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The New Deal: America's Response to Crisis

An academic exploration of President Franklin D. Roosevelt's transformative programs and reforms enacted during the Great Depression.

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Overview

Defining the New Deal

The New Deal was a comprehensive series of economic, social, and political initiatives undertaken by President Franklin D. Roosevelt's administration in the United States between 1933 and 1938. It was conceived as a direct response to the profound economic and social devastation wrought by the Great Depression, which commenced in 1929.

Core Objectives: The Three R's

The New Deal's overarching strategy was encapsulated by the "3 R's":

  • Relief: Providing immediate aid to the unemployed and impoverished.
  • Recovery: Stimulating the economy to return to normal levels.
  • Reform: Implementing structural changes to the financial system and economy to prevent future depressions.

Economic Philosophy

Rooted in Keynesian economic principles, Roosevelt believed that the Depression stemmed from inherent market instability and insufficient aggregate demand. Consequently, substantial government intervention was deemed essential to stabilize and rationalize the economy, thereby restoring confidence and fostering growth.

Origins: The Great Depression

Economic Collapse

The period from 1929 to 1933 witnessed a catastrophic economic downturn. Manufacturing output plummeted by a third, prices fell by 20% leading to severe deflation, and unemployment surged from 4% to an staggering 25%. This "Great Contraction" meant nearly half of the nation's human work-power was idle.

Financial Instability

The banking system was particularly fragile. Without government deposit insurance, thousands of banks failed, leading to widespread panic and loss of savings. By 1933, approximately 40% of all banks had collapsed, exacerbating the economic crisis and eroding public confidence.

Societal Impact

The Depression inflicted deep psychological scars, leaving millions without income, savings, or hope. Existing social safety nets were virtually non-existent, with relief efforts primarily falling to families, charities, and local governments, which were overwhelmed by the scale of the crisis.

Campaign Promise

"A New Deal for the American People"

During his 1932 presidential campaign, Franklin D. Roosevelt famously pledged "a new deal for the American people." This phrase, reportedly coined by an advisor, encapsulated his commitment to bold, experimental government action to address the nation's dire circumstances, contrasting sharply with the perceived inaction of the Hoover administration.

"Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth... I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms."

— Franklin D. Roosevelt, 1932

Public Confidence

Roosevelt's optimistic demeanor and clear communication, particularly through his radio "fireside chats," played a crucial role in restoring national morale. His assurance that "the only thing we have to fear is fear itself" resonated deeply, helping to galvanize public support for his proposed interventions.

The First New Deal (1933-1934)

Banking and Financial Reforms

The immediate priority was stabilizing the financial system. Key actions included the Emergency Banking Act, which allowed the Federal Reserve to insure deposits, and the Glass-Steagall Act, establishing the Federal Deposit Insurance Corporation (FDIC) to guarantee bank accounts and separating commercial and investment banking.

Public Works and Employment

To combat unemployment, numerous public works programs were initiated. The Civilian Conservation Corps (CCC) employed young men in conservation projects, while the Public Works Administration (PWA) funded large-scale infrastructure projects like dams, bridges, and public buildings. The Works Progress Administration (WPA) later became a major employer.

Agricultural Support

The Agricultural Adjustment Administration (AAA) aimed to raise farm prices by reducing production through subsidies. The Tennessee Valley Authority (TVA) was established to modernize the impoverished Tennessee Valley region through flood control, electricity generation, and economic development.

Regulatory Measures

The Securities Act of 1933 mandated disclosure for securities trading, and the Securities and Exchange Commission (SEC) was created to regulate stock market practices, aiming to prevent future crashes and corporate abuses.

The Second New Deal (1935-1936)

Social Security and Welfare

A landmark achievement was the Social Security Act of 1935, establishing a permanent system of retirement pensions, unemployment insurance, and welfare benefits for the disabled and dependent children. This laid the foundation for the modern American welfare state.

Labor Rights

The National Labor Relations Act (Wagner Act) of 1935 guaranteed workers the right to organize trade unions and engage in collective bargaining, significantly strengthening the labor movement and its political influence.

Economic Stimulus and Reform

Further initiatives included the Works Progress Administration (WPA) for job creation, the Rural Electrification Administration (REA) to bring power to rural areas, and the Fair Labor Standards Act of 1938, which established a national minimum wage, maximum work hours, and prohibited oppressive child labor.

