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FDR's New Deal

November 2020

Roosevelt felt the country needed “direct, vigorous action” to pull it out of the Depression.

The stock market crash of 1929 burst the bubble of uncontrolled speculation and business expansion of the Roaring Twenties. At first, both President Hoover and most of the country thought any major economic downturn would follow the pattern of those of the past, purging marginal businesses, followed by reorganization and recovery. The president saw no need for government intervention in the economy, just as his predecessors had rejected it on similar occasions. He was pleased to follow Democrat Grover Cleveland’s observation during the economic decline of 1893: “It is the business of the people to support the government, but it is not the business of the government to support the people.” He listened to Secretary of the Treasury Andrew Mellon, who advocated a “do nothing” approach to economic lows. 

The Depression caused widespread misery as unemployment in the U.S. rose to 25%. Mark Barry, Library of Congress.
The Depression caused widespread misery as unemployment in the U.S. rose to 25%. Mark Barry, Library of Congress.

Hoover did, however, recognize that some steps might be prudent, and called conferences of business and labor leaders at which he got both to pledge to maintain production and employment levels. In 1930, the president also signed the Smoot-Hawley Tariff, setting the highest rates on imports in U.S. history, in the belief the measure would insulate the country from foreign competition. Leading economists of the time warned that the action would instead invite retaliation from other governments. They were right. Within a year, nearly all the countries with which the United States conducted important trade had raised their tariffs, dealing a blow to America’s export industry that deepened the growing depression.

There were some signs of improvement in 1931 but hopes for a quick recovery were dashed in May when Austria’s largest bank collapsed, sending ripples across the economies of Europe. A reflection of Europe’s growing financial anxiety could be seen in the German election of September 1930: The Nazi Party received eight times the number of votes it had two years earlier.

FDR offered a wide range of experimental programs to prove that neither American democracy nor its brand of capitalism were obsolete.

The 1932 presidential campaign took place in an atmosphere of national apprehension. Americans were looking for a bold leader to extract them from economic misery. There were those who warned it might be the last election held under the Constitution, that whoever became president in 1933 would have to lead or put down a revolution. That is exactly what happened, of course, but without the sinister cast the Cassandras had predicted. The Republicans convened in Chicago to renominate Herbert Hoover, despite his obviously slim chances of reelection. With no other ideas to turn to, the party’s platform endorsed the Hoover record, claimed credit for solving the economic dislocation of 1929, and blamed current circumstances on troubles abroad. 

It was clear, however, that the American system was in desperate need of revamping and that Hoover was not up to the task. There was little enthusiasm even among Republicans for either the party’s platform or its candidate. The mood at the Democratic convention was strikingly different, and for good reason: Party leaders knew that whomever they nominated would likely be elected, so there was no lack of candidates. 

Better still, the front-runner was Governor Franklin Delano Roosevelt of New York, who, among other virtues, boasted a magic name that evoked the memory of the revered Theodore Roosevelt, even if they did belong to different parties. Only the polio attack he had suffered in 1921 had kept the younger scion of the family from rising in politics faster; even so, the badly crippled Franklin Roosevelt had stayed out of public life only until 1924, when he delivered the speech nominating Al Smith – fruitlessly – at that year’s Democratic convention. Four years later, he won the governorship of New York by a narrow margin, even as Smith was losing another attempt at the White House. 

The patrician Franklin Delano Roosevelt was in some ways an odd choice for the man to solve the problems of poor Americans, as he had no knowledge of poverty himself. He came from a wealthy family and had the pedigree and jaunty habits of his blue-blooded class, including diplomas from Groton, Harvard, and Columbia Law School and membership in all the right establishment organizations. Yet, with an ubiquitous cigarette holder thrust up from his grinning jaw, FDR – despite his physical handicap, which the press cooperated in keeping secret from the public – was as dynamic and vigorous as his adored cousin had been, which appealed to people of all socioeconomic classes. 

“If you’ve spent two years in bed trying to wiggle your big toe,” FDR noted, “everything else seems easy.” As he said in a campaign speech in Atlanta in May 1932, “These unhappy times call for the building of plans... that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.” 

Roosevelt won the Democratic presidential nomination easily after striking a deal with the forces of powerful Speaker of the House John Nance Garner of Texas, who was rewarded with the vice presidential nod. (“Cactus Jack” Garner later described the post as “not worth a bucket of warm spit.”) 

