New Deal

Alternate meaning: New Deal (UK)

Table of contents

1 The origins of the New Deal 1.1 The Great Depression and the Importance of the 1932 Elections 1.2 Origins of the New Deal 2 The First Hundred Days 2.3 The "bank holiday" and the Emergency Banking Act 2.4 The Economy Act 2.5 The Agricultural Adjustment Act 2.6 Other initiatives 2.7 The National Industrial Recovery Act (NIRA) 3 Roosevelt's second term 4 The New Deal and the "broker state" 4.8 Government, labor, and business arbitration 4.9 The "broker state" and marginalized interests 5 The New Deal and economic relief 5.10 The New Deal and Keynesian economics 5.11 The recession of 1937 and recovery 5.12 World War II and the end of the Great Depression 6 The legacies of the New Deal 7 A list of New Deal programs 8 See also

The origins of the New Deal

The Great Depression and the Importance of the 1932 Elections

On October 29, 1929, the crash of the U.S. stock market—known ever since as "Black Tuesday"—triggered a worldwide financial crisis. In 1929-1933, unemployment in the U.S. soared from 3 percent of the workforce to 25 percent, while manufacturing output collapsed by one-third.

Upon accepting Democratic nomination for president (July 2, 1932), Roosevelt promised "a new deal for the American people," a phrase that has endured as a label for his administration and its many domestic achievements. Meanwhile, other governments worldwide sought economic recovery by adopting restrictive autarkic policies (high tariffs, import quotas, and barter agreements) and by experimenting with new plans for their internal economies. Britain adopted far-reaching measures in the development of a planned national economy. In Nazi Germany economic recovery was pursued through rearmament, conscription, and public works programs. In Mussolini's Italy the economic controls of his corporate state were tightened. Observers throughout the world saw in the massive program of economic planning and state ownership of the Soviet Union what appeared to be a depression-proof economic system and a solution to the crisis in capitalism.

Origins of the New Deal

Unlike many other world leaders in the 1930s, however, Roosevelt entered office with no single ideology or plan for dealing with the depression. This "new deal" would often be contradicting, pragmatic, and experimental. What many considered incoherence of the New Deal's ideology, however, was the presence of several competing ones, based on programs and ideas not without precedents in the U.S. political tradition.

The New Deal, drawing pictures heavily on the experiences of its leaders, reflected the ideas, and was influenced by the programs that Roosevelt and most of his original associated had absorbed in their political youths early in the progressive era, had absorbed while serving in the Wilson administration, and had absorbed holding other offices in the 1920s. From the progressive era, the New Dealers borrowed the era's opposition to monopoly and the move toward government regulation of the economy, and were influenced by the dispelling of age long notions that poverty was a personal moral failure rather than a product of impersonal social and economic forces. From the Wilson administration, their ideas about government mobilization were shaped by efforts to mobilize the economy for the Great War. And from the policy experiments of the 1920s, New Dealers picked up ideas from efforts to harmonize the economy by creating cooperative relationships among its constituent elements.

The New Deal consisted of many different efforts to end the Great Depression and reform the U.S. economy. Most of them failed, but there were enough successes to establish it as the most important episode of the twentieth century in the creation of the modern U.S. state.

The First Hundred Days

The "bank holiday" and the Emergency Banking Act

The desperate economic situation, combined with the substantial Democratic Party victories in the 1932 elections, gave Roosevelt unusual influence over Congress in the first months of his administration. He used his leverage to win rapid passage of a series of measure to prop up the tottering banking system, reform the stock market, aid the unemployed, and induce industrial and agricultural recovery. With the banking crisis looming and with Congress desperate in a mood to do virtually anything the new president suggested, Roosevelt might well have taken bold steps, such as nationalizing the banking system. Instead, he worked to shore up the existing financial institutions and to revive confidence in the economy.

On March 6, two days after taking office, he issued a proclamation closing all U.S. banks for four days until Congress could meet in a special session. Ordinarily, such an action would cause widespread panic. But the action created a general sense of relief. First, many states had already closed down the banks before March 6. Second, Roosevelt astutely and euphemistically described it as a "bank holiday." And third, the action demonstrated that the federal government was stepping in to stop the alarming pattern of bank failures.

