The New Deal

The New Deal

During the 1930's, America witnessed a breakdown of the Democratic and free enterprise system as the United States fell into the worst depression in history. The economic depression that beset the United States and other countries was unique in its severity and its consequences. At the depth of the depression, in 1933, one American worker in every four was out of a job. The great industrial slump continued throughout the 1930's, shaking the foundations of Western capitalism. The Great Depression forced Americans to come together and find someone to help them climb out. On March 4, 1933 Franklin Roosevelt wondered if it were possible to "do anything to save America now." With millions of people tightening their belts, Roosevelt decided to gather a group of lawyers and university professors called the "brains trust" to advise him on economic policy. From this Roosevelt started what he called the "New Deal" which had three aims: relief, recovery, and reform. The New Deal had influences not only during Roosevelt's presidency but also the others who followed.

The early New Deal unfolded in the spring of 1933 with a chaotic three month burst of legislation known as "the hundred days." This plan had three parts to it, recovery through planning and cooperation with business, furnishing relief for the unemployed, and to begin a reform of the economic system. To start Roosevelt said that banks come first. Without sound credit structure, there could be no borrowing, without borrowing there could be no investment, and without investment, no recovery. Roosevelt meant to save capitalism by regulating and reforming it. The day after FDR's inauguration he ordered every bank in the country closed for what he called a "bank holiday." From this FDR introduced the Emergency Banking Act (EBA) extending federal assistance to banks, which helped banks keep their customers. Also, to guard against future stock crashes, financial reforms gave government greater authority to manage the currency and regulate stock transactions. Then in April 1933, Roosevelt dropped the gold standard and began experimenting with the value of the dollar to boost prices. Along with all this, deposit insurance came about under the "Glass-Steagall Banking Act" which insured deposits up to $2500. Banks began to turn it around which was a start to get people out of this depression.

Roosevelt knew that saving the bank and financial markets meant little though if human suffering could not be relieved. So FDR sought relief for the unemployed and poverty stricken people of the United States. To start he launched the Federal Emergency Relief Administration (FERA) which furnished more than $1 billion in grants to states, local areas, and private charities. This money was spent on projects such as repairing schools, laying sewer pipes, and building roads. From this came the Civilian Conservation Corps (CCC), a program that was important to Roosevelt because it combined his concern for conservation and his compassion for the youth. Along with these programs came one that aimed to help relieve unemployment, but did more than just that, the Tennessee Valley Authority (TVA). This area was one of the poorest areas of the country and from the TVA it not only gave people jobs it also saved three million acres from erosion, multiplied the average income in the valley tenfold, and repaid its original investment in federal taxes. Planning not just for regions but for the whole economy seemed to many New Dealers the key to recovery.

Business leaders began urging the government to allow businesses the opportunity to plan and cooperate, to help control ruthless competition that was driving down the economy. The legislation created two new agencies from this, the Public Works Administration (PWA) and the National Recovery Administration (NRA). First the PWA was designed to boost consumer purchasing power and industrial activity with a $3.3 billion public works program. The workers it hired would spend their paychecks and stimulate production, while its orders for factory and other goods would send capital through the economy. The second agency created, the NRA, aimed directly at controlling competition. From this businesses and the government drew up a "codes of fair practices" to help keep prices at bay. The NRA relied on voluntary participation and more than two million employers eventually signed up. But on May 27, 1935 the Supreme Court struck down the NRA declaring it unconstitutional stating that the government can not control all aspects of business. This decision left New Dealers shaken, without the ability to make rules and regulations all the executive agencies of the New Deal might die.

Like planning for industry, New Deal planning for agriculture relied on private interests, the farmers, to act as the principal planners. One such Act was the Agriculture Adjustment Act (AAA) of 1933. This was an agreement among producers of basic commodities to limit their own production, in turn, the government paid farmers for not producing, while a tax on millers, cotton ginners, and other processors helped pay the costs. All of this would reduce surplus, increasing prices, helping agriculture to recover. This program, although it did help increase prices, was voided by the Supreme Court in 1936. They concluded that the government had no right to regulate agriculture, either by limiting production or by taxing processors. Other agencies followed trying to help impoverished farmers but the rural poor did not have enough political leverage to obtain sufficient funds from Congress.

After years of Herbert Hoover paralysis, Roosevelt's first 100 days finally broke national despair. However, the economic depression would not go away. Although Roosevelt regarded recovery as his primary goal, the first New Deal never achieved it. Ideas and peoples circumstances improved, but the economy came along more gradual. Perhaps no one could solve the riddle of recovery, but Roosevelt had faith in himself. So in 1935 he began to address a second riddle, how to reform the system so that the Great Depression never happens again.

With the presidential election of 1936 only a year away, Roosevelt and Congress produced a "second hundred days" of law making and a "Second New