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Roosevelt's New Deal:  Agencies and Reforms

Roosevelt's New Deal: Agencies and Reforms

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Tutorial

what's covered
Franklin Delano Roosevelt began his administration in March of 1933, seeking a combination of recovery and relief programs to regulate the economy and offer assistance to the American people. What later became known as the First New Deal began a period of legislative activity seldom equaled in U.S. history. By the end of 1933, Congress had passed more than 15 major pieces of legislation to alleviate the impact of the Great Depression.

This tutorial examines the First New Deal in three parts:

  1. Solving the Banking Crisis
  2. The First New Deal
  3. Assessing the First New Deal


1. Solving the Banking Crisis

When Roosevelt took office on March 4, 1933, he faced one of the worst crises in the country’s banking history. Over 5,000 banks had closed. States including New York and Illinois had ordered all banks within their borders to close, to prevent additional bank runs.

term to know
Bank Runs
The withdrawal of money from a bank by a large number of account holders due to their doubts regarding the bank's stability

Within 48 hours of his inauguration, Roosevelt proclaimed a bank holiday, which temporarily halted bank operations throughout the nation, and called Congress into special session to address the crisis. Congress passed the Emergency Banking Act which Roosevelt signed into law on March 9, 1933, only eight hours after a draft proposal was presented to Congress by the administration.

term to know
Emergency Banking Act
Passed by Congress to address the banking crisis; expanded the power of the Federal Reserve to distribute currency and provided for the reopening of banks under federal supervision.

The Act implemented two major changes:

  1. It took U.S. currency off the gold standard. Though it had been seen as sound policy, the gold standard severely limited the amount of paper money in circulation as the Depression worsened. Under the terms of the Act, anyone who held gold deposits was required to sell them to the U.S. Treasury at a discounted rate. In addition, paper currency could no longer be exchanged for gold.
  2. It authorized the federal government to reorganize all banks that faced insolvency, or were unable to pay their debts.

Between March 11th and March 14th, federal auditors examined all U.S. banks. On March 15th, 70 percent of the nation’s banks were declared solvent and allowed to reopen.

On March 12th, before the banks reopened, Roosevelt delivered his first “fireside chat”.

term to know
“Fireside Chat”
A radio address in which President Roosevelt outlined key ideas and programs to the American people

Additional Resource

Listen to an audio recording of FDR's first fireside chat.

LINK

(You won't be tested on this.)

In the first "Chat", which he opened by stating, “I want to talk for a few minutes with the people of the United States about banking”, Roosevelt explained what the bank examiners had been doing during the previous week. He assured listeners that any bank that opened on the next day (or in coming days) had the federal government’s stamp of approval. He asserted that this was something that the federal government had to do, saying, “We had a bad banking situation….It was the Government’s job to straighten out this situation and to do it as quickly as possible — and the job is being performed.”

President Roosevelt prepares to give his first “fireside chat” to the American people, March 12, 1933.

The address underscored Roosevelt’s savvy in communicating with the American people. He explained complex financial and legal concepts in understandable terms and complimented citizens on their “intelligent support” of the government’s efforts. Most importantly, he inspired confidence by closing his address as follows:

Franklin D. Roosevelt, "Fireside Chat"

“Let us unite in banishing fear. We have provided the machinery to restore our financial system; it is up to you to support and make it work. It is your problem no less than it is mine. Together we cannot fail.”

The combination of the Emergency Banking Act and the first "Fireside Chat" worked wonders. Consumer confidence returned and, within weeks, almost one billion dollars in cash and gold emerged from under mattresses and bookshelves, and was re-deposited in the nation’s banks.

Roosevelt’s “fireside chats” with Americans have been commemorated at the Franklin D. Roosevelt Memorial in Washington, DC, with this bronze sculpture by George Segal. (credit: Koshy Koshy)

When the banking crisis ended, Congress moved to implement permanent reforms of the system, many of which are still in effect today. The most notable of these was the Glass-Steagall Banking Act, which Roosevelt approved in June of 1933.

term to know
Glass-Steagall Banking Act
Prohibited commercial banks from engaging in investment banking; created the Federal Deposit Insurance Corporation (FDIC), which insured personal bank deposits up to $2,500
make the connection
The Financial Services Modernization Act of 1999 repealed sections of the Glass-Steagall Act, specifically the prohibition of commercial banks from engaging in investment banking. The Act created new institutions known as financial holding companies (FHCs), sometimes criticized as “superbanks”. FHCs enabled banking corporations to oversee subsidiaries that engaged in activities including commercial banking, investments, and mortgages. Critics of the The Financial Services Modernization Act of 1999 link the housing and financial crises of 2007-8 to the repeal of Glass-Steagall. The proposal to enact a “21st Century Glass-Steagall Act” has become a rallying cry for some Democrats.