Roosevelt broke tradition by flying to Chicago to accept the nomination in person, the first candidate of any party to do so. He electrified the convention with a speech asking America to show its compassion by providing a “more equitable opportunity to share in the distribution of national wealth.” The Democrats, he exhorted, should make themselves into the “party of liberal thought, of planned action, of enlightened international outlook,” and brought the delegates to their feet by concluding: “I pledge you – I pledge myself – to a New Deal for the American people.” It sounded so good it didn’t matter that it wasn’t clear what Roosevelt meant.

The nation rejected the radical third parties that also ran candidates and gave Roosevelt a smashing victory in which he captured all but six states to receive 472 Electoral College votes to Hoover’s fifty-nine. “America hasn’t been as happy in three years as they are today,” Will Rogers wrote in a column the day FDR took the oath of office. “The whole country is with him.”

The U.S. banking system had continued to crumble in the final days of the Hoover administration along with just about all the other indicators of the nation’s economic strength. “We are at the end of our string,” conceded the outgoing president as he prepared to leave the White House. He made a plea to Roosevelt before his successor’s inauguration not to tinker with the currency, borrow heavily, or unbalance the budget. But Franklin Delano Roosevelt had his own ideas. He stirred the rain-soaked audience at his first inaugural address on March 4, 1933 with a ringing declaration: “Let me assert my firm belief that the only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” He went on to declare that the old Republican regime was no more, that “the money-changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.” 

Then, the new president announced that he would call a special session of Congress to consider ways to end America’s economic crisis. And should Congress fail to respond with the sort of legislation he had in mind, Roosevelt indicated with more prescience than he knew that a new approach might be in order: “I shall ask Congress for the one remaining instrument to meet the crisis – broad executive power to wage a war against the emergency as great as the power that would be given me if we were, in fact, invaded by a foreign foe.” 

FDR concluded his inaugural address with the reassurance that, “We do not distrust the future of essential democracy.... The people of the United States have not failed. In their need they have registered a mandate that they want direct, vigorous action.” Franklin Delano Roosevelt offered just that. In his very first speech as president, he gave substance to the New Deal, the collective term for the experiments his administration designed to prove that neither American democracy nor its brand of capitalism was obsolete. 

Modeling the semantics of his New Deal on Theodore Roosevelt’s Square Deal and Woodrow Wilson’s New Freedom, FDR proved a genius at bolstering the sagging confidence of the American people. He embraced the new science of public relations, holding an unprecedented number of press conferences, hiring the first presidential press secretary, and broadcasting his compassion for the country’s suffering to every living room radio through his fireside chats, which did much to ease the despair of the American people. Overwhelmed by the force of presidential personality and popularity, the U.S. Congress passed Roosevelt’s New Deal legislation, including measures designed to meet the immediate crisis, without much debate in the first hundred days of the new Democratic administration. 

On his first day as president, FDR ordered a national bank holiday and proposed the Emergency Banking Relief Act, which Congress passed overnight. The act did not nationalize the banks but rather gave them federal assistance to reopen if they proved strong enough after federal examination and certification and, if not, handed then over to federal “conservators” who would help them regain solvency. 

Roosevelt understood the importance of taking quick action to end the public panic. He also knew that his early moves were mere band-aids intended to stanch the economic bleeding until more comprehensive programs could be devised. Roosevelt’s New Deal programs were most remarkable for their number and their commitment to making the government an active instrument in ensuring social justice. 

The new president asked Congress to pass the Economy Act, which reduced federal salaries by as much as 15 percent and together with other cost-cutting measures carved some $243 million from the federal budget. Other proposals enacted programs that had been discussed a decade earlier. The Agricultural Adjustment Act of 1933, for example, was passed after a brief but bitter debate and established an Agricultural Adjustment Administration (AAA) to oversee a major farm-subsidy program under the parity principles of the 1927 McNary-Haugen bill. Under the AAA, farmers would be compensated for limiting their own production out of revenues from taxes on businesses that processed farm products for sale. 

But by the time the AAA began operating, another bumper crop was sprouting, so the administration reluctantly ordered the destruction of some growing crops and the slaughter of some livestock to reduce surpluses. Given the number of Americans who were going hungry, this naturally sparked an angry response, some calling Agriculture Secretary Henry A. Wallace the “assassin of little pigs.” Nevertheless, the AAA did succeed in boosting prices to the point that gross farm income increased by half in the first three years of the New Deal. Similarly, the Farm Credit Administration succeeded in refinancing and thus keeping afloat about a fifth of all U.S. farm mortgages.

