deal heroes, Dr. Schwarz here backtracks a little and claims Hoover changed and did not utilize enough government resources to combat the Depression.

The next New Dealer looked at is Jesse Jones, who ran the RFC. His job as director was to lend money to revitalize the economy. They first made loans to big banks, but they did not do anything with this money. Westerners and Southerners wanted government to foster development. Jones and the RFC implemented what was essentially a credit revolution. They gave credit (20 years) for people to buy homes. State capitalism thrived under Jones’ pragmatism. Hugh Johnson of the NRA is next. There was an attempt to limit production with huge producer cartels in order to drive up prices. These restrictive policies dampened consumer spending and hurt the economy. The price codes enacted under this was a major intrusion of collusion laws and a major break of government intruding on the economy. Justice Brandeis, who struck down the NRA, is seen as a prime mover and philosophical guiding light to the New Deal. The NRA was believed to be too much of a monopoly. It was big business against competition, too much centralization. Many of the New Dealers like Brandeis were Zionists, and believed in capital planning through a state that makes money available to pioneers. This meant cheaper credit, public power and economic growth for the South and West. Justice Frankfurter was an elitist lawyer with an impact on the New Deal. Dr. Schwarz shows the different backgrounds, and, therefore, the different goals and beliefs different groups brought to the New Deal. Frankfurter was no socialist, but did government should own road building and utilities. He felt the public got exploited in industries where competitive producers depended upon noncompetitive utility servers.

Thomas Corcoran wrote the Truth-In-Securities Act and the Utility Holding Companies Act. He was a New Deal lawyer that was very close to FDR. He was pro civil service, anti-party, but pro regulation of business and pro government development of the economy. Their ideology was government must do for the people; that government was the people collectively. He and Benjamin Cohen did show that non-Wasps would get government jobs. They went after the holding companies of the utilities and their junk bond selling, to bust what they felt was private socialism in a few hands. William Douglas was another New Deal pragmatist. His legal realism meant the result was what mattered, he would develop the reasons for it later. His group felt the biggest 200 corporations were an economy to themselves and shareholders needed more power. He attacked Wall Street when serving on the SEC. This liberalism was close to Europe’s style of state control of competition and cartels. Jerome Frank was also a believer in public investment. He attempted to nullify the anti-trust laws, and bring in state capitalism. They were trying to use public capital to create jobs. He wanted to give farmers credit, but when objecting to the production cuts of the AAA, he was fired. The days of total laissez faire were over. The New Dealers felt they had to enact some state capitalism to avoid complete collectivization. Business hated the idea of a federal deficit, but preferred it to higher taxes. Government could only meet its obligations to creditors by selling bonds, so it did and most agreed with that by 1939. David Lilienthal ran the TVA. He was a public businessman, a hybrid of state capitalism. He managed to please both liberals and conservatives and moved for aggressive regulation of utilities, but not for government ownership of utilities. Hoover Dam is an interesting project that displays many of these philosophical and practical battles. The proponents wished for government funding for development. Opponents included Easterners who saw no reason for their taxes to fund development in the Southwest, and others who did not want to see private utilities driven out of business. Through the 1920s, power companies were private. Huge holding companies controlled all of the electricity. Very few cities even owned their own power. Roosevelt and others clamored for public power, others clamored just for regulation. Lilienthal wanted TVA to compete against private power and sell power cheaper. In a free market where government is a competitor, private power companies had to lose. Taxes were paying TVA’s bills. This was not fascist or communist. It remained local and was voluntary, not coercive. Yet it did mimic Europe in state spending to build infrastructure. The RFC just substituted for Wall Street as a source of capital for enterprises. Similarly, the EHFA was mainly a finance corporation, which helped people buy appliances, thereby giving customers to the TVA. It worked because the government paid for everything, although it upset retailers who were hurt by the competition. Schwarz looks at those who inherited the New Deal and what their goals and objectives and economic beliefs were. The pragmatism of these bridges to modern times is most paramount. Their goal, and their belief system, was to win reelection. Thus, government projects that benefited their constituents were welcome. Sam Rayburn was a Congressman whose populist nature and desire to win reelection overcame his Texas individualism. He fought hard for rural electricity. Planned expansion was a new concept for the New Deal, expanding on previous New Deal programs. Lyndon Johnson was another who favored government encroachment on private enterprise if it brought development to his district. Wright Patman also adopted New Deal thinking, asking for new currency to pay for development, regardless of inflationary effect. These people had obviously been part of government interference in the markets from their beginning, and thus you can see the change in culture from the 19th century in economic thinking. Dr. Schwarz shows the business side of the New Deal in Henry Kaiser, a wealthy businessman who flourished and built his commercial enterprise by doing business with the government in many of its capital projects.