2. The First New Deal

In addition to resolving the banking crisis, the First New Deal advanced legislation in two key areas: relief and recovery. Roosevelt’s predecessor, Herbert Hoover, was reluctant to provide direct federal relief to unemployed Americans. Roosevelt recognized that millions of the unemployed required relief — including jobs — more quickly than the private sector could provide them.

Relief

Beginning in late March of 1933, Roosevelt approved several initiatives that made the federal government a provider of unemployment relief. The first was the Federal Emergency Relief Administration (FERA).

term to know
Federal Emergency Relief Administration
Sent federal money to the states to provide local relief agencies with the resources necessary to provide work for unemployed Americans

Roosevelt initially authorized $500 million in direct grants to the states. However, state and county offices (already overburdened as a result of the Depression) were unable to screen recipients and distribute relief. Local political organizations pocketed some of the federal funds instead of using them to create relief programs.

In response, the federal government took steps to create jobs by organizing public works agencies and work relief programs. The agencies and programs hired unemployed workers. One of the most notable agencies was the Civil Works Administration (CWA).

term to know
Civil Works Administration
A public program that directly employed workers on public works projects

Organized in November of 1933, the CWA employed more than four million Americans by January of 1934. Workers repaired bridges, built roads and airports, and completed other public projects.

Another notable work program was the Civilian Conservation Corps (CCC).

term to know
Civilian Conservation Corps
A public program for young, unemployed men who were put to work on conservation and land management projects around the country

Among the most popular New Deal programs, the CCC employed young (aged fourteen to twenty-four), jobless men. Earning 30 dollars a month (a portion of which they sent to their families) CCC employees did a variety of outdoor jobs, including planting trees, constructing dams, fighting forest fires, restoring historic sites and parks, and building roads and infrastructure that Americans continue to use today. More than three million young men had worked for the CCC by 1942, when the program ended.

Recovery

Industrial and agricultural recovery were the other key areas that the First New Deal addressed. The Roosevelt administration drafted two of the most significant pieces of New Deal legislation to deal with underlying problems in the economy. The first was the Agricultural Adjustment Act (AAA).

term to know
Agricultural Adjustment Act
Established production quotas for certain crops to stabilize, and increase, prices; paid farmers not to produce more, in order to prevent prices from falling

Farms around the country struggled — and failed — during the Great Depression. In the Great Plains, drought severely limited farmers' ability to raise crops, while in the South, abundant harvests led to prices too low for farmers to earn a living by selling them. The AAA provided direct financial relief and paid farmers to reduce production of certain crops, including wheat, cotton, corn, and hogs.

EXAMPLE

Farmers received 30 cents per bushel for corn they did not grow. Hog farmers were paid five dollars per head for hogs not raised.

The AAA was a bold attempt by the federal government to help farmers address the systemic problem of overproduction, and the lower commodity prices resulting from it. However, there was an excess of some agricultural products, particularly cotton and hogs, before the AAA went into effect.

EXAMPLE

This led the federal government to order ten million acres of cotton to be plowed under, and the butchering of six million baby pigs (and 200,000 sows).

Although The AAA improved prices (e.g., the price of cotton increased from six to 12 cents per pound), the destruction of agricultural products was deeply problematic. Critics pointed out that the government was destroying food to drive up prices while some citizens starved.

A second significant measure, the National Industrial Recovery Act (NIRA), sought to stabilize the manufacturing sector and place it on the road to recovery.

term to know
National Industrial Recovery Act
Encouraged businesses and industries to work together to establish codes of fair competition, including price-setting and minimum-wage guidelines.

New Deal officials believed that supporting collaboration between businesses would enable them to stabilize prices and production levels. Some officials believed that these collaborations would protect workers from entering into unfair agreements.

A new government agency, the National Recovery Administration (NRA), was central to the implementation of NIRA. It mandated that businesses accept a code that included minimum-wage and maximum-work-hours limits. Industries were required to adopt “codes of fair practice” that upheld workers’ rights to organize and collectively bargain, to ensure that wages increased as prices rose.

Consumers were encouraged to do business with companies that displayed the Blue Eagle (a), which signified compliance with NRA regulations. Portrayed with talons gripping a gear (representing industry), and lightning bolts (representing power), the eagle (b) served as a symbol of economic recovery.

The NRA created over five hundred codes for industries — a large and growing number of regulations that led to unforeseen problems. While codes for key industries (e.g., automotive and steel) made sense, similar codes for dog food manufacturers and shops that made shoulder pads for women’s clothing (for example), did not.