In addition, Roosevelt pushed through legislation to create the Civilian Conservation Corps, designed to provide employment for young men in the national forests and on federal road construction and conservation projects. CCC Forestry Camps under the direction of the Departments of Agriculture and the Interior were established – 1,300 by mid-June – to provide jobs, improve the nation’s forests, and prevent soil erosion. The CCC camps were run by the U.S. Army, which imposed strict discipline on the recruits: men between the ages of eighteen and twenty-five who were single, unemployed, healthy, and without other resources. 

The CCC hired “local experienced men,” many of whom were unemployed foresters and builders from the communities where the camps were located, to train and supervise the workers. “CCC boys,” as they were called, received $30 per month plus room, board, and health care –leaving as much as $25 to be sent home to help support their impoverished families. Working with axes, two-man saws, shovels, pick-axes, and other hand tools, the CCC boys planted grass and trees, fought forest fires, cut hiking trails, dug canals, worked on projects to control erosion, and built structures from bridges to swimming pools. At its zenith in September 1935, the CCC had 502,000 men enrolled in 2,514 work camps. In the nine years of its existence, the CCC helped 2.9 million men learn about conservation firsthand. 

Another innovation, the Federal Emergency Relief Administration (FERA), distributed $500 million to the states for relief efforts. Under the leadership of former social worker Harry Hopkins, the FERA encouraged states and localities to provide work to the unemployed. With similar goals, the Home Owner Refinancing Act created the new Federal Housing Administration authorized to disburse $2.2 billion in capital to finance home mortgages and stave off foreclosures through the federal Home Owners’ Loan Corporation. 

Also, to help the small depositor, the Glass-Steagall Banking Act of 1933 separated commercial and investment banking from the personal variety and protected the latter by establishing the Federal Deposit Insurance Corporation, which guaranteed individuals’ deposits under $5,000. Aimed further up the financial hierarchy was the Federal Securities Act requiring full disclosure from anyone who sold them; the following year, the Securities Exchange Act created the Securities and Exchange Commission to monitor activities on Wall Street. 

The most dramatic of the early New Deal programs, however, were the National Industrial Recovery Act and the Tennessee Valley Authority Act, which put the federal government directly into the workings of the U.S. economy to the point that in some areas it became the dominant factor. The National Recovery Administration (NRA) brought labor and management together to come up with regulatory codes that would obviate antitrust laws in the closest cooperative effort among government, labor, and management the nation had ever seen in peacetime. Eventually, some 2.3 million firms employing more than 22 million workers would operate under one or more of the 500-odd codes the NRA formulated. 

The agency also established the Public Works Administration, which provided employment on federally funded good works – but not enough to satisfy the president, who in time superseded it with the Civil Works Administration, which had only slightly more success. 

Overall, despite its sterling intentions, the NRA had mixed results: Its codes overlapped and were often confusing even if their formulation did convince the public that action was being taken. But the NRA’s efforts grew into a bureaucratic nightmare, while the everyday annoyances of enforcing the codes angered business executives. 

Other New Deal projects would prove more lasting, such as the Tennessee Valley Authority (TVA) established in May 1933. Designed as a model for regional development, the TVA program was intended to eradicate poverty from the Tennessee Valley through the development of cheap electricity. The effort was nothing if not grandiose, calling for the hiring of 40,000 workers to construct a series of dams to provide hydroelectric power to the region along with flood-control stations, fertilizer plants, and other projects geared to bringing prosperity to the area. Set up as a multipurpose public corporation, by 1936, the TVA had six dams either finished or under construction and plans for another nine on the Tennessee River to create the”Great Lakes of the South.” The agency also spurred soil and forestry conservation efforts, developed new fertilizers, opened rivers to navigation, and attracted new industry, all the while sending cheap power coursing through the formerly rural valley.

In January 1935, the president informed Congress that all the initial New Deal relief programs would be ended on the grounds that “We must preserve not only the bodies of the unemployed from destitution but their self-respect, their self-reliance and courage and determination.” Toward this end, he recommended replacing the earlier programs with the Works Progress Administration (WPA), which would become perhaps the most enduring symbol of the New Deal.

