in which he parodied the New Deal as a card game with alphabetical agencies Roosevelt entered office with clear ideas for policies to address the
Great Depression, though he remained open to experimentation as
his presidency began implementing these. Among Roosevelt's more famous advisers was an informal "
Brain Trust", a group that tended to view pragmatic government intervention in the economy positively. His choice for
Secretary of Labor,
Frances Perkins, greatly influenced his initiatives. Her list of what her priorities would be if she took the job illustrates: "a forty-hour workweek, a minimum wage,
worker's compensation,
unemployment compensation, a federal law banning
child labor, direct federal aid for unemployment relief,
Social Security, a revitalized public employment service and health insurance". The New Deal policies drew from many different ideas proposed earlier in the 20th century. Assistant Attorney General
Thurman Arnold led efforts that hearkened back to an anti-monopoly tradition rooted in American politics by figures such as
Andrew Jackson and
Thomas Jefferson. Supreme Court Justice
Louis Brandeis, an influential adviser to many New Dealers, argued that "bigness" (referring, presumably, to corporations) was a negative economic force, producing waste and inefficiency. Other leaders such as
Hugh S. Johnson of the NRA took ideas from the
Woodrow Wilson Administration, advocating techniques used to mobilize the economy for
World War I. They brought ideas and experience from the government controls and spending of 1917–1918. Other New Deal planners revived experiments suggested in the 1920s, such as the TVA. The "First New Deal" (1933–1934) encompassed the proposals offered by a wide spectrum of groups (not included was the
Socialist Party, whose influence was all but destroyed). This first phase of the New Deal was also characterized by
fiscal conservatism (see
Economy Act, below) and experimentation with several different, sometimes contradictory, cures for economic ills. Roosevelt created dozens of new agencies. They are traditionally and typically known to Americans by their alphabetical initials. U.S. Vice President
John Nance Garner would have a very prominent role in shaping the president's policies, with Roosevelt using Garner's knowledge and experience to pilot New Deal legislation through Congress. In 1933 alone, U.S. Senate Majority Leader
Joseph T. Robinson would also propel legislation through the U.S. Senate. The ratio of these numbers, times the number of jobs in 1932, means there was a need for 938,000 more jobs in 1937, to maintain the same employment level.
Fiscal policy The
Economy Act, drafted by Budget Director
Lewis Williams Douglas, was passed on March 15, 1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by fifteen percent. It saved $500 million per year and reassured
deficit hawks, such as Douglas, that the new president was
fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget, which he balanced; and the emergency budget, which was needed to defeat the depression. It was imbalanced on a temporary basis. Roosevelt initially favored balancing the budget, but soon found himself running spending deficits to fund his numerous programs. However, Douglas—rejecting the distinction between a regular and emergency budget—resigned in 1934 and became an outspoken critic of the New Deal. Roosevelt strenuously opposed the
Bonus Bill that would give World War I veterans a cash bonus. Congress finally passed it over his veto in 1936 and the Treasury distributed $1.5 billion in cash as bonus welfare benefits to 4 million veterans just before the 1936 election. New Dealers never accepted the
Keynesian argument for government spending as a vehicle for recovery. Most economists of the era, along with
Henry Morgenthau of the Treasury Department, rejected Keynesian solutions and favored balanced budgets.
Banking reform early in the Great Depression 's ebullient public personality, conveyed through his declaration that "the only thing we have to fear is fear itself" and his "fireside chats" on the radio did a great deal to help restore the nation's confidence At the beginning of the Great Depression, the economy was destabilized by bank failures followed by
credit crunches. The initial reasons were substantial losses in investment banking, followed by
bank runs. Bank runs occur when a large number of customers withdraw their deposits because they believe the bank might become insolvent. As the bank run progressed, it generated a
self-fulfilling prophecy: as more people withdrew their deposits, the likelihood of default increased and this encouraged further withdrawals.
