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FDR and the New Deal

FDR and the New Deal

Author: Sasha Sickel
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Declaring "War" on the Great Depression


Background

By late winter 1933, the nation had already endured more than three years of economic depression. Statistics revealing the depth of the Great Depression were staggering. More than 11,000 of 24,000 banks had failed, destroying the savings of depositors. Millions of people were out of work and seeking jobs; additional millions were working at jobs that barely provided subsistence. Currency values dropped as the deflationary spiral continued to tighten and farm markets continued to erode.

During the previous summer the Democratic Party had unveiled a generalized plan for economic recovery in its platform. They called their platform a "contract" and set forth in it a series of provisions to remedy the economic disaster. Although frequently lacking specifics, the platform addressed a wide range of issues: among them were agricultural relief, Prohibition, unemployment, and old age insurance. While not followed very closely by Franklin Roosevelt's administration, the platform did indicate that election of the Democratic candidate would result in unprecedented governmental growth to deal with the problems pressing on the nation. Roosevelt set about to prepare the nation to accept expansion of federal power. Roosevelt recognized that the programs he was about to introduce for congressional legislative action to relieve the dire effects of the Great Depression were unprecedented in peacetime.

In his 1933 inaugural address Roosevelt stated: "Our Constitution is so simple and practical that it is possible always to meet extraordinary needs by changes in emphasis and arrangement without loss of essential form. That is why our constitutional system has proved itself the most superbly enduring political mechanism the modern world has produced. It has met every stress of vast expansion of territory, of foreign wars, of bitter internal strife, of world relations." Yet, at the same time, he was prepared to recommend measures that he knew could succeed only with strong public pressure in support of extraordinary federal powers to deal with "extraordinary needs."

The first document featured with this article is the speech given on Inauguration Day in March 1933. It is particularly memorable for its attack on the psychology of the Great Depression. Less memorable but more enduring is the justification that Roosevelt planned to use to expand the power of the federal government to achieve his legislative objectives and thereby ease the effects of the Great Depression. Woven throughout his inaugural address was his plan. He aimed to declare war on the Great Depression and needed all the executive latitude possible in order to wage that war. For in addition to his famous statement "the only thing we have to fear is fear itself," he also said "I shall ask the Congress for the one remaining instrument to meet the crisis -- broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe."





 

The Only Thing We Have to Fear

The New Deal


The New Deal (1933-1939) was a series of programs intended to alleviate the suffering caused by the Great Depression (1929-1939), an abrupt economic collapse that began in 1929 and resulted in massive unemployment throughout the 1930s. The New Deal began with the inauguration of Franklin Roosevelt (1933-1945) as President of the United States in 1933.

To restore confidence in the American financial system Roosevelt declared a "bank holiday," closing all banks for four days until Congress met to pass bank reform legislation. The immediate banking crisis ended soon after when Congress passed the Emergency Banking Act, which required the Treasury Department to inspect all banks before they could reopen. Three-fourths of the Federal Reserve system banks reopened within three days.

Even though these measures stemmed the immediate crisis, more comprehensive measures were needed. Congress passed the first program, the Agricultural Adjustment Act, in May 1933. The most important aspect of the act was its establishment of the Agricultural Adjustment Administration, which provided subsidies to farmers who were told to reduce crop production by leaving part of their land idle. In 1936 the Supreme Court ruled that it was unconstitutional for the government to require farmers to limit production and the act became inoperable. However, within weeks Congress passed the Soil Conservation and Domestic Allotment Act, which allowed the government to pay farmers to reduce production. In addition, the Roosevelt administration helped poor farmers by setting up the Resettlement Administration in 1935, succeeded by the Farm Security Administration in 1937, which helped farmers on marginal lands relocate to better land by providing loans.

Saving the industrial economy was the most significant challenge facing the Roosevelt administration. On the one hand, businesspeople wanted to stop rapid deflation by relaxing antitrust laws to allow the cooperation of trade associations and stabilize prices. On the other hand, New Dealers wanted business to recognize the rights of workers to organize and bargain collectively in unions, which would allow workers' wages to rise with prices. The resulting compromise was the National Industrial Recovery Act (NIRA), passed in June 1933, which established a new federal agency, the National Recovery Administration (NRA). The NRA called for every business to abide by a temporary "blanket code," with a minimum wage of between 30 and 40 cents an hour, a maximum workweek of 35 to 40 hours a week, and the abolition of child labor. Those employers who followed the code displayed the NRA symbol of the Blue Eagle in their windows.

The NRA also set up codes for most of the country's major industries to establish price and wage floors, below which the specific industry could not go. However, the hastily devised codes would fail. Most importantly, federal officials, inexperienced in running such a large program, did not have the capacity to administer it. In addition, Section 7(a) of the NIRA gave workers the right to form unions, but had no mechanism for enforcement. Thus, the program failed to raise workers' wages and increase consumer purchasing power. In 1935 the Supreme Court nullified NRA legislation when it ruled in the Schechter case that in giving the president the power to shape the NRA codes, the Congress had acted unconstitutionally. Consequently, the failing program was abolished.