Three days later, Roosevelt sent to Congress the Emergency Banking Act, a generally conservative bill, drafted in large part by holdovers from the Hoover administration, designed primarily to protect large banks from being dragged down by the failing smaller ones. The bill provided for Treasury Department inspection of all banks before they would be allowed to reopen, for federal assistance to tottering large institutions, and for a thorough reorganization of those in greatest difficulty. A confused and frightened Congress passed the bill within four hours of its introduction. Three-quarters of the banks in the Federal Reserve System reopened within the next three days, and $1 billion in "hoarded" currency and gold flowed back into them within a month. The immediate banking crisis was over.

The Economy Act

On the morning after passage of the Emergency Banking Act, Roosevelt sent to Congress the Economy Act, which was designed to convince the public, and moreover the business community, that the federal government was in the hands of no radical. The act proposed to balance the federal budget by cutting the salaries of government employees and reducing pensions to veterans by as much as 15 percent.

Otherwise, Roosevelt warned, the nation faced a $1 billion deficit. The bill revealed clearly what Roosevelt had always maintained: that he was at heart as fiscally conservative as his predecessor. And, like the banking bill, it passed through Congress almost instantly—despite heated protests by some congressional progressives.

At least until after the Second World War, New Dealers never fully recognized the value of government spending as a vehicle for recovery, and their efforts along other lines never succeeded in ending the Depression. Most economists of the era rejected this idea and favored balanced budgets. In fact, in the 1932 presidential election, Franklin D. Roosevelt had blasted Herbert Hoover for running a deficit, and dutifully promised he would balance the budget if elected.

The Agricultural Adjustment Act

The celebrated first Hundred Days of the new administration also produced a federal program to protect U.S. farmers from the uncertainties of the market through subsides and production controls, the Agricultural Adjustment Administration, creating the Agricultural Adjustment Administration (AAA), which Congress passed in May 1933. The AAA reflected the desires of leaders of various farm organizations and Roosevelt's secretary of agriculture, Henry A. Wallace.

Relative farm incomes had been falling for decades. The AAA included reworkings of many long-touted programs for agrarian relief, which had been demanded for decades. The most important provision of the AAA was the provision for crop reductions—the "domestic allotment" system of the act, which was intended to raise prices for farm commodities. Under this system, producers of seven basic commodities (corn, cotton, dairy products, hogs, rice, tobacco, and wheat) would decide on production limits for their crops. The government would then, through the AAA, tell individual farmers how much they should plant and would pay them subsides for leaving some of their land idle. A tax on food processing would provide the funds for the new payments. Farm prices were to be subsidized up to the point of parity.

The most controversial component of the anti-deflationary domestic allotment system was the large-scale destruction of existing crops and livestock to reduce surpluses. At a time in which many families were suffering from malnutrition and downright starvation, it was a difficult measure. However, gross farm incomes increased by half in the first three years of the New Deal and the relative position of farmers improved significantly for the first time in twenty years.

The AAA was the first program on such a scale on behalf of the troubled agricultural economy, and it established an important and long-lasting federal role in the planning on the entire agricultural sector of the economy.

Other initiatives

The First Hundred Days also saw the creation of a new federal regulatory agency to oversee the stock market, the Securities and Exchange Commission (SEC), a reform of the banking system that included a system of insurance for deposits. But the most successful in alleviating the miseries of the Great Depression were a series of relief measures to aid some of the 15 million unemployed Americans, among them the Civilian Conservation Corps (CCC), the Civil Works Administration (CWA), and the Federal Emergency Relief Administration (FERA). The early New Deal also began the Tennessee Valley Authority (TVA), an unprecedented experiment in flood control, public electric power, and regional planning.

Roosevelt also moved in his first days in office to put to rest one of the divisive cultural issues of the 1920s, supporting and then signing a bill to legalize the manufacture and sale of beer—an interim measure pending the repeal of prohibition, for which a constitutional amendment (the Twenty-first) was already in process. The amendment was ratified later in 1933.

The National Industrial Recovery Act (NIRA)

Roosevelt realized that these initial actions were nothing but stopgaps, that more comprehensive government programs would be necessary. In the roughly three years between the Great Crash and Roosevelt's First Hundred Days, the industrial economy had been suffering from a vicious cycle of deflation. Since 1931, the US Chamber of Commerce, then and now the voice of the nation's organized business, had been urging the Hoover administration to adopt an anti-deflationary scheme that would permit trade associations to cooperate in stabilizing prices within their industries. While existing antitrust laws clearly forbade such practices, organized business found a receptive ear in the Roosevelt administration.

