The First New Deal and Its Critics 1933-1934

Introduction

"The capital is experiencing more government in less time than it has ever known before … it is now as tense, excited, and sleepless and driven as a little while ago it was heavy and inactive." These words by Anne O'Hare McCormick, published in the New York Times and reprinted in Ronald Edsforth's The New Deal: America's Response to the Great Depression (2000, p. 143) describe the atmosphere in Washington, DC, after Franklin Roosevelt was elected to the presidency.

President Herbert Hoover (served 1929–1933), though known as politically progressive and as a humanitarian, was unable to meet the public outcry for economic relief through the first years of the Great Depression. His terse behavior did not connect well with the public and only added to the growing public resentment. The considerable public disfavor toward Hoover opened the door to victory for Franklin D. Roosevelt, then governor of New York and the Democratic Party candidate in the 1932 presidential election.

The victorious Roosevelt exuded charm and optimism, offering fresh hope to millions of Americans that someone in the White House truly cared about the average citizen. Roosevelt had to deliver more than hope, however, because the economic problems before him caused by the Great Depression were monumental. He and his trusted group of advisors brought an entirely new perspective on how to bring relief to the struggling public.

Unlike Hoover's administration, the nation's new leaders did not trust that a private marketplace, free from government oversight, would be able to successfully control production and prices to the nation's benefit and thus lead the country to economic recovery. Roosevelt's administration, operating under the belief that government involvement could actually help the economy chose a path of major structural reform of the U.S. economy. To Roosevelt's good fortune, business leaders were in no position in early 1933 to oppose the very popular new president. The public was desperate to see a change in tackling the economic problems, which included high unemployment, numerous businesses in distress, and a growing poor population. They clearly were attracted to Roosevelt's warmth and charm, and gave him great leeway to act during his first few months of office. Any criticism or efforts to hinder the new programs during this period, including by business leaders, would be met with great public wrath.

Roosevelt and his key advisors quickly got to work, even before he was officially inaugurated as president. They designed relief programs they hoped could buy time until long-term recovery measures could begin stimulating production and employment. At President Roosevelt's request, Congress met in a special session from March 9 until June 16, 1933. Banking and agricultural crises drew President Roosevelt's attention first, but other issues soon followed. With nearly 15 million people unemployed across the nation, federal relief for workers was a critical need. The intense legislative activity during this Hundred Days period is some of the most dramatic in U.S. history. More legislation developing public policy was passed at this time than in any period in the nation's history.

The numerous relief and recovery measures passed during the 18-month period from March 1933 to June 1934 became collectively known as the First New Deal. President Roosevelt received greatly expanded power, changing the nature of the U.S. presidency forever. The president, through the new agencies he would create, more closely controlled business activities through the National Industrial Recovery Act. Also, the federal government became a regular player in the private business world for the first time. The United States had long operated with the belief that government had a very limited role in American daily life and that business activity was considered personal property, protected by the U.S. Constitution from government regulation. The Republican administrations of the 1920s preceding Roosevelt's term held to this traditional perception of limited government with great zeal. The relief programs of the First New Deal included the Civilian Conservation Corps, Civil Works Administration, and the Federal Emergency Relief Administration. Recovery programs included the National Recovery Administration, the Agricultural Adjustment Administration, and the Tennessee Valley Authority.

Chronology:

July 2, 1932:

Franklin Delano Roosevelt delivers a speech accepting the Democratic nomination for president pledging "a new deal for the American people."

November 1932:

Roosevelt handily wins the presidential election over incumbent Republican Herbert Hoover.

March 4, 1933:

Roosevelt is inaugurated as president, declaring that there is "nothing to fear but fear itself;" two days later he closes the nation's banks for one week, proclaiming a "bank holiday."

March 9, 1933:

Congress begins a special session to approve legislation aimed at economic relief and recovery.

June 16, 1933:

Congress finishes the special session, having passed 15 major laws; the intensive period of lawmaking becomes known as the First Hundred Days.

November 9, 1933:

Roosevelt establishes the Civil Works Administration to assist unemployed workers through the winter months.

June 6, 1934:

Congress passes the Securities Exchange Act, establishing the Securities Exchange Commission.