Milton Friedman and
Anna Schwartz have argued that the drain of money out of the banking system caused the monetary supply to shrink, forcing the economy to likewise shrink. As credit and economic activity diminished, price deflation followed, causing further economic contraction with disastrous impact on banks. Between 1929 and 1933, 40% of all banks (9,490 out of 23,697 banks) failed. Much of the
Great Depression's economic damage was caused directly by bank runs. Herbert Hoover had already considered a bank holiday to prevent further bank runs but rejected the idea because he was afraid to incite a panic. However, Roosevelt gave a radio address, held in the atmosphere of a
Fireside Chat. He explained to the public in simple terms the causes of the banking crisis, what the government would do, and how the population could help. He closed all the banks in the country and kept them all closed until new legislation could be passed. On March 9, 1933, Roosevelt sent to Congress the
Emergency Banking Act, drafted in large part by Hoover's top advisors. The act was passed and signed into law the same day. It provided for a system of reopening sound banks under
Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the
Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system. By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks. Their deposits totaled $3.6 billion. Depositors lost $540 million () and eventually received on average 85 cents on the dollar of their deposits. The
Glass–Steagall Act limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations. It also established the
Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500, ending the risk of runs on banks. This banking reform offered unprecedented stability because throughout the 1920s more than five hundred banks failed per year, and then it was less than ten banks per year after 1933. By contrast, Canada did not have a single failure system during the Great Depression. This was true in great part because it fostered stability by allowing banks diversity by branching across provincial lines. Historian David T. Beito has criticized FDR for failing to oppose a filibuster by Senator
Huey Long against a bill by Senator
Carter Glass during the interregnum period permitting banks to branch across state lines. "Had FDR or Hoover vigorously pushed the Canadian branch banking model," writes Beito, "and done it much earlier, the course of the financial crisis during the transition might have been much less bleak.
Monetary reform Under the
gold standard, the United States kept the dollar convertible to gold. The
Federal Reserve would have had to execute an expansionary
monetary policy to fight the deflation and to inject liquidity into the banking system to prevent it from crumbling—but lower interest rates would have led to a gold outflow. Under the gold standards,
price–specie flow mechanism countries that lost gold, but nevertheless wanted to maintain the gold standard, had to permit their money supply to decrease and the domestic price level to decline (
deflation). As long as the Federal Reserve had to defend the gold parity of the dollar it had to sit idle while the banking system crumbled. The dollar was allowed to float freely on
foreign exchange markets with no guaranteed price in gold. With the passage of the
Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35. These measures enabled the Federal Reserve to increase the amount of money in circulation to the level the economy needed. Markets immediately responded well to the suspension in the hope that the decline in prices would finally end.
Securities Act of 1933 Before the
Wall Street Crash of 1929, securities were unregulated at the federal level. Even firms whose securities were publicly traded published no regular reports, or even worse, rather misleading reports based on arbitrarily selected data. To avoid another crash, the
Securities Act of 1933 was passed. It required the disclosure of the balance sheet, profit and loss statement, and the names and compensations of corporate officers for firms whose securities were traded. Additionally, the reports had to be verified by independent auditors. In 1934, the
U.S. Securities and Exchange Commission was established to regulate the stock market and prevent
corporate abuses relating to corporate reporting and the sale of securities.
Repeal of Prohibition In a measure that garnered substantial popular support for his New Deal, Roosevelt moved to put to rest one of the most divisive cultural issues of the 1920s. He signed the bill to legalize the manufacture and sale of alcohol, an interim measure pending the repeal of
prohibition, for which a constitutional amendment of repeal (the
21st) was already in process. The repeal amendment was ratified later in 1933. States and cities gained additional new revenue and Roosevelt secured his popularity especially in the cities and ethnic areas by legalizing alcohol.