The Roosevelt administration, packed with reformers aspiring to forge all elements of society into a cooperative unit (a reaction to the worldwide specter of "class struggle"), was fairly amenable to the idea of cooperation among producers. Desperate for salvation, many businesspeople even demanded that the government enforce such trade associate agreements on pricing and production. But the administration insisted on additional provisions that would deal with other economic problems as well. Many, after all, remembered that in the 1920s wages increased at a rate that was a fraction of the rate at which productivity increased, remembering that production costs were falling while wages were rising slowly and prices remained constant.

The Roosevelt administration, under increasing pressure to do more to alleviate unemployment, and alarmed at the increasing militancy of the trade union movement and the political pressures of radical, dissident challenges as Huey Long, Father Charles E. Coughlin, and even the Communist Party, insisted that business would have to ensure that the incomes of workers would rise along with their prices. Against this backdrop, the product of all these impulses and pressures the National Industrial Recovery Act (NIRA), the most important undertaking of the first Hundred Days, which Congress passed in June 1933.

It guaranteed to workers of the right of collective bargaining and helped spur major union organizing drives in major industries. And responding to business clamor for anti-deflationary trade associate agreements, the NIRA established the most important, but ultimately least successful provision: a new federal agency known as the National Recovery Administration (NRA), which attempted to stabilize prices and wages though cooperative "code authorities" involving government, business, and labor.

In case consumer buying power lagged behind—thereby defeating the administration's initiatives—the NIRA created the Public Works Administration (PWA), a major program of public works spending designed to alleviate unemployment, and moreover to pump needed funds into the economy.

The new program was hailed at its inception as a miracle. Indeed, it had something for everyone. Just as business leaders hailed it as the beginning of a new era of cooperation between government and industry, labor leaders hailed it as a "Magna Carta" for trade unions.

At the center of the NIRA was the National Recovery Administration (NRA), headed by the flamboyant former general and businessman Hugh S. Johnson, who sought to generate public enthusiasm for the NRA. He called on every business establishment in the nation to accept a stopgap blanket code: a minimum wage of between 20 and 40 cents an hour, a maximum workweek of 35 to 40 hours, and the abolition of child labor. Johnson and Roosevelt contended that the "blanket code" would raise consumer purchasing power and increase employment. Social reformers were won over by the elimination of notorious, exploitative sweatshops and the abolition of child labor. To generate enthusiasm for the blanket code, Johnson devised a symbol—the "NRA Blue Eagle," to be proudly displayed in commercial establishments by employers who accepted the provisions of the blanket code. Blue Eagle flags, posters, and stickers, with the slogan "We Do Our Part," rapidly became visible in every part of the country.

The massive mobilization behind the NRA had practical motivations: Johnson needed extraordinary public and corporate support for enough bargaining strength to negotiate the codes with business and labor. As the campaign was going on, Johnson had to negotiate specific sets of codes with leaders of the nation's major industries; the most significant of which were which were anti-deflationary floors below which no company would lower prices or wages and agreements on maintaining employment and production. However, cooperation was a great burden; a firm could, after all, violate such codes in search for a competitive advantage. In the short run, enough support among key sectors of society was generated. Thus, in a remarkably short time, Johnson won agreements from almost every major industry in the nation.

These and other early initiatives created broad popular support for the Roosevelt administration and halted the rapid unraveling of the financial system. They did not, however, end, or even significantly abate, the Great Depression.

Roosevelt's second term

Historians on the right and left have generally been disappointed with Roosevelt's second term. On the right, there have been charges of an executive dictatorship since the 1930s. Since the 1960s, New Left historians, on the other hand, have chronicled a series of missed opportunities and inadequate responses to problems in the New Deal, which they argue might have saved capitalism from itself, but failed to help—and in many cases actually harmed by squandering a historic opportunity—those groups most in need of assistance. However, the liberal accomplishments of the 1930s can be understood only in the context of the often-crippling, rigid constraints of the time within which the New Deal was operating. And indeed the New Deal was not just a product of its liberal backers, but also a product of the pressures of its conservative opponents.

Although Roosevelt's landslide reelection in 1936 produced large Democratic majorities in both houses of Congress and predictions, which led to predictions of great new achievements from the president's supporters, the administration encountered a long string of frustrations. Ambitious reform ideas often floundered because of bureaucratic constraints, such as the absence of a government bureaucracy with sufficient strength and expertise to administer them.

