New Deal

Identification Domestic policies and programs designed to combat Depression-era problems

Dates 1933-1938

The New Deal encompassed a wide variety of programs designed to promote economic and political reforms, recovery, and relief during the Great Depression. As such, three distinct goals have been attributed to the New Deal: economic relief to the unemployed, recovery of the American economy, and economic reform of business and banking. Stuart Chase, the popular economist who had infamously predicted a “continuing boom” in 1929, coined the term “new deal.” Coincidentally or not, President Franklin D. Roosevelt promised a “new deal for America” in his acceptance speech at the 1932 Democratic National Convention.

Historians divide the New Deal into two periods, a first New Deal in 1933 and a second New Deal from 1934 to 1936. One major piece of New Deal legislation was enacted after 1936, the Fair Labor Standards Act (FLSA), which outlawed child labor and established a national minimum wage and overtime pay for hours worked above forty hours a week.

The year 1937 is often considered the end of the New Deal for two reasons. First, Roosevelt’s unpopular and unsuccessful attempt to increase the size of the U.S. Supreme Court, an event known as the court-packing plan, greatly weakened his popularity among both the American people and Democrats. Second, resenting opposition to his court-packing plan from conservative Democrats, primarily in the South, in 1938, Roosevelt campaigned against these members, supporting Democratic challengers who were more supportive of the New Deal. However, all but one conservative Democrat was reelected, and in the 1938 election, the Democratic Party lost seven seats in the Senate and seventy-one in the House of Representatives. Roosevelt’s campaign against members of his own party poisoned his relations with conservative Democrats, who joined with Republicans to oppose Roosevelt and any additional New Deal programs.

The First One Hundred Days: Banking and the Economy

The New Deal redefined and changed the roles of the U.S. government and the public’s expectations about the obligations and duties of government. Under the New Deal, the U.S. government impacted the lives of the American people more than it ever had before. The New Deal authorized the government to intervene in such areas of the economy as agriculture, business, banking, welfare, and public infrastructure. The role of the president was also transformed by the New Deal. The era of congressional dominance in American politics was over, and the executive branch became more powerful. Because of Roosevelt’s political philosophy and promotion of the New Deal, the American people came to regard the federal government as obligated to either provide for or at least protect the people’s needs.

When Roosevelt was inaugurated as president on March 4, 1933, the American economy was in deep crisis. Industrial production had declined almost 50 percent, the nation’s gross domestic product had been halved, and one-third of the banks had collapsed. Roosevelt had inherited an economy in crisis that showed no sign of improvement, and he recognized the need for bold action. Roosevelt implemented the first New Deal during the first one hundred days of his presidency. He called a special session of Congress, resulting in a flurry of legislation passed by Congress and signed into law by Roosevelt. The fact that this legislation was initiated by the president signaled a major shift in the role of the executive branch and the relationship between the president and the legislative branch. No president before Roosevelt had played such a direct and visible role in American politics, particularly in the lawmaking process.

During his first hundred days in office, Roosevelt acted decisively to deal with the Great Depression. His tremendous popularity and a largely cooperative, if not subservient, Congress made his task easier. One of Roosevelt’s first objectives was rescuing the collapsing banking system. Per the Trading with the Enemies Act of 1917, the president ordered the closure of all the banks in the United States for four days until federal legislation could be passed to permanently close insolvent banks—actions the previous president, Herbert Hoover, had asked for but failed to receive. On March 9, 1933, the Emergency Banking Relief Act of 1933 was passed with the assistance of officials from the Hoover administration, particularly former secretary of the Treasury Ogden Livingston Mills, who worked with his successor, William Woodin. Reflective of the urgency of the situation, at 1:00 p.m. on March 9, the House debated the bill for about forty minutes. The debate was interrupted only by cries of “vote, vote!” The bill was approved and signed into law that evening. The Emergency Banking Relief Act closed more than one thousand, or 5 percent, of the banks and gave the remaining banks a federal certificate of soundness. This and the commitment by the Federal Reserve to loan money to any reopened bank meant that the U.S. government would insure all the banks. The Emergency Banking Relief Act was the first, and probably the most important and successful, New Deal measure because it restored confidence in the U.S. banking sector and helped avert any further collapse of the banking system.