Relief Relief was the immediate effort to help the one-third of the population that was hardest hit by the depression. Relief was also aimed at providing temporary help to suffering and unemployed Americans. Local and state budgets were sharply reduced because of falling tax revenue, but New Deal relief programs were used not just to hire the unemployed but also to build needed schools, municipal buildings, waterworks, sewers, streets, and parks according to local specifications. While the regular Army and Navy budgets were reduced, Roosevelt juggled relief funds to provide for their claimed needs. All of the
CCC camps were directed by army officers, whose salaries came from the relief budget. The PWA built numerous warships, including two aircraft carriers; all the money came from the PWA agency. PWA also built warplanes, and the WPA built military bases and airfields.
Public works Bonneville Dam To prime the pump and cut unemployment, the NIRA created the
Public Works Administration (PWA), a major program of public works, which organized and provided funds for the building of useful works such as government buildings, airports, hospitals, schools, roads, bridges, and dams. From 1933 to 1935, PWA spent $3.3 billion with private companies to build 34,599 projects, many of them quite large. The NIRA also contained a provision for the "construction, reconstruction, alteration, or repair under public regulation or control of low-cost housing and slum-clearance projects". Many unemployed people were put to work under Roosevelt on a variety of government-financed public works projects, including the construction of bridges, airports, dams, post offices, hospitals, and hundreds of thousands of miles of road. Through reforestation and flood control, they reclaimed millions of hectares of soil from erosion and devastation. As noted by one authority, Roosevelt's New Deal "was literally stamped on the American landscape".
Farm and rural programs (
Tennessee Valley Authority, 1942) The rural U.S. was a high priority for Roosevelt and his energetic Secretary of Agriculture,
Henry A. Wallace. Roosevelt believed that full economic recovery depended upon the recovery of agriculture and raising farm prices was a major tool, even though it meant higher food prices for the poor living in cities. Many rural people lived in severe poverty, especially in the South. Major programs addressed to their needs included the
Resettlement Administration (RA), the
Rural Electrification Administration (REA), rural welfare projects sponsored by the WPA,
National Youth Administration (NYA), Forest Service and
Civilian Conservation Corps (CCC), including school lunches, building new schools, opening roads in remote areas, reforestation and purchase of marginal lands to enlarge national forests. In 1933, the Roosevelt administration launched the
Tennessee Valley Authority, a project involving dam construction planning on an unprecedented scale to curb flooding, generate electricity, and modernize poor farms in the
Tennessee Valley region of the Southern United States. Under the Farmers' Relief Act of 1933, the government paid compensation to farmers who reduced output, thereby raising prices. Because of this legislation, the average income of farmers almost doubled by 1937. Farm prices were so low that in Montana wheat was rotting in the fields because it could not be profitably harvested. In
Oregon, sheep were slaughtered and left to rot because meat prices were not sufficient to warrant transportation to markets. Roosevelt was keenly interested in farm issues and believed that true prosperity would not return until farming was prosperous. Many different programs were directed at farmers. The first 100 days produced the Farm Security Act to raise farm incomes by raising the prices farmers received, which was achieved by reducing total farm output. The
Agricultural Adjustment Act created the
Agricultural Adjustment Administration (AAA) in May 1933. The act reflected the demands of leaders of major farm organizations (especially the
Farm Bureau) and reflected debates among Roosevelt's farm advisers such as Secretary of Agriculture Henry A. Wallace,
M.L. Wilson,
Rexford Tugwell and
George Peek. The AAA aimed to raise prices for commodities through