Political constraints were crippling both in Congress and among the public at large, where conservative inhibitions remained strong. However, the Supreme Court would perhaps be the most formidable opponent. Several crucial New Deal programs, moreover, violated conservative constitutional theory; the NRA, the AAA, and others were invalidated by the Supreme Court, which was dominated by conservatives with a narrow view of the interstate commerce clause of the Constitution, the basis of much New Deal legislation.

In the spring of 1935, responding to the setbacks in the Court, a new skepticism in Congress, and the growing popular clamor for more dramatic action, the administration proposed or endorsed several important new initiatives. The National Labor Relations Act (July 5), also know as the Wagner Act, revived and strengthened the protections of collective bargaining contained in the original (and now invalidated) NIRA. New relief programs, of which the most prominent was the Works Progress Administration (WPA), created hundreds of thousands of jobs for the unemployed. But the most important achievement of 1935, and perhaps the New Deal as a whole, was the Social Security Act (August 14), which established a system of old-age pensions, unemployment insurance, and welfare benefits for such protected groups as dependent children and the handicapped. It established a framework that shaped the U.S. welfare system through the remainder of the country.

Roosevelt, however, emboldened by the triumphs of his first term, set out in 1937 to consolidate authority within the government in ways that provoked powerful opposition. Early in the year, he asked Congress to expand the number of justices so as to allow him to appoint members sympathetic to his ideas and hence tip the ideological balance of the Court. In one sense the proposal succeeded; two of the existing justices, almost certainly in response to the threat, switched positions and began voting to uphold New Deal measures (West Coast Hotel Co. v. Parrish, 300 U.S. 379, March 29, 1937; N.L.R.B. v. Jones & Laughlin Steel Corporation, 301 U.S. 1, April 12, 1937) , effectively creating a liberal majority. But the "court packing plan," as it was known, did lasting political damage to Roosevelt and was finally rejected by Congress in July. At about the same time, the administration proposed a plan to reorganize the executive branch in ways that would significantly increase the president's control over the bureaucracy. Like the Court-packing plan, executive reorganization from those who feared a "Roosevelt dictatorship" and failed in Congress; a watered-down version of the bill finally won passage in 1939.

The New Deal and the "broker state"

Government, labor, and business arbitration

Despite the dismal record in aiding marginal farmers and African Americans, among others—contrasted with its often frequent generosity toward certain business interests—the effect of the New Deal was to elevate and strengthen new interest groups so as to allow them to compete more effectively for the interests by having the federal government evolve—albeit in an ad hoc, perhaps unintentional manner—into an arbitrator in competition among all elements and classes of society, acting as a force that could mediate when necessary to help some groups and limit the power of others. By the end of the 1930s, U.S. business found itself competing for influence with an increasingly powerful labor movement, one that was engaged in mass mobilization and sometimes militant action; with an organized agricultural economy, due to decades of agrarian organization and agitation dating back to the farmers associations and populist revolt of the late nineteenth century; and with aroused consumers. The New Deal accomplished this by creating a series of state institutions that greatly, and permanently, expanded the role of the federal government in U.S. life. The government was now committed to providing at least minimal assistance to the poor and unemployed; to protecting the rights of labor unions; to stabilizing the banking system; to building low-income housing; to regulating financial markets; to subsidizing agricultural production; and to doing many other things that had not previously been federal responsibilities.

Thus, perhaps the strongest legacy of the New Deal, in other words, was to make the federal government a protector of interest groups and a supervisor of competition among them. As a result of the New Deal, U.S. political and economic life became much more competitive than before, with workers, farmers, consumers, and others now able to press their demands upon the government in ways that in the past had been available only to the corporate world. Hence the frequent description of the government the New Deal created as the "broker state," a state brokering the competing claims of numerous groups.

The liberal assumptions that the New Deal acted as the foe of private business interests have been challenged. After all, in many cases New Deal efforts were intended to enhance the position of private entrepreneurs—especially their concerns over inflation—even, at times, at the cost of some of the liberal reform goals that some administration officials espoused. The New Deal also did little to enhance the positions of some previously disadvantaged groups, but did little or nothing for many others, especially blacks, sharecroppers, and the urban poor.

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