To many political observers, Roosevelt’s enthusiasm for programs such as the WPA indicated his adherence to the beliefs of English economist John Maynard Keynes, who had argued in 1930 that when the public stops making purchases for economic or psychological reasons, the government must step in and spend money to “prime the pump.” Although to Keynesians it appeared that this is what Roosevelt was doing through the WPA and similar agencies, such was not actually the case; in fact, FDR’s economic ideas were rather conventional, and among the chief goals of his first term was ultimately to balance the federal budget. That his administration continued spending heavily on programs for a time indicated only that Roosevelt meant to use fiscal policy to alleviate suffering, not to end the Depression outright.

The WPA was followed by the National Labor Relations Act of 1935. At first, FDR opposed the measure, claiming that its guarantees of union rights in collective bargaining would benefit one economic interest at the expense of another. In addition, the act would establish a National Labor Relations Board (NLRB) to supervise workers’ dealings with management nationwide, which inspired fear even among some administration leaders that such a body would turn into an overseer for the entire U.S. economy. But the National Labor Relations Act proved popular among the labor rank and file, and soon after its introduction in Congress, the president gave the bill his support.

The most important legislation passed in 1935 was the ground-breaking Social Security Act, although it was hardly a new idea; Progressives had spoken of such a program as early as 1912, and many state pension and unemployment compensation programs were already in effect. Under terms of the new federal Social Security Act, however, nearly all employees and employers would be obliged to pay a payroll tax, the revenues from which would go into a reserve fund; workers who retired at age sixty-five would receive monthly disbursements from this fund of between $10 and $85, depending on their contributions, beginning in 1939. 

Employers would pay a new unemployment tax to provide benefits to those out of work through no fault of their own. Social Security – which was passed by Congress on August 14, 1935 – was neither structured nor sold to the American public as a welfare program; rather, it was a form of insurance plan that would pay benefits not according to need, but based on the contributions workers had made to it. 

“You want to make it simple – very simple, so simple that everyone will understand it,” FDR told Secretary of Labor Frances Perkins. “And what’s more, there is no reason why everybody in the United States should not be covered. I see no reason why every child, from the day he is born, shouldn’t be a member of the Social Security system.... This system ought to be operated through the post offices. Just simple and natural – nothing elaborate or alarming about it.... And there is no reason why just industrial workers should get the benefit of this. Everybody ought to be on it – the farmer and his wife and family.... I don’t see why not. Cradle to the grave – from the cradle to the grave they ought to be in a Social Security system.”

The comprehensive structure of Social Security disarmed opponents who had at first asserted that it was just another program to help the elderly poor on the middle class’s nickel; in fact, it would prove the single most important piece of social-welfare legislation in U.S. history, what Roosevelt called the New Deal’s “supreme achievement.” And so it was, especially in its long-term effects as a retirement pension plan.

The Election of 1936 

In 1933 and 1934, the U.S. Supreme Court had ruled favorably on the constitutionality of various minor New Deal measures. By 1935, however, the Court began hearing cases involving the more important laws and agencies instituted under the first Roosevelt administration, and a slim majority found that some of them violated the United States Constitution. On May 27, in two landmark decisions, the Supreme Court declared certain parts of the New Deal unconstitutional: the president’s authority to remove members of the Federal Trade Commission and the NRA itself, against which the Court voted unanimously. Eight months later, the U.S. Supreme Court also invalidated the Agricultural Adjustment Administration, and shortly after that, decided to negate a New York State law fixing minimum wages. 

Roosevelt accepted these decisions with a mixture of anger and relief. The first arose naturally from his belief that his entire reform program was being challenged by what he would later call the Court’s “nine old men” from the “horse-and-buggy” days. But the president would do little in response until after the 1936 election, in acknowledgment that the AAA and the larger NRA had not worked out very well, and that the Supreme Court had saved him the embarrassment of canceling the programs himself.

By then, opposition to Roosevelt also appeared from the political right. Backed by funds from such corporate behemoths as General Motors and the Du Pont chemical corporation, a group of anti-Roosevelt Democrats, Al Smith reformers, and conservative Republican businessmen calling themselves the American Liberty League charged the president with attempting to foist socialism upon the nation. The organization singled out the NRA, the TVA, and Roosevelt’s other New Deal relief programs as being radical to the point of being un-American. 