Dr. Schwarz clearly thinks the New Dealers are heroes, and while these biographies do a great job in displaying the various forces at work, it’s the author’s own politics at work that may hinder an objective analysis of the New Deal. The last chapter of the book examines the remaining aspects of the New Deal today, and the economics that have followed it. Dr. Schwarz’ socialism is readily apparent as he talks about what the government should be doing now. His rendering of American economic history since World War II is from a leftist point of view that diverges from a lot of contemporary economic theory and he plays loose with facts in a bizarre rant against the 1980s and supply side economic theory and monetarist thinking. While he has done a great job in ferreting out a lot of the New Deal story, he ignores the fact that things were almost as bad in 1939 as in 1932. He glosses over the recession of 1937 as if it never happened and he sings the praises of government intervention in free markets without an objective analysis of whether this intervention was successful. It was successful if you believe in it, perhaps not if you do not. That is Dr. Schwarz’ one failing here, he does believe in it, hence it was the right thing to do. It seems as if his goal is to show the New Deal as the beginning of great liberal reform continuing through today. Its legacy is a tradition of American twentieth century reform. This goal may interfere with an objective rendering of the New Deal in its time.

KA Fall 2009

New Dealers use of biography to study the New Deal makes for an interesting tack as well as a compelling read. Schwarz makes great use of them, especially in his attempts to center the rural development of the South as the central accomplishment of the New Deal. However, the general reliance on biographical sketches also exposes the book's greatest shortcoming. Schwarz largely describes his protagonists interactions with each other, with little to no involvement from actors outside the federal government. One gets the sense that these men (and he almost exclusively works with men) were operating in a vacuum, with ideas solely coming from the federal and academic elite. While it is an excellent study in these men and their ideas, it is unapologetically top-down and could have benefitted from some revelations of how they interacted with the world beyond Washington. Similarly, for all of the attention he pays to legislation and the business concerns behind them, some major acts, such as Glass-Steagall, are conspicuously absent. These reservations aside, New Dealers offers excellent insight into the lives and motivations of many of the New Deal's big names.

Scott Abeel, Spring 2011

New Dealers is a very interesting read for those who have curiosity in the personalities and ideologies of the men who were instrumental in implementing the policies of the New Deal. However, this bibliographic approach is not without its drawbacks. Specifically the work does not address the opposition in any meaningful way. From the work, the forces who oppose the New Deal and its programs seem to be confined to a nebulous and nefarious group of Wall Street businessmen. The work would be richer if Schwarz put faces and motivations to this group. Secondly, the same could be said for the politicians who actively opposed the policies of public capital and creation of government cartels. Finally, the biographical approach draws attention away from what is the central question presented by this book: What was the nature of American capitalism and was government intervention through to use of public capital and creation of cartels a necessary development in its evolution? Although Schwarz would answer that it was, based on his conclusion and rant about Reaganomics, the approach taken seems to be a hindrance to fully explaining how he arrived at his conclusion.

Lindsey Bestebreurtje, Fall 2012

Perhaps the greatest strength of this book was its play on the role of power. Documenting the political dealings between the Wilsonian and New Deal politicians, lawyers, and developers, Schwarz is able to show the role of political power brokering in creating the policies of the New Deal. However, his use of power goes beyond just political power. In addition to being a narrative about the creation of state capitalism, it is also a narrative about the creation of federally sponsored hydroelectric power programs. To Schwarz legislation which created the Tennessee Valley Authority, broke up large utility monopolies, and provided consumers with access to cheap power were some of the most impactful of the New Deal. By spreading power across the country to rural areas in the South and West the New Dealers were able to create a broad power infrastructure, strengthen rural development, and establish markets for consumer goods, which Schwarz feels “built the modern middle class.” (pp 345) Strengthening these underdeveloped areas throughout the 1930s made them ready to take advantage of opportunities for federal pork with the expansion of the war machine. Schwarz holds that the South and West would not have been capable of competing for military bases or wartime industries if it weren’t for their recent, federally sponsored access to power. In this way power development was a matter of national security. This combination of power brokering as it related to the creation of power plants was an interesting lens through which to study the New Deal.

