The New Deal

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The New Deal

" I pledge you, I pledge myself, to a new deal for the American people. Let us all here assembled constitute ourselves prophets [dedicate ourselves to the development] of a new order of competence and courage." Franklin Roosevelt (1882–1945) spoke these words on July 2, 1932, at the Democratic National Convention. He was accepting the Democratic Party's nomination to be a candidate in the U.S. presidential election of 1932. The phrase "new deal," planted in the public's mind, became a label for the political and economic programs Roosevelt created to combat the Great Depression (1929–39) and return America to prosperity.

At the time of Roosevelt's speech, Herbert Hoover (1874–1964) was the U.S. president and the Republican candidate for reelection. Hoover (served 1929–33) had fallen into disfavor with the American public. He had not met the public outcry for economic relief during the early years of the Depression. In addition, with his cool and stern manner, he did not connect well with the public, and their resentment of him grew. In Roosevelt the public sensed hope and optimism. Desperate for a new approach to solve the economic hardships of the Great Depression, the American people elected Roosevelt to the presidency by a wide margin in November 1932. However, it would be four months between the November election victory and Roosevelt's inauguration as president in March 1933. The Twentieth Amendment to the U.S. Constitution, which changed the inauguration date to January, was in the process of being ratified (voted on by the states) and would not take effect until the 1936 election.

Nevertheless, president-elect Roosevelt, together with a group of brilliant, creative advisers known as the Brain Trust, immediately began to work on solutions to the Great Depression. With more businesses and banks closing daily and people losing their jobs, homes, and farms, Roosevelt and his advisers could not wait until March to begin tackling the problems. Task force groups were formed to work on specific areas of difficulty, such as agriculture, and to propose solutions. This level of activity prior to inauguration had never occurred before in U.S. history.

Roosevelt, the Brain Trust members, and the task force groups focused on the "three Rs": Relief for the needy, plans for economic Recovery, and permanent change with Reform. They designed relief programs to help people until recovery and reform measures could begin to take effect. The numerous measures passed between March 1933 and June 1934 were known as the First New Deal. Legislation passed between April 1935 and June 1938 became known as the Second New Deal.

The people of the United States had long held to a belief in self-reliance: They thought they should be able to meet all their own needs and never look to the government for help. However, by 1929 over 50 percent of Americans lived in cities and depended solely on wages from jobs. If jobs were lost, families found themselves in desperate situations. There were no government programs such as unemployment insurance to fall back on. In rural areas farmers had been struggling throughout the 1920s with low prices for their products. The Great Depression had only increased their troubles. In 1929 income levels were already very depressed; and by 1932 farmers' income was one-third of what it had been in 1929. In addition, severe dust storms began to blow across the Great Plains in 1932. The once proud and independent American agriculture industry was in dire straits and clearly needed government help.

Brain Trust

Searching for solutions to the complex economic and social problems posed by the Great Depression, Democratic candidate Franklin Roosevelt (1882–1945) gathered together a group of advisers to assist in his 1932 presidential campaign. This group was called the "Brain Trust" because they were considered the brightest minds of the day. These advisers would analyze all the options available to Roosevelt on specific issues and then draft policies he might pursue. The core group consisted of three men, all from Columbia University in New York City: Raymond Moley (1886–1975) was a political scientist who had frequently written speeches for and advised Roosevelt; Rexford Guy Tugwell (1891–1979) was an expert in agricultural issues; Adolf Berle Jr. (1895–1971) was the expert on business and economic affairs. Also part of the elite group were Basil O'Connor, Roosevelt's law partner prior to his presidential terms; Samuel Rosenman, Roosevelt's general counsel (attorney) in New York; and William Woodin, a New York businessman and former director of the New York Federal Reserve Bank.

The advice of this group led to the National Industrial Recovery Act of 1933 and the Agricultural Adjustment Act of 1933. Congress enacted both pieces of legislation soon after Roosevelt's inauguration as president in March 1933. The members of the original "Brain Trust" group played significant roles in the New Deal throughout the 1930s.