Rescuing the banks was only one of Roosevelt’s priorities. On March 10, Roosevelt urged Congress to cut federal spending by $500 million, including a 50 percent cut in payments to veterans, which then accounted for almost one-quarter of the $3.6 billion in the federal budget. Despite objections among many liberal members of the House, particularly in the wake of the Bonus Army March disaster under President Hoover, the Economy Act bill passed the House and was quickly approved in the Senate, right after a vote to legalize alcohol sales in the United States. On March 20, 1933, the president signed into law the Economy Act and also a bill to legalize the sale of liquor once the Eighteenth Amendment to the U.S. Constitution was repealed. On December 3, 1933, the Twenty-First Amendment legally repealed the Eighteenth Amendment, ending Prohibition.

The First One Hundred Days: Agriculture, Unemployment, and Public Power

On May 12, 1933, Roosevelt addressed the crisis among American farmers by signing into law the Agricultural Adjustment Act (AAA). Farmers’ incomes had dropped by 60 percent over the previous four years, and by 1933, banks were foreclosing on twenty thousand farms a month. The AAA sought to increase the income of farmers. The central idea behind the AAA was to reduce deliberately the supply of crops in the market by paying farmers to reduce their planting of certain crops voluntarily, thereby increasing the income of farmers. In other words, farm prices would be raised by government subsidization of a decrease in the supply of crops. Along with the AAA, the Emergency Farm Mortgage Act was passed to offer relief to farmers by providing mortgages at lower interest rates. It was signed into law the same day as the AAA.

The AAA was modestly successful in its first years. However, the long-term effects of the AAA will never be known because in 1936, in the case of the United States v. Butler, the Supreme Court declared the AAA unconstitutional because it exceeded the power of the federal government. According to the Court, by regulating and controlling agricultural production, the AAA violated the rights reserved to the states by the Tenth Amendment to the U.S. Constitution. Furthermore the provision to pay farmers to reduce their production of crops was not in fact voluntary since the refusal to comply was the loss of benefits and this, ruled the Court, amounted to coercion by economic pressure. In June, 1934, a year after the AAA was passed, Congress amended existing bankruptcy laws by passing the Frazier-Lemke Farm Bankruptcy Act to restrict the ability of creditors to repossess farms by delaying for five years the ability of a creditor to foreclose on a bankrupt farmer’s property. However, in the 1935 case of Louisville Joint Stock Land Bank v. Radford, the U.S. Supreme Court declared that the Frazier-Lemke Act deprived creditors of their right to property under the Fifth Amendment to the U.S. Constitution. That same year, Congress responded to this decision by revising the Frazier-Lemke Act, passing the Farm Mortgage Moratorium Act. Added to the act were provisions safeguarding the creditor’s rights; this was upheld by the Supreme Court in 1937.

Another urgent problem addressed by President Roosevelt was the estimated thirty million Americans without regular incomes. The Civil Works Administration (CWA) was created in December, 1933, to provide temporary employment until a longer-term program could be created. The CWA was disbanded in 1934 over allegations of graft and corruption and was replaced by the Public Works Administration (PWA). Roosevelt chose Harry Hopkins to oversee the CWA, which employed approximately four million people. In March, 1933, the president asked Congress to create the position of federal relief administrator to oversee federal-aid grants to states for public assistance. Congress initially appropriated $500 million dollars to the Federal Emergency Relief Administration (FERA). Hopkins became the federal relief administrator.

