What measures did Roosevelt introduce to deal with the Depression?

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The New Deal

Roosevelt had been elected in November 1932 on his promise to give the people of America a 'New Deal.

The New Deal was remarkable ...  revolutionary.  Nothing like it had ever been tried before.  Historians have suggested that the it was based on four principles:

1. To create a ‘humanised’ system of capitalism which would provide security for everyone. 

2. To set up a regulatory state that would restrain capitalism’s excesses.

3. That government has a responsibility to provide for people what they need, but cannot provide for themselves. 

4. Experimentation – if it doesn’t work, try something different.

In his Fourth Fireside Chat (June 1934), Roosevelt said that his ‘New Deal’ had three related steps:

• Relief (helping the poor and unemployed to survive)

• Recovery (getting the economy going again) and

• Reform (changing things so a depression could never happen like that again). 

And Roosevelt's New Deal had two parts. 

First, he set about offering relief and trying to get the economy to recover. 

After 1935, however, he set about a much more radical agenda of social reform.

Initially, however, he was faced with a crisis.  During the four months Roosevelt was waiting to come into office (March 1933), the economy declined further, culminating in a banking crisis.  At the beginning of March, millions of people marched into their banks and demanded their money – as they were allowed – in gold.  It was impossible; banks in 34 states closed and padlocked their doors.  The entire financial system of the USA was on the verge of collapse. 

Roosevelt persuaded Congress to give him emergency powers from 9 March to 16 June 1933 (the 'Hundred Days').  Although many of Roosevelt's ideas were not new (some just copied Hoover's), 1933 - especially the 100 days - saw a burst of legislation to tackle the Depression like never before.

Going Deeper

The following links will help you widen your knowledge:

Basic accounts from BBC Bitesize

Clear account from Social Studies Help

BBC Bitesize podcast on Roosevelt - Roosevelt speaks for himself

BBC Sounds - The New Deal (excellent)

The New Deal  - BBC Witness History

YouTube

The New Deal and the TVA

This famous cartoon of the time shows FDR throwing out all Hoover's policies.  How true is it?

The First New Deal

1. Confidence

   Roosevelt undertook a series of measures to end 'fear' and to get the American people on board:

   1. Abolished Prohibition:

      • He said: “I think this would be a good time for a beer”.  This restored faith in the government because it stopped the humiliation of the government’s laws being openly ignored. 
      • (It also increased the government’s revenues.)

   2. Fireside Chats:

      • FDR described his policies in radio broadcasts called ‘fireside chats’. 
      • FDR made sure that everyone who sent him a letter got a reply (he and Eleanor Roosevelt received up to 8,000 letters a day - see Sources A and B), and that everyone who telephoned the White House was never cut off. 

   3. Bank holiday:

      • The Emergency Banking Act closed the banks for four days.  The government checked that all were financially sound, and when they reopened, they reopened with the backing of the Federal Reserve. 
      • “I can assure you that it is safer to keep your money in a reopened bank than under the mattress.” (1st Fireside Chat, March 1933)
      • The Glass-Steagall Act of June 1933 forced the banks to keep their depositors money separate from any money they were using for speculative activities (e.g. buying shares themselves, or lending 'on margin' to others to do so).
      • This restored confidence in the banks, and people deposited their money there again. 

   4. Stock Exchange:

      • The Securities and Exchange Commission introduced rules for the Stock Exchange to prevent another Crash like 1929.

 

2. Finance and the Economy

   Roosevelt believed that he had to make sure that the economy was ‘sound’. 

   1. Budget:

      • He did not run deficit budgets (i.e.  the government did not spend more than it gathered in taxes). 
      • He CUT the pay of government employees by 15%. 

        (These measures actually made the depression worse.)

      • The government borrowed huge amounts of money to finance the New Deal, but it spent it on projects that were planned to pay back eventually. 

   2. Bankruptcies:

      • The Farm Loan Act and the Bankruptcy Act prevented banks from foreclosing on solvent businesses until they had had a chance to borrow from the Federal Reserve. 
      • The Home Loan Act and the Home Owners Loan Corporation did the same for ordinary home owners. 

   3. Prices and Wages:

      • The Agricultural Adjustment Act (AAA) paid farmers to take fields out of production; the idea of this was to stop over-production and to drive up prices. 
      • The National Industrial Recovery Act (NRA) gave businesses the right to form cartels, set their own codes of conduct, and force up prices, as long as they promised to cut production, pay good wages and allow workers to join a union.   Those who did joined a ‘Roll of Honour’ (and were allowed to show a blue eagle symbol) – 2.5 million firms, employing 22 million people, joined the scheme. 
      • FDR also abolished Child Labour – this put more adults into work. 

   4. Currency:

      You will read in some books that FDR 'abolished the gold standard' (a rule which links the value of a dollar to a certain weight of gold).  This is not true.  He did:

      • stop people owning gold (they had to deposit it in banks). 
      • make the banks give all the gold to the government. 
      • increase the price of gold from $20 to £35 an ounce. 

        (This stopped people hoarding/saving their money, and increased the amount of government reserves.  Since the dollar was still linked to gold, moreover, many foreign investors bought American dollars for gold, which increased the amount of government reserves.)