U.S. government leaders had long operated with the belief that government should have a very limited role in business activity, in agriculture, and in Americans' everyday lives. The misery of the Great Depression changed this attitude. With the New Deal legislation the federal government became for the first time a regular player in the private business world. The government would more closely oversee and control business activities. With legislation such as the Agricultural Adjustment Act of 1933 and the Social Security Act of 1935, the federal government entered into the everyday life of farmers and all Americans. The New Deal legislation set the foundation for government involvement and policies throughout the twentieth century.

First New Deal: The first hundred days

On March 4, 1933, Franklin D. Roosevelt was sworn in as the thirty-second president of the United States. That evening Roosevelt called a special session of Congress to begin March 9. Congress would remain in session until June 16, one hundred days. Congress was to enact an emergency banking bill, an agricultural bill, and other proposed legislation worked out by Roosevelt's task force groups. Those one hundred days turned out to be perhaps the most amazing period in the federal government's history. Legislation poured out of Congress at a lightning-quick pace. Americans desperately needed help and hope, and their president and Congress did not disappoint. In this chapter the most important pieces of New Deal legislation are briefly described. The date each act was passed by Congress is also provided. If an act is discussed in more detail in following chapters, those chapters are identified for quick reference.

Emergency Banking Relief Act (March 9, 1933): The act authorized the U.S. Treasury Department to inspect the nation's banks to see which were strong enough to reopen after a nationwide closure of banks on March 6. (See Banking and Housing chapter.)

Economy Act (March 20, 1933): The act cut federal spending by combining programs, cutting jobs, and reducing certain payments to veterans. Many criticized President Roosevelt for trimming back government expenses while at the same time signing massive relief bills. Roosevelt tried to distinguish between the two by claiming that relief funds were an investment in the future. One year later Congress passed a bill, over Roosevelt's veto, largely negating the Economy Act.

Beer Tax Act (March 22, 1933): The act allowed the manufacture and sale of beer and light wines with no more than 3.2 percent alcohol. (See Prohibition and Crime chapter.)

Civilian Conservation Corps Reforestation Act (March 31, 1933): The act created jobs in conservation, including forestry work (such as planting trees), soil conservation projects, and flood control. This provided relief for young Americans, who were particularly hard hit by unemployment. (See Riding the Rails chapter.)

Agricultural Adjustment Act (May 12, 1933): The act was designed to raise farm prices by encouraging farmers to lower production. (See Farm Relief chapter.)

Emergency Farm Mortgage Act (May 12, 1933): To help farmers in heavy debt, the act provided farm loans with easier repayment options. (See Farm Relief chapter.)

Federal Emergency Relief Act (May 12, 1933): Creating the Federal Emergency Relief Administration (FERA), the act allocated direct aid to states so they could provide food and clothing to the unemployed, aged, and ill. The act provided $500 million for immediate relief. President Roosevelt named one of his closest advisers, Harry Hopkins (1890–1946), to direct FERA. The FERA program provided essential support and relief while other programs were still being developed. Within a few years Roosevelt replaced FERA with programs that offered work, not just a handout. Harry Hopkins played an important role in developing and carrying out much of the New Deal legislation. (See Employment, Industry, and Labor chapter.)

Tennessee Valley Authority Act (May 17, 1933): Creation of the Tennessee Valley Authority (TVA) brought economic development to the southeast United States. The program built twenty new dams and renovated five old ones, bringing cheap hydroelectric power to the region. (See Electrifying Rural America chapter.)

Securities Act (May 27, 1933): The act required companies and stockbrokers to provide full information about new stocks to potential investors. (See "The Securities and Exchange Commission" sidebar in Causes of the Great Depression chapter.)

National Employment Act (June 6, 1933): This act created the U.S. Employment Service within the Department of Labor; the purpose of the new division was to set up a nationwide employment service network.

Home Owners' Refinancing Act (June 13, 1933): The act created the Home Owners' Loan Corporation (HOLC) to provide loans to home owners who were facing foreclosure (loss of a home caused by failure to make mortgage payments). (See Banking and Housing chapter.)

Banking Act of 1933 (Glass-Steagall Act) (June 16, 1933): Restoring confidence in U.S. banking, the act established the Federal Deposit Insurance Corporation (FDIC), which insured individual bank accounts against loss. (See Banking and Housing chapter.)

Emergency Railroad Transportation Act (June 16, 1933): The act attempted to help railroads reorganize to make them profitable again. However, the act met with resistance from railroad companies and railroad employees afraid of losing jobs and from railroad users who feared the loss of inexpensive freight fares. Congress allowed the act to die in 1936.