artificial scarcity. The AAA used a system of domestic allotments, setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat. The farmers themselves had a voice in the process of using the government to benefit their incomes. The AAA paid land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. To force up farm prices to the point of "parity", of growing cotton was plowed up, bountiful crops were left to rot and six million piglets were killed and discarded. The idea was to give farmers a "fair exchange value" for their products in relation to the general economy ("parity level"). Farm incomes and the income for the general population recovered fast since the beginning of 1933. Food prices remained still well below the 1929 peak. The AAA established an important and long-lasting federal role in the planning of the entire agricultural sector of the economy and was the first program on such a scale for the troubled agricultural economy. The original AAA targeted landowners, and therefore did not provide for any
sharecroppers or
tenants or farm laborers who might become unemployed. A
Gallup poll printed in
The Washington Post revealed that a majority of the American public opposed the AAA. In 1936, the Supreme Court declared the AAA to be
unconstitutional, stating, "a statutory plan to regulate and control agricultural production, [is] a matter beyond the powers delegated to the federal government". The AAA was replaced by a similar program that did win Court approval. Instead of paying farmers for letting fields lie barren, this program subsidized them for planting soil-enriching crops such as
alfalfa that would not be sold on the market. Federal regulation of agricultural production has been modified many times since then, but together with large subsidies is still in effect. A number of other measures affecting rural areas were introduced under Roosevelt. The
National Industrial Recovery Act of 1933 included subsistence homestead provisions providing (as noted by one study) "100-acre farm plots and homes to the unemployed for non-commercial farming." The Bankhead Cotton Control Act of 1934 placed mandatory limits on the number of bales a farmer could produce and received support from most farmers who wanted to see higher prices. The Farm Credit Act of 1933 authorized farmers "to organize a nationwide system of local credit cooperatives -- production credit associations -- to make operating credit readily accessible to farmers throughout the country." The Farm Mortgage Foreclosure Act of 1934 provided for debt reduction and the redemption of foreclosed farms, and the Homestead Settler's Act of 1934 liberalized homestead residence requirements. The Farm Research Act of 1935 included various provisions such as the development of cooperative agricultural extension, and the Commodity Exchange Act of 1936 enabled "the Commodity Credit Corporation to better serve the needs of farmers in orderly marketing, and provided credit and facilities for carrying surpluses from season to season". The Farmers Mortgage Amendatory Act of 1936 authorized the Reconstruction Finance Corporation to make loans to drainage, levee, and irrigation districts, while under the Soil Conservation and Domestic Allotment Act of 1936 payments to farmers to encourage conservation were authorized. In 1937, the Water Facilities Act was enacted "to provide loans for individuals and association farm water systems in 17 Western states where drought and water shortage were familiar hardships." The
Bankhead–Jones Farm Tenant Act of 1937 was the last major New Deal legislation that concerned farming. It created the
Farm Security Administration (FSA), which replaced the Resettlement Administration. The
Food Stamp Plan, a major new welfare program for urban poor, was established in 1939 to provide stamps to poor people who could use them to purchase food at retail outlets. The program ended during wartime prosperity in 1943 but was restored in 1961. It survived into the 21st century with little controversy because it was seen to benefit the urban poor, food producers, grocers, wholesalers, and farmers, so it gained support from both progressive and conservative Congressmen. In 2013,
Tea Party activists in the House nonetheless tried to end the program, now known as the
Supplemental Nutrition Assistance Program, while the Senate fought to preserve it.
Recovery Recovery was the effort in numerous programs to restore the economy to normal levels. By most economic indicators, this was achieved by 1937—except for unemployment, which remained stubbornly high until World War II began. Recovery was designed to help the economy bounce back from depression. Economic historians led by Price Fishback have examined the impact of New Deal spending on improving health conditions in the 114 largest cities, 1929–1937. They estimated that every additional $153,000 in relief spending (in 1935 dollars, or $1.95 million in the year 2000 dollars) was associated with a reduction of one infant death, one suicide, and 2.4 deaths from infectious diseases.