 

3. Alphabet Agencies

   FDR set up what came to be called the ‘alphabet agencies’ because their names were reduced to acronyms.  The main ones were:

   1. CCC (Civilian Conservation Corps):

      • provided paid conservation work to give unemployed young men jobs – by 1941, 2.5 million had taken part PLUS millions of trees panted/ parks and forest areas developed.

   2. CWA (Civil Works Administration):

      • a temporary programme to create manual jobs to get unemployed people through the inter of 1933-34. The CWA spent $200 million, created 4 million jobs, laid 2,300 miles of sewer pipes and built or improved 255,000 miles of roads, 40,000 schools, 3,700 playgrounds, and nearly 1,000 airports

   3. FERA (Federal Emergency Relief Administration):

      • provided matched funding to help states provide work for the unemployed and homeless.  In 1933-35, FERA gave states $3.1 billion and provided work for 20 million people who developed facilities on public lands across the country.

   4. HOLC (Home Owners Loan Corporation):

      • refinanced mortgages of homeowners who were having problems making the payments on their mortgage loans "through no fault of their own"..

   5. PWA (Public Works Administration):

      • was given $3.3bn in 1933, and $7bn in total, to build large-scale public works such as dams, bridges, hospitals, and schools.

   6. TVA (Tennessee Valley Authority):

      • built 21 dams in ten years – stopped flooding, provided cheap electricity and provided work.

The Second New Deal

In 1935, Roosevelt's New Deal was still hugely popular with the people, but it was running into opposition (see next page for greater detail). 

The most important elements of this opposition were:

1. The Supreme Court, which ruled the NRA and the AAA illegal, because they took away the right of states to run their own affairs. 

2. Some businessmen, who attacked and ignored the NRA saying that it was expensive and wasteful. 

Poosevelt's reaction, in the run up to the 1936 election and after it, was to 'double down' and follow a much more radical 'reform' agenda:

 

4. National Labour Relations Act (1935):

   • To replace the banned NRA.

   • Also known as the Wagner Act. 

   • Protected workers' right to join a trade union. 

   • Set up the National Labour Relations Board (NLRB) to prevent employers from victimising workers. 

   • Opposed by the Republicans and businessmen as a violation of 'freedom of contract' between employers and employees.

 

5. Soil Conservation Service (1935):

   • To replace the banned AAA. 

   • Allowed the government to continue subsidising farmers by helping them combat soil erosion. 

   • Opposed by the land-grant Agricultural Colleges who saw it at their job, and by the States who saw the SCS as a rival to their authority.

 

6. Public Works Administration (1935):

   • Headed by Harry Hopkins, it ran small-scale projects which provided work for the unemployed, e.g. in arts, drama, media, and literacy projects, as well as in construction, and running relief programmes – although its wags were poor three million people earned a small amount and felt valuable. 

   • Opposed even by Democrats such as Senator Josiah Bailey, who argued that it was boodoggling – spending money for the sake of it – and would lead to higher taxes.  Other Senators feared that it was like a bribe to vote Democrat, and the Hatch Act (1939) was passed to prevent federal employees engaging in politics.

 

7. Resettlement Administration (1935) and the Farm Security Administration (1937):

   • Took over from FERA.

   • Resettled thousands of farmers from agriculturally exhausted land.

   • Built planned 'Greenbelt cities' including Greenbelt, Maryland; Greendale, Wisconsin; Greenhills, Ohio; and Mileston, Mississippi (an entirely African-American Community).

   • Built Relief Camps in California for migrants fleeing the Dust Bowl.

   • Opposed by wealthy landowners who did not want to lose their tenant farmers.  It was also inefficiently run, and was closed down in 1937.

   The Farm Security Administration took over from the RA in 1937.

   • It continued the Greenbelt communities programme, made loans to help tenant farmers buy their land, gave educational aid to almost half a million farm families, and ran the very famous photography programme.

 

8. Social Security Act (1935):

   • Provided America's first system of social welfare, funded by a 6% tax on wages, paid equally by the employer and the employee. 

   • set up a national system of old-age pensions.

   • gave help to people with physical disabilities.

   • gave help to children in need.

   • set up a national system of unemployment insurance. 

   • Opposed by the rich who feared it would mean higher taxes; by businesses who feared the 3% of wages they would have to pay would reduce their profits; and by Republican Presidential candidate Alf Landon, who claimed it was a "cruel hoax" on the employee, taking 3% of his wages with no guarantee of how the government would use the money.

 

9. National Housing Act (1937):

   • Also called the Wagner-Steagall Housing Act.

   • Provided loans to buy houses. 

   • Reduced excessive rents. 

   • Opposed by landlords who feared it would reduce rents and sale-prices; and by rural areas which feared it would favour towns over villages.

 

10. Fair Labour Standards Act (1938):

    • Also called the Black-Connery Act.

    • Set hours and conditions of work – especially attacked sweatshops, child labour and 'scrip' payments for use in company stores. 

    • Fixed a 40-cent-an-hour minimum wage, a 40-hour maximum workweek, and a minimum working age of 16.

    • Opposed by business-owners – particularly from the South, where wages were much lower – who claimed that they would go bankrupt if they had to pay more than 25 cents an hour, and that they would have to spend all their time on " these everlastingly multiplying governmental mandates".   Others saw it as a "tyrannical industrial dictatorship".