The Public Works Administration (PWA) produced some of the most lasting benefits of NIRA.

term to know
Public Works Administration
Contracted with private companies to build public projects including highways, federal buildings, and military bases

With an appropriation of $3.3 billion, the PWA completed over 34,000 public works projects, including the Golden Gate Bridge in San Francisco and the Queens-Midtown Tunnel in New York. Between 1933 and 1939, the PWA accounted for the construction of over one-third of all new hospitals, and seventy percent of all new public schools, in the United States.


3. Assessing the First New Deal

The First New Deal was far from perfect, but Roosevelt’s quickly-implemented policies reversed the economy’s slide and restructured Americans’ relationship with the federal government.

The Emergency Banking Act infused ailing banks with new capital. Work relief programs like the CWA and the CCC offered direct relief to the unemployed. The AAA and NIRA provided incentives and organizational methods to farmers and industry, to put the economy on a path toward recovery.

did you know
The number of working Americans rose from 24 to 27 million between 1933 and 1935, in contrast to the seven-million-worker decline which occurred during the Hoover administration.

Roosevelt did not conceive or implement the First New Deal on his own. At times, it seemed to consist of a series of disjointed efforts based on different (and sometimes baffling) assumptions. For example, a program designed to decrease production (or make payments in return for no production) in an attempt to set prices on industrial goods and raise the prices of crops, seemed counterintuitive to some manufacturers and farmers.

However, these programs were designed to combat what Roosevelt and his advisors believed had caused the Great Depression: abuses on the part of a small group of bankers and businessmen, aided by Republican policies that built wealth for a few at the expense of many. They believed that the solutions would be accomplished by reforming the banking system, strengthening labor's bargaining power, and adjusting the production and consumption of agricultural and industrial goods.

For the first time since the Progressive Era, many Americans looked to government for direction and support. Progressives implemented reforms in response to the problems of the Gilded Age and World War I; the Great Depression created an opportunity for even greater reform. Progressivism focused on perfecting democracy and social justice. The New Deal created government structures and agencies that regulated the economy. By means of work relief programs and other measures, the New Deal established safety nets for the victims of the Great Depression. In these ways, the New Deal established the foundation of the modern welfare state in America.

summary
After assuming the presidency, Roosevelt lost no time in taking bold steps to address the poverty and unemployment that plagued the country. He declared a bank holiday, during which he presented Congress with draft legislation known as the Emergency Banking Act, which empowered federal agents to examine all banks before they reopened. Passage of the act and the reopening of approved banks restored public confidence in the banking system. Roosevelt signed additional legislation to create jobs, and to support industry and agriculture. Not all of this legislation (and the programs it created) was effective, but some of it helped to stabilize the economy and restore confidence in the country.

This tutorial curated and/or authored by Matthew Pearce, Ph.D

Source: Image of Franklin D. Roosevelt before first fireside chat, PD, http://bit.ly/2nTIMaE, Franklin D. Roosevelt, First Fireside Chat, March 12, 1933, Miller Center, Retrieved from http://bit.ly/2ouAdV2, Derived from Openstax tutorial 26.2 http://bit.ly/2nxcQWi. Some sections edited or removed for brevity.

Terms to Know
Agricultural Adjustment Act

established production quotas for certain crops in an attempt to stabilize and improve prices; paid farmers not to produce more.

Civil Works Administration

a public program that directly hired workers for public works projects.

Civilian Conservation Corps

a public program for unemployed young men who were put to work on conservation and land management projects around the country.

Emergency Banking Act

passed by Congress to address the banking crisis; expanded the capacity of the Federal Reserve to distribute currency and provided for the reopening of banks under federal supervision.

Federal Emergency Relief Administration

sent federal money directly to states to infuse local relief agencies with the resources necessary to put unemployed Americans back to work.

Glass-Steagall Banking Act

prohibited commercial banks from engaging in investment banking; created the Federal Deposit Insurance Corporation (FDIC), which insured personal bank deposits up to $2,500.

National Industrial Recovery Act

allowed businesses and industries to work together in order to establish codes of fair competition, including issues of price setting and minimum wages.

Public Works Administration

contracted with private companies to build public projects such as highways, federal buildings, and military bases.

bank runs

the withdrawal by a large number of individuals or investors of money from a bank due to fears of the bank’s instability.

“fireside chat”

a series of radio addresses in which President Roosevelt outlined key ideas and programs directly to the American people.

People to Know
Franklin Delano Roosevelt

democratic president who led the United States from 1933-1945 and navigated the country through the crisis of the Great Depression and World War II.