NRA "Blue Eagle" campaign Blue Eagle from 1920 to 1940 From 1929 to 1933, the industrial economy suffered from a vicious cycle of
deflation. Since 1931, the
U.S. Chamber of Commerce, the voice of the nation's organized business, promoted an anti-deflationary scheme that would permit trade associations to cooperate in government-instigated
cartels to stabilize prices within their industries. Though existing antitrust laws clearly forbade such practices, the organized business were entertained by the Roosevelt Administration. Roosevelt's advisors believed that excessive competition and technical progress had led to overproduction and lowered wages and prices, which they believed lowered demand and employment (
deflation). He argued that government economic planning was necessary to remedy this. New Deal economists argued that cut-throat competition had hurt many businesses and that with prices having fallen 20% and more, "deflation" exacerbated the burden of debt and would delay recovery. They rejected a strong move in Congress to limit the workweek to 30 hours. Instead, their remedy, designed in cooperation with
big business, was the National Industrial Recovery Act (NIRA). It included stimulus funds for the WPA to spend and sought to raise prices, give more
bargaining power for unions (so the workers could purchase more), and reduce harmful competition. At the center of the NIRA was the National Recovery Administration (NRA), headed by former General
Hugh S. Johnson, who had been a senior economic official in World War I. Johnson called on every business establishment in the nation to accept a stopgap "blanket code": a minimum wage of between 20 and 45 cents per hour, a maximum workweek of 35–45 hours and the abolition of
child labor. Johnson and Roosevelt contended that the "blanket code" would raise consumer purchasing power and increase employment. To mobilize political support for the NRA, Johnson launched the "NRA
Blue Eagle" publicity campaign to boost what he called "industrial self-government". The NRA brought together leaders in each industry to design specific sets of codes for that industry—the most important provisions were anti-deflationary floors below which no company would lower prices or wages and agreements on maintaining employment and production. In a remarkably short time, the NRA announced agreements from almost every major industry in the nation. By March 1934, industrial production was 45% higher than in March 1933. NRA Administrator Hugh Johnson was showing signs of a mental breakdown due to the extreme pressure and workload of running the National Recovery Administration. Johnson lost power in September 1934, but kept his title. Roosevelt replaced his position with a new National Industrial Recovery Board, of which
Donald Richberg was named Executive Director. On May 27, 1935, the NRA was found to be unconstitutional by a unanimous decision of the U.S. Supreme Court in the case of
A.L.A. Schechter Poultry Corp. v. United States. After the end of the NRA, quotas in the oil industry were fixed by the
Railroad Commission of Texas with
Tom Connally's federal
Hot Oil Act of 1935, which guaranteed that illegal "hot oil" would not be sold. By the time NRA ended in May 1935, well over 2 million employers accepted the new standards laid down by the NRA, which had introduced a minimum wage and an
eight-hour workday, together with abolishing child labor. and the Anti-Kickback Act of 1934 "established penalties for employers on Government contracts who induce employees to return any part of pay to which they are entitled". That same year, the Railway Labor Act of 1926 was amended "to outlaw company unions and yellow dog contracts, and to provide that the majority of any craft or class of employees shall determine who shall represent them in collective bargaining". In July 1933, Secretary of Labor Frances Perkins held at the Department of Labor what was described as "a very successful conference of 16 state minimum wage boards (some of the states had minimum wage laws long before the Federal Government)". The following year she held a two-day conference on state labor legislation in which 39 states were represented. According to one study, "State officials in attendance were gratified that the U.S. Department of Labor was showing interest in their problems. They called on Perkins to make the labor legislation conferences an annual event. She did so and participated actively in them every year until she left office. The conferences continued under Labor Department auspices for another ten years, by which time they had largely accomplished their goal of improving and standardizing state labor laws and administration." As a means of institutionalizing the work she tried to achieve with these conferences, Perkins established the Division of Labor Standards (which was later redesignated a bureau) in 1934 as a service agency and informational clearinghouse for state governments and other federal agencies. Its goal was to promote (through voluntary means) improved conditions of work, and the Division "offered many services in addition to helping the states deal with administrative problems". It offered, for instance, training for factory inspectors, and drew national attention "to the area of workers' health with a series of conferences on silicosis. This wide-spread lung disease had been dramatized by the 'Gauley Bridge Disaster' in which hundreds of tunnel workers died from breathing silica-filled air. The Division also worked with unions, whose support was needed in passing labor legislation in the States." The Muscle Shoals Act contained various provisions of interest to labor, including prevailing wage rate and workmen's compensation. A resolution approved by the Senate, June 13, authorized the President to accept membership for the Government of the United States in the International Labor Organization, without assuming any obligation under the covenant of the League of Nations. The resolution was approved by the House, June 16, by a vote of 232 to 109. Public Act 448 amended the Federal Employees' Civil Service Retirement Act of 1930 by, as noted by one study, "giving to the employee the right to name a beneficiary irrespective of the amount to his credit without the need of an appointment of an administrator". Public Act No. 245 "provided for the development of vocational education in the States by appropriating funds for the fiscal years 1935, 1936 and 1937, and Public Act 296 amended the United States Bankruptcy Act with safeguards for labor. Public Act No. 349 provided for hourly rates of pay for substitute laborers in the mail service and time credits when appointed as regular laborers, and Public Act No. 461 authorized the President to create a "federal prison industries", in which inmates hereafter "receiving injuries while in the course of their employment will receive the benefits of compensation, limited however to that amount prescribed in the Federal Employees' Compensation Act". Public Act No. 467 created a Federal Credit Union Law, one of the main purposes of which was to make a system of credit for provident purposes available to people of small means. For those in the District of Columbia, an Act concerning fire escapes on certain buildings was amended by Public Act No. 284."