Farm Credit Act (June 16, 1933): The act formalized the Farm Credit Administration (FCA), which had been created by an executive order from President Roosevelt on March 27, 1933. The act created a system of banking institutions for farmers. (See Farm Relief chapter.)

National Industrial Recovery Act (NIRA) (June 16, 1933): The act established codes of fair practice for industry and businesses. (See Employment, Industry, and Labor chapter.)

Public Works Administration (PWA) (June 16, 1933): Created under the authority of the NIRA, the PWA distributed almost $6 billion (the amount originally appropriated was $3.3 billion) between 1933 and 1939 for public works projects. PWA projects included roads, tunnels, bridges, dams, power systems, hospitals, the Mall in Washington, D.C., and many other improvements. The projects put the unemployed to work and were a means of pump priming. Pump priming means spending federal funds in ways that quickly put money into the hands of consumers, so that consumers will buy more goods and stimulate the economy. (See Employment, Industry, and Labor chapter.)

A growing government

After being in session one hundred days, Congress wrapped up its special session on June 16. During the remainder of 1933 President Roosevelt established many boards and councils by executive order; these were intended to carry out the relief and recovery programs created by the new legislation. Although the economy slowly began improving, consumers still could not afford to buy goods, and more layoffs resulted by late fall. To help the unemployed through the winter of 1933–34, Roosevelt created the Civil Works Administration (CWA) on November 9. By February 1934 over 4.2 million workers were employed constructing streets, schools, and airports. The CWA also provided for fifty thousand rural schoolteachers' salaries. As part of the CWA, the Public Works of Art Project (PWAP) was established in December 1933. Over thirty-six hundred artists were employed by PWAP to create murals and sculptures for public buildings. PWAP was the first federally funded nationwide art program in the United States. Although PWAP was discontinued (along with all CWA programs) in the spring of 1934, support of the arts would reappear in the Second New Deal as part of the Works Progress Administration. Congress passed several new pieces of legislation in 1934. Together, the following acts and the legislation of the first hundred days constituted the First New Deal.

Farm Mortgage Refinancing Act (January 31, 1934): This act created the Federal Farm Mortgage Corporation, which would issue $2 billion to refinance farm loans. (See Farm Relief chapter.)

Securities Exchange Act (June 6, 1934): The act prohibited certain activities in stock market trading and set penalties for violations. It established the Securities and Exchange Commission (SEC) to oversee stock market trading. (See "The Securities and Exchange Commission" sidebar in Causes of the Great Depression chapter.)

Corporate Bankruptcy Act (June 7, 1934): This act made it easier for troubled companies to reorganize and start hiring again.

National Housing Act (June 28, 1934): With the intention of spurring the construction industry, this act created the Federal Housing Administration (FHA) to help Americans buy new houses. (See Banking and Housing chapter.)

Critics of the First New Deal

Opposition to President Roosevelt's new government measures began to emerge in 1934. Different groups had different reasons for their opposition: Conservatives thought that the First New Deal went beyond the limit of governmental power allowed by the U.S. Constitution. On the other side, liberals believed that the federal government should go much further; they called for government ownership of banks and industry. Congress worried that the president was becoming too powerful and upsetting the balance between the executive, legislative, and judicial (court system) branches of government. Nevertheless, Roosevelt clearly had strong general public support during the early period of the New Deal. He could afford to ignore his critics. His confident, reassuring manner won over Americans who were desperate for relief from the severe hardships of the Great Depression.

The Second New Deal

The Second New Deal lasted from April 1935 to June 1938, though most activity occurred in 1935 and 1936. Legislation passed during this period represented a clear political shift: While the First New Deal focused on national economic recovery through aid to businesses and large farm operators, the Second New Deal provided economic relief for families, common laborers, and small farmers.

By mid-1935 millions of employable people were still receiving unemployment relief. President Roosevelt was increasingly sensitive to outspoken critics who claimed that the New Deal ignored workers, the needy, and the aged. Through the first two years of his presidency, Roosevelt had tried to satisfy both big business and the common worker. By late 1934 Roosevelt had come to the conclusion that trying to please everyone in the nation was only leading to everyone's being dissatisfied to some degree. His political popularity was declining, and the presidential election of 1936 was looming.