Meanwhile, President Roosevelt chose Secretary of the Interior Harold Ickes to run the PWA. The PWA was created per Title II of the National Industrial Recovery Act to provide employment and stimulate the economy by expanding the number of federally funded public-works projects. In 1933 and 1934, $3.3 billion was appropriated to the PWA to build thirty thousand projects and became a major part of the New Deal’s efforts to reduce unemployment and spur economic growth. Congress ended the WPA during World War II.

Roosevelt decided to use the New Deal to accomplish two other goals: conservation and development of public power. As governor of New York, he had hired 100,000 unemployed men to work on a reforestation program, and as president, he sought to duplicate this program for the United States, creating the Civilian Conservation Corps (CCC). The CCC was created on March 21, 1933, and employed more than two million people; Congress disbanded it in 1942. The CCC’s legacy was restoring forests, beaches, rivers, and parks and providing flood control and disaster relief. Roosevelt also sought to increase the availability and accessibility of public power, particularly electricity. The centerpiece of Roosevelt’s public power project was the Tennessee Valley Authority (TVA), created in May, 1933. This ultimately led to the creation of numerous hydroelectric dams along the Tennessee River, producing flood control and providing electricity to rural parts of the South. The TVA continues as a government-run corporation.

The National Industrial Recovery Act

To address the depressed state of industry, Congress passed the National Industrial Recovery Act (NIRA) in June, 1933. Roosevelt had not proposed the creation of an industrial reform bill; however, Congress had begun work on such a bill. Because Roosevelt was unwilling to veto a bill that enjoyed major Democratic support and because he also was desirous of influencing such a bill, he worked with Congress to draft it. The National Recovery Administration sought to do to industry and business what the AAA had done to farmers: raise the income of businesses by encouraging them to cooperate, and even collude, with one another on “fair codes of competition”—including wages, prices, and working conditions—that would be exempt from federal antitrust laws.

In a radio address to the American people, Roosevelt characterized the NIRA as promoting “a partnership in planning” between business and government based on the idea that this was superior to laissez-faire business practices. Roosevelt and many Democrats regarded capitalism as chaotic and unstable because it emphasized competition over planning and cooperation. Roosevelt believed that planning and cooperation between businesses and between business and government would promote employment and prosperity. Essentially, the NIRA constituted government-approved collusion and price-fixing among businesses. In return, the government expected businesses to accept long-sought labor reforms, such as allowing workers to unionize, the establishment of minimum-wage and maximum-working-hours provisions, improved working conditions, and the elimination of child labor.

Most businesses resisted these reforms and focused instead on increasing their profits, thereby making the NIRA unpopular among unions and many workers. In addition, authorizing cooperation among businesses created collusion naturally; the NIRA benefited large businesses because their size enabled them to dictate terms at the expense of small businesses. Consequently, small businesses came to dislike the NIRA as did Republicans and conservative Democrats, charging that it interfered with property rights and the free market and promoted cooperation between government and business, which resembled Italian fascism under Benito Mussolini. In addition to all the different groups that opposed the NIRA, perhaps the main reason it failed to promote economic recovery was that it ran counter to the American economy, which was based on free enterprise, such that government was powerless to directly regulate prices and wages.

Roosevelt concluded that admitting publicly that the NIRA had failed was politically risky, so he called for a two-year extension of the NIRA in February, 1935, claiming that failure to do so would create chaos for industry and labor. Whether Congress would have reauthorized the NIRA cannot be known because on May 25, 1935, the Supreme Court declared the NIRA unconstitutional. In the case of Schechter Poultry Corp. v. the United States, a unanimous Supreme Court ruled that the NIRA violated the principle of separation of powers by granting legislative power to the president that exceeded Congress’s authority under the commerce clause. In its decision, the Supreme Court may have unintentionally rescued Roosevelt from a continued defense of the program.