June 28, 1934:

Passage of the Farm Bankruptcy Act and the National Housing Act marks the end of the First New Deal as political opposition to New Deal programs gains strength.

Issue Summary

The New Deal is Born

The term "New Deal" came from a speech by then-New York Governor Franklin Delano Roosevelt delivered to the Democratic National Convention in July of 1932. He was accepting the Democratic Party's nomination as their candidate for U.S. president and referring to a fresh new approach in trying to address the severe economic hardships caused by the Great Depression. Roosevelt had been a two-term governor for New York. He was also a distant cousin of former U.S. president Theodore Roosevelt. Roosevelt spoke, "I pledge you, I pledge myself, to a new deal for the American people. Let us all here assembled constitute ourselves prophets of a new order of competence and courage."

Samuel Rosenman, political advisor and speech-writer for Roosevelt, wrote the speech. Just previously, the journal New Republic had published a series of articles by Stuart Chase entitled, "A New Deal for America." Perhaps these influenced Rosenman and Roosevelt. Following Roosevelt's speech a political cartoonist used the phrase, fixing it in the public's mind. From then onward the "New Deal" became the adopted label of Roosevelt's political and economic policies for the next six years in his fight against the Depression. The phrase "New Deal" is now one of the most familiar phrases in American politics and government.

To address the complex economic and social problems posed by the Great Depression Roosevelt gathered a "Brain Trust" to assist in his 1932 presidential campaign. They attracted the label of Brain Trust because these were the actual people to analyze all the options available to the president on specific issues and then to draft policies he might wish to pursue. The group included young lawyers, social workers, and economics professors. They were considered the brightest minds of the day in dealing with complex economic and social issues. They were also known to be fearless about pursuing actions never tried before. Three of the members were Raymond Moley, Rexford Tugwell, and Adolf Berle, Jr., all Columbia University professors. Basil O'Connor, Roosevelt's law partner prior to his presidential terms, and Samuel Rosenman, Roosevelt's general counsel in New York, were also part of the elite group, in addition to William Woodon, a New York businessman and former director of the New York Federal Reserve Bank. The six men played major roles in the New Deal. Their mission was to advise Roosevelt on how to end the Depression and to write his campaign speeches.

Franklin D. Roosevelt Wins Franklin D. Roosevelt sounded a hopeful note in 1932 to a public desperate for a new approach to solve the nation's economic woes brought by the Great Depression. President Hoover, embracing a belief that people should be self-reliant and should not rely on government, took a very conservative approach to solving the problems. He primarily asked for voluntary cooperation from industry to not increase unemployment and called for private charities to help those in need. Both approaches were woefully inadequate to deal with the magnitude of the problem at hand. Roosevelt, on the other hand, promised to help the unemployed, poor, and aged, something Hoover had not been able to do during his four years in the White House. Certainly problems of poverty and financial security had been increasing issues since the rise of urban industrial centers, but they were greatly magnified by the Depression and the general public became much more sensitive to their needs.

As a result of the public's mood Roosevelt won the 1932 November presidential election by a wide margin, receiving 23 million votes to Hoover's 16 million. In addition, the Democrats also gained two-thirds of the Senate seats and three-fourths of the House of Representatives. It would be four months, however, between the November election victory and Roosevelt's inauguration in March 1933. The Twentieth Amendment to the U.S. Constitution, changing the inauguration date to January, was still going through the state ratification process and would not take effect until the next presidential election in 1936.

During the weeks following the November election the economy continued to fall steeply. Industrial production was declining, more businesses and banks were closing, and more people were losing their jobs, homes, and farms. Roosevelt decided he must start working on solutions to the Great Depression right away, rather than waiting until March when he would be sworn into office. This early action was largely unheard of in previous U.S. history, especially to the extent that Roosevelt pursued it.

The New Deal Takes Shape

President-elect Roosevelt prepared for his presidency during the winter of 1932–1933. Rather than seeking a single major solution to the economic problems, Roosevelt and his advisors chose to treat the Depression as a number of individual crises. Each of these crises could be treated separately by emergency actions. The focus would be on the "Three R's"—Relief for the needy, economic Recovery, and financial Reform. The First New Deal was to focus on the first "R"—Relief.

Adolf Berle believed that the most immediate needs to be addressed were farm relief, stabilizing industrial prices and employment, and relief for the poor. He also believed banking problems would have to be solved soon.