Roosevelt decided to focus on the everyday American worker, small business, and small farmers. He dropped the ideas of national planning represented by the 1933 National Industrial Recovery Act (NIRA) and its industry codes that had given big business a dominating hand in regulating markets and wages. When, on May 27, 1935, the U.S. Supreme Court struck down the NIRA as unconstitutional (in other words, not in keeping with the U.S. Constitution), Roosevelt chose not to create a new version of the NIRA. Instead, with the Second New Deal legislation, Roosevelt and his advisers looked to supporting small companies and labor in reshaping U.S. economic policy. The Second New Deal also attempted to help small farmers, including tenant farmers, sharecroppers, and migrant workers. Tenant farmers rent farmland but have their own tools to do the work of farming. Sharecroppers work the land of a landowner who provides the sharecropper with tools. Both types of farmers give some of their harvested crops to the landowner. Migrant workers travel from place to place in order to harvest crops on a seasonal basis.

Roosevelt's support of American workers resulted in intense opposition to his programs from the business community, who felt that the president was neglecting business interests. Nevertheless, Roosevelt persisted with relief for workers, farmers, young Americans, and the unemployed.

Unemployment relief

Emergency Relief Appropriation Act (ERAA) (April 8, 1935): Worker relief was the top priority of the Second New Deal. The Emergency Relief Appropriation Act (ERAA) directed $4.8 billion toward the creation of jobs. The Works Progress Administration (WPA), which was established under the act, became the biggest relief program of the Second New Deal. Recruited from among those already enrolled in relief programs, WPA workers built airports, schools, hospitals, roads, public buildings, and recreational facilities. Young people, women, and minorities were recruited for various projects. The WPA expanded its programs to include writers, artists, actors, musicians, and dancers by creating the Federal Writers Project, Federal Arts Projects, the Federal Theater Project (FTP), the Federal Music Project, and the Federal Dance Project. (See Works Progress Administration chapter.)

Youth relief

National Youth Administration (NYA) (June 26, 1935): In early 1935 estimates placed the number of unemployed young people at five million. President Roosevelt wanted to give youths hope and faith in the U.S. economic system. The National Youth Administration provided high school and college students with part-time jobs and also provided jobs for those who had already dropped out. (See Riding the Rails chapter.)

Farmer relief

The new Agricultural Adjustment Act (February 16, 1938): The new Agricultural Adjustment Act made the conservation provisions of the 1933 act permanent and included protection for farmers against lower prices caused by overproduction. In 1936 the U.S. Supreme Court had declared the original act (passed in May 1933) unconstitutional. (See Farm Relief chapter.)

Soil Conservation Act (April 27, 1935): Farmers in the middle section of the country, the Great Plains, were experiencing drought and massive soil erosion. The act established the Soil Conservation Service (SCS) to promote wide-ranging soil conservation practices. The Flood Control Act of 1936 was passed in response to flooding in areas near the Ohio and Mississippi Rivers. (See Farm Relief chapter.)

Resettlement Administration (RA) (April 30, 1935): Roosevelt created the Resettlement Administration (RA) under the authority of the Federal Emergency Relief Act. The goal of the RA was to help poor farmers either improve the use of their lands or move to better lands. (See Farm Relief chapter.)

Rural Electrification Administration (REA) (May 11, 1935): Roosevelt established the Rural Electrification Administration (REA) under the Federal Emergency Relief Act of 1933 to bring electricity to rural areas. (See Electrifying Rural America chapter.)

Bankhead-Jones Farm Tenancy Act (July 22, 1937): The act made low-interest loans available to tenant farmers, farm laborers, and small landowners so they could purchase or expand their own lands. Under authority of this act, Roosevelt created the Farm Security Administration (FSA) on September 1, 1937. The FSA absorbed the programs of the RA and replaced the RA. (See Farm Relief chapter.)

Labor relief

Fair Labor Standards Act (June 25, 1938): This act replaced some standards set earlier in the no-longer-valid National Industrial Recovery Act and added new ones. Most important, the act set a minimum hourly wage and maximum weekly hours. (See Employment, Industry, and Labor chapter.)