However, while this view of power politics did provide the reader with a good understanding of how and why certain policies were implemented over others, this top down view of history was a weakness overall. The exclusively federal view of history left out regional policies, non-governmental organizations, and the impact of these policies on the people they were meant to help. But beyond not looking outside of the federal government, Schwarz did not even look at the whole federal government. By only looking at supporters of New Deal policies Schwarz left out all dissenting opinion from within the Democratic Party as well as all Republicans and independents. For a work that is meant to be Political in the traditional sense this was a huge oversight.

Sheri A. Huerta, Fall 2012

Schwarz’s bibliographic treatment of New Deal ideology presents an interesting if tangled approach to understanding the continuities between the Wilsonian era and the postwar era in American economics. His breadth and knowledge about the businessmen, lawyers, and Texans (his organizational structure) not only reveals the vast interconnecting legal and political networks, but also how these good old boy connections strengthened adherence to state cartelism. What seems to be missing are powerful women unless you count the anecdotal information about backroom liaisons or marital issues. This glaring omission, considering the role of Frances Perkins is made all the more apparent when compared to the “old girls’ network” formed among female social workers described in Linda Gordon’s Pitied But Not Entitled.

Schwarz writes for an audience well-versed in the complexities of New Deal politics and his conversational style of introducing names and events along different points of time presumes an understanding of the nature of the relationships between men and organizations that is not always apparent. Still, his arguments that building infrastructure in undeveloped regions created an expansion of economic development and an improved standard of living that encouraged spending show the legacy of New Deal programs. The ability of men like David Lilienthal to influence public utility programs that provided services to Americans at low cost yet raised standards of living and created the option for increased consumerism also became a legacy of New Deal public works and these points are the highlights of Schwarz’s work.

Kirk Johnson, Spring 2013

Schwarz sets out to tell the story of the New Dealers who "sought to create long-term markets by building an infrastructure in undeveloped regions of America." (xi) It's good that he spells out this theme, because there are long stretches in the subsequent narrative where it gets lost. As other students have noted, Schwarz is building on the existing literature and assumes a certain level of knowledge from his readers. This is not necessarily a criticism; however, the reader will do well to consciously look for how this theme informs the various chapters as the structure of the book tends to divert immediate attention away from any unifying narrative.

While each chapter is dedicated to one (or in one case, two) individual New Dealers (or proto-New Dealers in the case of the "Wilsonians"), Schwarz is more concerned with the political importance and actions of each man (no female New Dealers are profiled, although Frances Perkins appears more than once) than a biographical account. Therefore, other figures frequently take the spotlight, sometimes at a dizzying pace, as Schwarz seeks to illustrate both the heady pace of reform and the constant ebbs and flows of experimentation, bureaucratic politicking, institution-building, and jockeying for influence with FDR himself. These chapters are further organized into sections arranged not chronologically but by identity--"Wilsonians," "Texans", "Businessmen", etc. Scwharz is willing to sacrifice sequential clarity for thematic unity, which is a fitting compromise because this is not a narrative history of the New Deal, but rather a study of the politics of the New Deal. Therefore, it is important to clearly identify the different loci of power and interest involved.

There can be no faulting the style of this book--Schwartz is a deft stylist and he has a great eye for telling biographical detail. And while the larger theme about developing the South and the West in America takes awhile to work its way into prominence, he does finally bring the various strands together to make a convincing case that the New Deal was the first step in the economic development of the United States beyond the Northeast--a development which World War II and the Cold War struggles in Korea and Vietnam would accelerate. Similarly, the New Deal established a template for state capitalism which the United States would use as the carrot to the military's stick in the war for influence in the developing world against the Soviet Union and its allies.

Megan Brett, Spring 2014

As Bestebreurtje notes above, one of the most informative aspects of this book is how it lays bare some of the networks of power in 1920s and 1930s Washington. The men profiled in this work were friends, mentors and apprentices, professors and students of one another, and even related by marriage. By revealing the intellectual and interpersonal connections between many of the key players in the economic aspects of New Deal, Schwarz demonstrates to the reader one of the ways in which power was used in New Deal Washington. However, one must bear in mind that Schwarz is examining a select group, influential but hardly the complete picture; by leaving out the "welfare" organizations' leaders, Schwarz omits another set of connections and power relationships. The negligible presence of women in this work is, as Huerta points out above, a glaring omission.

Schwarz's discussion of the role of Jewish identity for many of his subjects is useful, particularly given the relative lack of diversity of subjects otherwise. It relates partly to the use of power, in finding work and prominence despite anti-Semitism, the need to restrict the number of (identifiable) Jews in any one department, the ways in which Jewish identity could be a point of connection as well as division, and the role of Zionism in the development of ideas of state capitalism. While this is not a theme which Schwarz explores as consistently and in-depth as his assertion that the South and West resented Wall Street and New England, it is one of the more interesting subthemes of the work.