Tax Policy

The Revenue Act of 1935, often called the "Wealth Tax Act," increased taxes on higher incomes and estates, reflecting a progressive redistributionist agenda, though its primary goal was political rather than fiscal.

Broader Reforms and Policies

Trade Liberalization

The Reciprocal Tariff Act of 1934, championed by Secretary of State Cordell Hull, empowered the president to negotiate bilateral trade agreements. This policy is credited with liberalizing international trade and fostering global economic recovery.

Housing Initiatives

New Deal programs like the Home Owners' Loan Corporation (HOLC) and the Federal Housing Administration (FHA) aimed to stabilize the housing market, facilitate homeownership, and standardize construction. However, these initiatives also contributed to discriminatory practices like redlining.

Puerto Rico Reconstruction

Separate programs under the Puerto Rico Reconstruction Administration addressed the island's economic challenges through land reform, agricultural diversification, and support for local industries, aiming to alleviate poverty and foster development.

Impact and Legacy

Political Realignment

The New Deal fundamentally reshaped American politics, forging the "New Deal Coalition" which united labor unions, urban populations, minority groups, and Southern Democrats. This coalition dominated presidential politics for decades, solidifying the Democratic Party's progressive agenda.

Judicial Shift

When the Supreme Court initially struck down key New Deal legislation, Roosevelt proposed a "court-packing" plan. Although it failed, subsequent Court appointments shifted its ideological balance, leading to greater acceptance of federal economic regulation.

World War II and Full Employment

While the New Deal significantly alleviated suffering, full employment was ultimately achieved through massive government spending during World War II. The war effort cemented the role of federal intervention in managing the economy and provided a powerful stimulus that ended the Depression.

Economic Equality

The wartime economy, characterized by full employment and wage controls, led to a significant reduction in income inequality, a phenomenon known as the "Great Compression." Average living standards rose, and the gap between the rich and the poor narrowed considerably.