National Labor Relations Act (Wagner Act) (July 5, 1935): The Wagner Act supported the right of workers to join unions and recognized the practice of collective bargaining. (Collective bargaining is negotiation that is conducted between representatives of employers and workers to reach an agreement on working conditions, wages, and job benefits.) In addition, the act prohibited various unfair business practices. (See Employment, Industry, and Labor chapter.)

Social Security Act (August 14, 1935): The Social Security Act set up a program of social insurance in the United States, including unemployment insurance, old-age retirement payments, and aid to needy mothers and children, and the blind. (See Social Security chapter.)

Wealth Tax Act (August 30, 1935): The Wealth Tax Act included a small corporate tax and a small inheritance tax. The goal of the act was to redistribute some of the wealth concentrated among the very rich in order to benefit the vast majority of Americans who were not rich. The act made income taxes progressive, which meant that the wealthy would be taxed at a higher rate than those with lower incomes. (Progressive income taxes are still in effect in the United States in the twenty-first century.) The passage of this tax bill confirmed President Roosevelt as a representative of the working class.

Election of 1936 and the Democratic Coalition

The Second New Deal programs of 1935 and 1936 proved extremely popular with most Americans. Roosevelt won the 1936 presidential election by a landslide—the largest margin of victory in U.S. history for a presidential election. (Roosevelt received 27.7 million votes; Republican presidential candidate Alfred Landon (1887–1987) received 16.6 million.) Democrats also swept into the U.S. Senate and House by large margins. An interesting group of Americans supported Roosevelt: It was the first presidential election in which the Democratic candidate won a majority of black Americans' votes. Support also came from other minorities and from laborers, Catholics, Jews, and big-city political organizations. The South also voted Democratic. This diverse group of supporters became known as the Democratic Coalition. The coalition would be highly influential in electing Democratic candidates for the next few decades.

Court-packing bill

The excitement generated by Roosevelt's election and the expectation of more New Deal legislation was not long-lived. Before the election Roosevelt was greatly angered when the Supreme Court struck down two pieces of New Deal legislation —the first Agricultural Adjustment Act and the National Industrial Recovery Act. With a huge election victory behind him, Roosevelt boldly introduced a Supreme Court reform bill to Congress in 1937. Among other items, the bill proposed to add new judges to the Court, up to a total of fifteen judges. Roosevelt's proposal frightened the public and legislators alike; both felt he was trying to set up a Court friendly to his programs. Controversial hearings of the court reform bill dominated Congress for the next six months, and the bill failed to pass. As a result, momentum for more New Deal programs was lost.

Recession of 1937

By spring of 1937 industrial production was at pre-Depression levels. Roosevelt decided it was time to see whether the economy could stand cutbacks of government relief support. Congress reduced funds for a number of relief programs, including a 25 percent decrease in the Works Progress Administration. By fall, industrial production fell, farm prices fell, and unemployment was on the rise. The recovery had come to a stop. Trying to keep public morale up, Roosevelt introduced a new term to refer to the economic downturn: recession. He desperately wanted to avoid the term depression, which evoked strong images of the dark times of the early 1930s. From that point on, and into the twenty-first century, the term depression was never again used to label an economic downturn; recession instantly became the preferred term.

Last New Deal legislation

Despite the recession of 1937, Congress passed the Wagner-Steagall Housing Act on September 1, 1937. The act provided funds for public housing for the needy. Under the act the U.S. Housing Authority was established to oversee $500 million in loans for construction of low-cost housing (see Banking and Housing chapter). Another important New Deal act was a consumer protection bill, the Food, Drug, and Cosmetics Act, passed June 24, 1938. The act required that all ingredients in drugs be listed in their packaging, and it set higher standards for food labeling. Processing of food, drugs, and cosmetics was brought under federal control.

End of the New Deal

The 1938 elections for the U.S. Senate and House marked the end of the New Deal. Increasing numbers of conservatives opposed to the New Deal programs took seats in Congress. President Roosevelt, by necessity, shifted his attention more and more to the brewing storm in Europe, soon to grow into World War II (1939–45).

The major push of New Deal legislation lasted only four years, from 1933 to 1937, but the total amount of legislation passed was staggering—more was passed than during any previous four-year period. For the first time in U.S. history the federal government played a role in the everyday lives of its people. Many of the programs established under the New Deal became cornerstones for programs lasting into the twenty-first century.