From other quarters, FDR faced criticism for failing to press reform faster and further. The most formidable challenge came from Senator Huey Long of Louisiana, a populist firebrand who had become the first white Southerner since Reconstruction to attract a national following. As governor and senator, Long had ruled Louisiana with a meaty fist and taxed its large corporations heavily enough to pay for the construction of new roads, bridges, schools, hospitals, and other popular public works. Under the slogan “Every Man a King” and with a program promising to “Share the Wealth,” the politician who liked to be called Kingfish offered every family a guaranteed income as well as a home – promises that could be funded only through the confiscation of large fortunes and sharp increases in taxes. 

Long’s diverse followers and other radical elements organized the Union Party and nominated Congressman William Lemke of North Dakota as its presidential candidate. Then there were other minor-party hopefuls such as the Socialists’ Norman Thomas and the Communists’ Earl Browder.

There was never any question Roosevelt that would win a second term. The weakened Republican Party sent mixed messages by drawing up a conservative platform for 1936 and then nominating Governor Alfred Landon of Kansas, who had supported Theodore Roosevelt in 1912 and Robert La Follette in 1924 and had also accepted many of FDR’s New Deal reforms. 

For all the political wrangling, the Democrats emerged with an overwhelming victory, the magnitude of which surprised even Franklin Roosevelt. FDR won 27.7 million popular votes – 60.6 percent of the total cast – as well as 523 electoral-college votes and every state except Maine and Vermont. The Republicans’ Alf Landon scored a paltry 16.7 million popular votes and only eight in the Electoral College, while Lemke attracted fewer than 900,000 popular votes and the rest of the minor candidates even less significant numbers.

As it turned out, the presidential election of 1936 would mark the last hurrah of the New Deal. A little more than two weeks after his second inauguration, on February 5, 1937, Roosevelt proposed a reorganization of the judicial branch from the top down. Declaring the members of the Supreme Court too old to handle the flood of cases descending upon them, the president requested the authority to name replacements for every justice over the age of seventy, and after that, for every judge of the same longevity on the nation’s lower courts. Roosevelt’s opponents – now joined by moderates and even New Dealers who had supported him in the recent election – immediately charged the president with a blatant attempt to” pack the Court” and disrupt the balance of power among the three branches of government. 

What’s more, Chief Justice Charles Evans Hughes was able to demonstrate not only that the Supreme Court’s calendar was not clogged, but that under his leadership, the Court had disposed of more cases than any other in the past century. At the same time, however, Hughes was joined by Associate Justice Owen Roberts in his decision to “follow the election returns,” a shift that allowed the more liberal members of the Court to hand down decisions favorable to the Roosevelt administration. Then conservative Justice Willis Van Devanter retired, permitting FDR to make his first appointment to the Supreme Court, which would shortly be followed by others. 

The president had notched a victory, but its price was the shattering of his New Deal coalition. Not that the New Deal seemed necessary any longer: The economy appeared to be on the mend in 1936. The unemployment rate was down to 16.9 percent and would fall to 14.3 percent the next year, the lowest level since 1930; the GNP, meanwhile, was $82.5 billion and would rise to $90.4 billion in 1937, higher than it had been at any time since 1929.

The actual end of the New Deal came with the 1938 midterm elections, when Roosevelt’s attempt to purge the Democratic Party of its conservatives backfired. Instead, the Republicans bounced back from their disastrous showing two years earlier, retaking seven Senate and eighty-one House seats along with the governorships of five states considered safely Democratic. 

As a result of this shift, the Republicans could now join with anti-New Deal Democrats to block legislation emanating from the White House – and did just that, burying the New Deal under a series of legislative failures. Nevertheless, Roosevelt still could claim to have salvaged American capitalism and reinvigorated the nation’s faith in democracy. After all, he had led a massive reform effort that had realigned the relationship between the United States and its citizens by providing Americans with unprecedented economic and social guarantees courtesy of Washington. 

In the long run, one of Franklin Roosevelt’s greatest contributions to the nation’s evolution may have been drawing the public’s focus to the executive branch, which Americans since that time have deemed responsible for every major national development, positive or negative. Whereas both Democrats and Republicans had criticized Herbert Hoover as too activist in 1930, today he is pilloried for “failing to bring America out of the Depression,” even though, at the time, no one had considered this the president’s job – certainly not Grover Cleveland, Theodore Roosevelt, or Warren Harding, as evidenced by their responses to lesser economic crises. 

Today, recessions, riots, business triumphs and failures, and even foreign developments hardly within the control of the United States are all blamed on – or credited to – American presidents, who have the sea change wrought by Franklin Roosevelt and his New Deal to thank for the responsibility.

 

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