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References

References

  1.  March 4 was a Saturday and banks were not open on weekends. On Monday Roosevelt officially closed all banks. Arthur Schlesinger Jr. The Coming of the New Deal (1959), p. 3; Brands, Traitor to his class (2008) p. 288.
  2.  Jonathan Alter, The Defining Moment: FDR's Hundred Days and the Triumph of Hope, esp. ch. 31. (2007); Bureau of the Census, Historical Statistics of the United States (1977) series K220, N301.
  3.  Herbert Stein, Presidential economics: The making of economic policy from Roosevelt to Reagan and beyond (1984)
  4.  Milton Friedman and Anna Schwartz, Monetary History of the United States, 1867–1960 (1963) pp. 340–343
  5.  Ben Bernanke, "Nonmonetary effects of the financial crisis in the propagation of the Great Depression", (1983) American Economic Review. Am 73#3 257–76.
  6.  Jason Scott Smith, Building New Deal Liberalism: The Political Economy of Public Works, 1933–1956 (2005).
  7.  Handbook of Labor Statistics 1941 Edition Volume I All Topics Except Wages, Bulletin No. 694 (in 2 volumes), p. 257.
  8.  Encyclopedia of Alabama entry on John Hollis Bankhead II
  9.  Congressional Record PROCEEDINGS AND DEBATES OF THE 77H CONGRESS SECOND SESSION Appendix Volume 88-PART 10, JULY 27, 1942, TO DECEMBER 16. 1942, (PAGES A2955 TO A4454), A3621
  10.  Michael W. Straus, and Talbot Wegg, Housing comes of age (1938) online pp.128–130, 149.
  11.  Alley Life in Washington Family, Community, Religion, and Folklife in the City, 1850-1970 By James Borchert, 1982, p. 52
  12.  Handbook of Labor Statistics 1941 Edition Volume I All Topics Except Wages, Bulletin No. 694 (in 2 volumes), p. 274
  13.  Sweet Tyranny Migrant Labor, Industrial Agriculture, and Imperial Politics By Kathleen Mapes, 2009, p. 223
  14.  Monthly Labor Review, Volume 53, Issue 1, 1941, p. 165
  15.  Monthly Labor Review 1939, pp. 561–563
  16.  Public Utility Holding Company Act of 1935
  17.  Federal Power Act of 1935
  18.  Natural Gas Act of 1938
  19.  Lorraine Brown, "Federal Theatre: Melodrama, Social Protest, and Genius", U.S. Library of Congress Quarterly Journal, 1979, Vol. 36 Issue 1, pp. 18–37
  20.  Hemming, Heidi, and Julie Hemming Savage, Women Making America, Clotho Press, 2009, pp. 243–244.
  21.  Sue Bridwell Beckham, Depression Post Office Murals and Southern Culture: A Gentle Reconstruction (1989)
  22.  Kennedy (1999), pp. 275–276.
  23.  Kennedy (1999), p. 280.
  24.  Benjamin Graham. Security Analysis: The Classic 1940 Edition. McGraw-Hill Professional, 2002. pp. 386–387
  25.  D. Bradford Hunt, "Was the 1937 US Housing Act a pyrrhic victory?" Journal of Planning History 4.3 (2005): 195-221.
  26.  Elliot A. Rosen. The Republican Party in the Age of Roosevelt: Sources of Anti-Government Conservatism in the United States (2014).
  27.  Official Proceedings of the Annual Convention Volumes 64–67, Indiana State Federation of Labor, 1949, p. 216
  28.  David M. Kennedy. Freedom from Fear: The American People in Depression and War, 1929-1945. 1999.
  29.  THE SIGNALMAN'S JOURNAL, JULY 1950, P.211
  30.  Richard Jensen, "The cities reelect Roosevelt: Ethnicity, religion, and class in 1940." Ethnicity. An Interdisciplinary Journal of the Study of Ethnic Relations 8.2 (1981): 189-195.
  31.  GNP was $99.7 billion in 1940 and $210.1 billion in 1944. Historical Statistics (1976) series F1.
  32.  Nathan Sinai, and Odin Waldemar Anderson. "EMIC (Emergency Maternity and Infant Care). A Study of Administrative Experience." Bureau of Public Health Economics. Research Series 3 (1948).
  33.  Michael J. Bennett, When Dreams Came True: The GI Bill and the Making of Modern America (1999)
  34.  Merl E. Reed, Seedtime for the Modern Civil Rights Movement: The President's Committee on Fair Employment Practice, 1941–1946 (1991)
  35.  as summarized by Clemens, Prosperity, Depression and the New Deal: The USA 1890–1954 p. 219
  36.  Philip S. Foner. Organized Labor and the Black Worker, 1619–1981 (New York: International Publishers, 1981), p. 200.
  37.  Bruce Bartlett. Wrong on Race: The Democratic Party's Buried Past. (New York: Palgrave Macmillan, 2008), Kindle location 2459.
  38.  Harold Ickes, The secret diary of Harold L. Ickes Vol. 2: The inside struggle, 1936–1939 (1954) p. 115
  39.  Children in the family were allowed to hold CCC or NYA jobs—indeed, CCC jobs were normally given to young men whose fathers were on relief. Young women were eligible for NYA jobs which began in 1935.
  40.  Martha Swain, '"The Forgotten Woman': Ellen S. Woodward and Women's Relief in the New Deal" Prologue, (1983) 15#4 pp. 201–213.
  41.  Sara B. Marcketti, "The Sewing-Room Projects of the Works Progress Administration". Textile History 41.1 (2010): 28–49.
  42.  Bureau of the Census, Historical Statistics of the United States (1975) p. 340 series H1 and H2
  43.  DeLong, J. Bradford, Lawrence H. Summers, N. Gregory Mankiw, and Christina D. Romer. "How does macroeconomic policy affect output?" Brookings Papers on Economic Activity (1988): 467.
  44.  Kiran Klaus Patel, Soldiers of Labor: Labor Service in Nazi Germany and New Deal America, 1933–1945 Cambridge University Press 2005, pp. 3–5
  45.  For a list of relevant works, see the list of suggested readings appearing toward the bottom of the article.
  46.  William E. Leuchtenburg. The FDR Years: On Roosevelt and his Legacy (New York: Columbia University Press, 1995), p. 243.
  47.  John Braeman, Robert H. Bremner, David Brody. The New Deal: The National Level (Columbus: Ohio State University Press, 1975) 310.
  48.  John Braeman, Robert H. Bremner, David Brody. The New Deal: The National Level (Columbus: Ohio State University Press, 1975) 312.
  49.  John Braeman, Robert H. Bremner, David Brody. The New Deal: The National Level (Columbus: Ohio State University Press, 1975) 314.
  50.  Cara A. Finnegan. Picturing Poverty: Print Culture and FSA Photographs (Smithsonian Books, 2003) pp. 43–44
  51.  Angus Maddison, The World Economy: Historical Statistics (OECD 2003); Japan is close, see p. 174
A full list of references for this article are available at the New Deal Wikipedia page

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