One of the most successful New Deal programs was legislation enacted in 1933 to create the Tennessee Valley Authority (TVA), a project for building a dam at Muscle Shoals and for the comprehensive redevelopment of the region. By building dams and waterways in the region, the TVA nearly eliminated flooding in the area and provided electricity to thousands of people. But the Roosevelt administration also initiated major financial reforms. On April 18, 1933, Roosevelt made an inflationary move by signing an executive order, which took U.S. currency off the gold standard. Enabling the government to manipulate the value of the dollar, government management of currency set a significant precedent in federal policy and changed the relationship between the government and business. The New Deal also gave the government authority in areas of the economy that previously were weakly regulated. The Glass-Steagall Act of June 1933 allowed the government to regulate irresponsible speculation by banks. The act also established the Federal Deposit Insurance Corporation (FDIC), which guaranteed all bank deposits up to $2,500. In 1935 Congress passed a banking act which transferred the authority of the regional Federal Reserve to the Federal Reserve Board in Washington, D.C. Congress sought to protect stock market investors by passing the Truth in Securities Act of 1933, which required corporations to provide accurate and complete information to the public. In addition, in June 1934, the Securities and Exchange Commission (SEC) was established as a stock market watchdog.

The expansion of federal relief provided to millions of unemployed Americans was an enormous undertaking. One of President Roosevelt's first programs was the Federal Emergency Relief Administration (FERA), which gave grants to states in which relief agencies had run out of money. However, the FERA relief would not be enough. The second program, the Civil Works Administration (CWA), provided work relief to more than four million people between November and April during the president's first year in office. But both FERA and CWA were intended as only relief measures, not as long-term programs meant to save the country's economy. By 1934, Roosevelt began to dismantle the CWA. His administration also established the Civilian Conservation Corps (CCC), which employed millions of young men, mostly urban, to work in camps at national parks and forests on conservation and reforestation projects. Though the programs devised for the early years of the New Deal were intended to be temporary, they provided a basis for later social measures that became part of a permanent welfare state.

In 1935 Roosevelt began a new set of programs called the "Second New Deal." Noted for its shift to a decidedly anti-corporate stance, the president proposed one of the most progressive tax systems in American history. Called a "soak the rich" plan by conservatives, the system had taxes reach as high as 75 percent on income for the richest of Americans.

Another significant development during the New Deal was the growth of labor militancy. When the Supreme Court nullified the NIRA in 1935, Senator Robert F. Wagner of New York introduced the National Labor Relations Act (also called the Wagner Act) in Congress. The new law gave workers more federal protection than Section 7(a) provided by including an enforcement mechanism in the National Labor Relations Board (NLRB), which was given the power to require employers to recognize unions. While showing few signs of challenging employers in the 1920s, union leaders and workers, encouraged by the Wagner Act in 1935, stepped up organizing efforts. John L. Lewis of the United Mine Workers helped start the Committee on Industrial Organization to begin organizing unskilled factory workers, a group that the more conservative American Federation of Labor ignored because of their commitment to organizing only skilled workers. The number of workers in recognized unions jumped from three million in 1932 to eight million in 1937, and to 10 million in 1941.

In 1935 Congress passed the Social Security Act (SSA), one of the most important pieces of social welfare legislation in American history. The act established several programs. First, it provided for federal assistance to the elderly in poverty, who could receive $15 a month. The act started a pension system, in which workers and their employers would pay a payroll tax, beginning in 1940, to provide an old age pension of $10 to $85 a month for many workers, though it excluded domestic servants and agricultural workers. The SSA also set up an unemployment insurance system, and provided aid to handicapped people and dependent children.

In addition, the Roosevelt administration set up the Works Progress Administration (WPA) in 1935, a much larger work relief program than the CWA. Between 1935 and 1941, the WPA employed about 2.1 million workers. WPA workers built 110,000 public buildings, 600 airports, and over 500,000 miles of roads, and over 100,000 bridges.

Though President Roosevelt won a landslide victory in 1936, he faced a conservative backlash during the following years. Although the economy had improved by the summer of 1937, a recession struck the economy that year. In 1938, the president asked for emergency funds for public works and relief programs, and as the government's spending saturated the economy, a recovery seemed possible. The American economy, however, would not recover from the Great Depression until World War II. Only the massive federal spending needed to produce the men and material to fight the war brought the depression to an end and laid the ground work for the postwar economic boom. Even though New Dealers failed to meet their goal of rejuvenating the American economy, they had remade the federal government and its relationship to the corporate world.

Though the programs devised for the early years of the New Deal were intended to be temporary, they provided a basis for later social measures that became part of a permanent welfare state.

The New Deal in 3 minutes