Housing sector The New Deal had an important impact on the housing field. The New Deal followed and increased President Hoover's lead-and-seek measures. The New Deal sought to stimulate the private home building industry and increase the number of individuals who owned homes. The
Public Works Administration of the Interior Department planned to construct public housing across the country, providing low-rent apartments for low-income families. However resistance from the private housing sector was strong except in New York city, which welcomed the program. Furthermore, the White House reallocated most of the funding into relief projects, where each million federal dollars would create more jobs for the unemployed. As a result by 1937 there were only 49 projects nationwide, containing about 21,800 apartments. It was taken over in 1938 by the
Federal Housing Administration (FHA). Starting in 1933 the New Deal operated the new
Home Owners' Loan Corporation (HOLC) that helped finance mortgages on private houses.
Programs HOLC set uniform national appraisal methods and simplified the mortgage process. The
Federal Housing Administration (FHA) created national standards for home construction. In 1934 the Alley Dwelling Authority was established by Congress "to provide for the discontinuation of the use as dwellings of the buildings situated in alleys in the District of Columbia". That year, a National Housing Act was approved which was aimed at improving employment while making private credit available for repairing and homebuilding. In 1938 this act was amended and as noted by one study "provision was made renewing the insurance on repair loans, for insuring mortgages up to 90 percent of the value of small-owner –occupied homes, and for insuring mortgages on rental property".
Redlining redlining mapThis also marked the beginning of discriminatory
redlining within the United states under the HOLC. Their maps broadly determined what housing loans would be backed by the federal government. Though other criteria existed, the most major criterion was race. Any neighborhood with "inharmonious racial groups" would either be marked red or yellow, depending on the proportion of black residents. This was explicitly stated within the FHA underwriting manual that the HOLC used as a guideline for its maps. Alongside other discriminatory housing policy, this meant in practice is that Black Americans were denied federally backed mortgages locking most out of the housing market and all Americans were denied backing for any loans within black neighborhood. Lastly, for the other policies in place meant for neighborhood building projects, the federal government required they be explicitly segregated to be backed. The federal government's financial backing also required the use of
racially restrictive covenants, that banned white homeowners from reselling their house to any black buyers. Roosevelt already spoke against the act while campaigning for president during 1932. In 1934, the
Reciprocal Tariff Act was drafted by
Cordell Hull. It gave the president power to negotiate bilateral,
reciprocal trade agreements with other countries. The act enabled Roosevelt to liberalize
American trade policy around the globe and it is widely credited with ushering in the era of liberal
trade policy that persists to this day.
Puerto Rico The
Puerto Rico Reconstruction Administration oversaw a separate set of programs in
Puerto Rico. It promoted
land reform and helped small farms, it set up farm cooperatives, promoted crop diversification, and helped the local industry. ==Second New Deal (1935–1936)==