The Brain Trust members each received their assignments. Woodon was to develop monetary and banking policy. Tugwell took the lead for agricultural policy. Berle tackled farm foreclosures, business bankruptcies, and railroad problems.

Roosevelt believed that they needed to build a broad coalition of support for any of his measures to be successful against the Depression. Therefore he recruited dozens of men from universities, business and finance, and agriculture to work in small task groups with Brain Trust members. Each group was assigned to draw up specific legislation for a special session of Congress. As the groups worked Roosevelt, accompanied by Raymond Moley, who served as his personal advisor, spent his days meeting with each of the task groups to review their progress.

Despite the large majority of Democrats in both the House and Senate, Roosevelt and his Brain Trust knew the road to passing legislation would not be smooth. Democrats in Congress were divided between Southern conservatives who believed in a limited federal government and liberals wanting extensive federal aid. In business matters the more conservative legislators wanted to focus on antitrust action. That path would mean the main government role would be breaking up big corporations that hindered fair competition. Moderate and liberal legislators believed business reform should focus on broad national planning and a regulatory role for government. Predictably Roosevelt's task groups also had conflicts over what kinds of solutions to the Depression were appropriate.

The "First Hundred Days"

On March 4, 1933, Franklin D. Roosevelt was sworn in as U.S. president. On the evening of March 5 Roosevelt called Congress into a special session, beginning March 9. Congress was to act on an emergency banking bill and the proposed legislation his task groups had developed. Congress was to remain in special session until June 16, or one hundred days. At 1:00 AM March 6 President Roosevelt declared a closure of all banks for one week, calling it a "bank holiday," and ending the runs on banks by a nervous public wanting its money, which frequently put banks at a loss for funds. He essentially put the U.S. economy on hold in an attempt to calm panic among the public and give business and the economy a chance to regroup.

The month of March brought a flurry of action by President Roosevelt and Congress, with Congress passing the Emergency Banking Act, the Economy Act, the Beer Tax Act, and the Civilian Conservation Corps Reforestation Act. President Roosevelt also created the Farm Credit Administration in the same month. All were intended to provide relief to different parts of society: work relief for young adults, mortgage relief to homeowners, and a stable banking system for depositors.

April was a time of preparing more legislation for another lawmaking flurry to follow in May and June. No New Deal acts were passed in April and the only executive order created the Civil Conservation Corps, authorized under the Civilian Conservation Corps Reforestation Act. On May 12 Congress passed three key bills to address the Depression. Two of them dealt with the critical farm situation. Congress passed the Agricultural Adjustment Act, the Emergency Farm Mortgage Act, and the Federal Emergency Relief Act. A few days later the Tennessee Valley Authority was created on May 17, and Congress passed the Federal Securities Act on May 27.

The special session of Congress wound down through the first half of June. The National Employment Act (Wagner-Peyser bill) and Home Owners' Refinancing Act were passed on June 6 and June 13, respectively. Then on the final day of the "Hundred Days," four acts were passed and a key executive order issued. The acts were the Farm Credit Act, the Banking Act (also known as the Glass-Steagall Act), the National Industrial Recovery Act, and the Emergency Railroad Transportation Act. That same day President Roosevelt created the Public Works Administration through an executive order.

A Bank Holiday—Emergency Banking Relief Act

President Roosevelt's first order of business was to restore public faith in the nation's banking system. The nation was experiencing widespread bank failures. People were unable to repay loans made for their homes and farms and the number of depositors was declining as unemployment mounted. People needed to withdraw their savings to live on and could no longer afford to deposit money into the bank. Banks could not keep up with the demands for withdrawal. Added to that, bank runs, in which depositors would suddenly show up en masse to withdraw their funds when a rumor would surface that the bank was in financial trouble, plagued banks. Even if the bank was not actually in trouble, it would be after the bank run since it would normally not have sufficient funds on hand to satisfy everyone's request for withdrawal.