Other New Deal Acts

By Roosevelt’s inauguration, home foreclosures had reached a rate of one thousand per day, primarily affecting the middle class. In June, 1933, Roosevelt tackled the mortgage crisis by signing into law the Home Owners Refinancing Act, which created the Home Owners’ Loan Corporation (HOLC) to assist people facing mortgage foreclosure and to prevent additional foreclosures. The HOLC provided refinancing at lower interest rates and ultimately became involved in 20 percent of all urban home mortgages. In 1951, Congress ended the HOLC.

In May, 1933, to address lax regulations on Wall Street and discourage fraud, Roosevelt signed into law the Securities Act, which made all companies selling stock legally responsible and liable for accurately reporting on the company’s finances and allowed investors who could prove fraud to recover monetary damages. The following month, Congress passed the Glass-Steagall Act (also known as the Banking Act of 1933), which created the Federal Deposit Insurance Corporation (FDIC) to ensure bank deposits in the event of bank failures, thus preventing a repeat of the stock market crash of 1929. The FDIC is one of the most successful New Deal programs and remains in existence. Since the FDIC was created, no depositor has lost a cent of insured deposits. Building on the Securities Act of 1933, as part of the second New Deal, Roosevelt signed into law the Securities Exchange Act of 1934, which created the Securities Exchange Commission to protect investors and punish fraud on Wall Street. Like the FDIC, the SEC remains in existence and is an important legacy of the New Deal.

In 1935, Roosevelt passed the Social Security Act, also part of the second New Deal, which provided a government-backed system of old-age pension, unemployment insurance, and welfare benefits for the poor, blind, and disabled. With people’s savings wiped out, Roosevelt envisioned Social Security as a means to provide assistance to the poor, disabled, and the elderly during the Great Depression. Social Security remains the most visible legacy of the New Deal and accounts for the largest expenditure by the U.S. government. That same year, Roosevelt signed into law the National Labor Relations Act (NLRA; also known as the Wagner Act), which legalized the rights of Americans to unionize and bargain with their employers over wages and working conditions and also outlawed a series of unfair labor practices. To enforce this act, the National Labor Relations Board (NLRB) was created and remains in existence. Following passage of the Wagner Act, union membership in the United States increased dramatically and marked the culmination of decades of attempts by workers to unionize.

Impact

The legacy of the New Deal is disputed. Although it did not end the Great Depression, it provided much-needed assistance and relief to millions of people, particularly in the form of public works programs such as the CCC, the PWA, and Social Security. However, other parts of the New Deal, such as the AAA and the National Industrial Recovery Act, were less successful or failed altogether, as was the case with the latter. Liberals and Democrats have tended to exaggerate the success of the New Deal, claiming that without it the U.S. economy might have collapsed; conservatives and Republicans often understate its successes, some of whom claim it prolonged the Great Depression. It can be argued that much of the New Deal was but a continuation—and probably an improvement—of President Hoover’s policies. In fact, one of Roosevelt’s advisers, Rexford Guy Tugwell, admitted as much in 1974. However, Roosevelt was far more popular and persuasive than Hoover, and this may explain the success that Roosevelt and the New Deal had in comparison to Hoover’s programs.

Bibliography

Atler, Jonathan. The Defining Moment: FDR’s Hundred Days and the Triumph of Hope. New York: Simon & Schuster, 2006. Covers Roosevelt’s policies during the first one hundred days in office, which restored people’s hope in the U.S. government’s ability to deal with the Great Depression.

Flynn, Kathryn. The New Deal: A Seventy-fifth Anniversary Celebration. Layton, Utah: Gibbs Smith, 2008. Detailed account of the major New Deal programs.

Leuchtenburg, William E. Franklin Roosevelt and the New Deal, 1933-1940. New York: Harper & Row, 2009. Comprehensive account of Roosevelt and the New Deal.

Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007. Conservative view that argues the New Deal failed and actually prolonged the Great Depression.

Smith, Jean Edward. FDR. New York: Random House, 2008. An inclusive view of Roosevelt and his presidency.