By focusing on the individuals behind the policy and administration of state capitalism, Schwarz demonstrates the ways in which personal interests (and interpersonal conflict) influence the development of policy. While this approach does humanize some of the alphabet soup of agencies and legislation, it is important to remember that these men were not the entirety of the New Deal, and the face of the agency on the ground might be very different than it was in Washington.

Spencer Roberts, Spring 2014

At first glance, the title of Schwarz’s book suggests a story of international politics and aggressive positioning during the Great Depression and World War Two. The content of its chapters and frequent returns to political and economic wrangling over electricity, however, turn the title into a double entendre. Certainly, the New Dealers were power brokers in the sense that they wrote laws to regulate private utility holding companies and established public electricity providers. At another level, the New Dealers were engaged in power politics in the traditional sense, battling each other and private organizations to gain control over natural and man-made resources such as rivers and railroads. The surprising aspect of New Deal machinations is that many politicians, judges, administrators, and even one or two businessmen were driven by a desire to improve the living conditions of Americans and to serve the public good. Those ideals were behind the behaviour and words of nearly all the men that Schwarz weaves into his narrative of New Dealers, providing the foundation upon which he concludes that the New Deal left a legacy of “expanded credit supported by public capital” (xi).

For traditional historians of economy or politics in the twentieth century, Schwarz’s book must seem immensely valuable for its exquisitely detailed account of the imagination, development, implementation, challenges, and legacies of the New Deal. Few historians could answer as easily as Schwarz when asked to describe the personal relationship between two lawyers in Washington during the 1930s. His collection of primary sources is astounding and his intuition about the nature of these men is firmly grounded in their own words to one another. Unfortunately for historians who specialize in other fields, most of Schwarz’s brilliant composition lacks sufficient contextual history or economic theory to make sense of his non-linear accounts of the fast-paced lives of his subjects. While it is fascinating to know the origins of the Commodity Credit Corporation and how its administrators made it successful, the story is left half-finished because its results, in the fields and homes of rural farmers, remain untold.

Like many historians, it seems Schwarz intended to narrate a very specific portion of history; he studies the New Deal by focusing on some men who helped shape its success, failure, and outcome. He acknowledges those limitations in his introduction, and we must accept the difficult decisions he made in order to provide a foundation for his argument. Women are left out of his book almost entirely, as are the people who received aid, and anyone not directly tied to one of the leading men. Perhaps those people did not contribute to the narrative of expanding credit and public capital that Schwarz wanted to write, and so their exclusion is understandable, if not agreeable.

Schwarz’s book is not a comprehensive historical narrative about the New Deal. It is not even a partial history of its administrators. He does, however, use these New Dealer’s stories to demonstrate how the New Deal led to public investment and capital that created a fertile ground for international influence and military-industrial economic development.

Daniel Curry Spring 2014

In The New Dealers: Power Politics in the Age of Roosevelt, Jordan Schwarz focuses on the long term affects of New Deal legislation. He intentionally minimizes his analysis of direct relief and recovery efforts which he sees as “stopgap solutions to the problems of unemployment and stagnation” (p. xi). Instead, he focuses on New Deal attempts to create long-term and “permanent improvements of America’s capital structure and its standard of living” (p. xii). He begins his narrative with the Wilson administration during WWI and portrays the New Deal as an extension of long-term economic strategies developed during this time by the federal government. He also includes Herbert Hoover as a key figure whose policies and ideas influenced the New Deal. He divides New Deal strategies into two categories state cartelism and state capitalism. Schwarz defines cartelism as a “government organization of industries in order to build a threshold under prices” which focuses on stabilization and not growth. He defines state capitalism as a “massive recapitalization for purposes of economic development” (p. xi).

While his interpretation of connection and continuity between the wartime Wilson administration and the New Deal provides a valid and interesting perspective, Schwarz portrays the long-term effects of state capitalism and state cartelism as predominantly beneficial for all Americans. A more objective assessment would also take into account the negative consequences of New Deal agencies such as the Agricultural Adjustment Act (AAA) described by Jack Kirby in Rural Worlds Lost: The American South 1920-1960. Schwarz also asserts that the American South and West attained independence from the Northeast which is also disputed by Kirby. Despite these omissions, Schwarz provides an important perspective on the New Deal’s influence on American capitalism.

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