Some six hundred banks failed in late 1929; more than 1,300 closed in 1930; some 2,200 banks failed in 1931; and another 1,400 closed in 1932. More were adding to the list in early 1933. These numbers were in addition to the many rural banks closed during the 1920s as the farm economy struggled. The number of banks declined from 25,000 in late 1929 to only 14,000 in early 1933. Almost 40 percent of the nation's banks had either closed or merged with other banks. With no government system to guarantee the financial health of individual banks, people had lost confidence in the national banking system. Therefore on March 6 President Roosevelt declared a "bank holiday," which closed all banks for eight days to prevent the public from withdrawing more money.

President Roosevelt then sought a banking bill to safely reopen the banks he had closed on March 6. An emergency banking bill was introduced in Congress at noon on March 9. It was debated in the House for 38 minutes and in the Senate for three hours before being passed. President Roosevelt signed it into the resulting new law, the Emergency Banking Relief Act, later that night at 9:00 PM. The act authorized the U.S. Treasury Department to inspect the nation's banks and was the first pieces of legislation passed as part of the New Deal.

With the passing of the act, federal and state officials hurriedly examined bank records across the nation. Their goal was to determine if the individual banks had sufficient funds to conduct normal business and those banks in good shape could reopen. Those that could not pay debts could not reopen right away, but they would qualify for loans under the act to correct their financial problems. The examiners issued new licenses to the healthy banks so they could reopen March 13. On Sunday March 12, the day before banks were to reopen, President Roosevelt gave his first radio broadcast Fireside Chat in his friendly manner. The chat was a relaxed and informal discourse explaining why he had taken this action.

When the newly relicensed banks reopened the following day calm returned. Many people re-deposited the savings they had earlier withdrawn in fear of losing it. Public confidence in banks was restored with greater reassurance of the banks' financial conditions. The financial panic had ended and over half of the banks that held 90 percent of all bank deposits reopened on March 13. Others reopened later with federal assistance.

To Economize Government—Economy Act

The second bill passed by the special session of Congress was the Economy Act. President Roosevelt personally believed in balanced government budgets—not spending any more than the revenue, or income, taken in. During his presidential campaign he sharply criticized Herbert Hoover for expanding the federal budget too fast. President Roosevelt was convinced that he could cut some federal spending and perhaps raise the morale of the public somewhat in doing it. Congress passed the Economy Act on March 20, with President Roosevelt's goal in mind to cut $500 million by decreasing federal worker salaries, reducing certain disability payments to veterans, and combining some federal programs. He was, in the end, only able to save $243 million by economizing.

Many criticized Roosevelt for supposedly trimming back government expenses on one hand while signing massive emergency relief bills to address the Great Depression on the other. President Roosevelt tried to distinguish between the two by claiming relief funds were an investment in the nation's future. Almost exactly a year later Congress passed a bill over President Roosevelt's veto, increasing once again the salaries of government employees.

Ending Prohibition—Beer Tax Act

Fundamentalist religious movements were quite active in the early twentieth century, but their legislative successes were few following World War I (1914–1918). One major accomplishment for social reformers was adoption of the Eighteenth Amendment to the U.S. Constitution, the Prohibition Amendment. The amendment prohibited the manufacture, sale, or transportation of alcoholic beverages. Liquor consumption in the nation dropped dramatically, but gangsters became millionaires smuggling liquor into the United States. By the end of the 1920s people were weary of the ineffective ban and public pressure mounted to end Prohibition.

In early 1933 the Twenty-first Amendment repealing liquor prohibition was going through the time-consuming process of state ratification. President Roosevelt decided to give the public a morale boost by having Congress pass the Beer Tax Act on March 22. The act allowed the manufacture and sale of beer and light wines with no more than 3.2 percent alcohol. It also applied a tax on the beer to raise government revenues. The public, long weary of Prohibition's ban on alcohol consumption, greeted the act with much relief as a first step in legalizing alcoholic beverages of all kinds.

Farm Loans—Farm Credit Administration

A growing number of federal agencies provided loans to farmers during an agricultural economic crisis that began in the early 1920s and continued into the 1930s. The matter of farm loans had become very complex with numerous agencies involved. Because of income loss due to the Great Depression many farmers could not afford to make their payments on their farm mortgages.

More About… The First Hundred Days

The first one hundred days of President Franklin Roosevelt's first term of office is regarded as one of the most active periods in U.S. legislative history. The economic crisis was at its height and the American people were desperate for action after the ineffectiveness of the Hoover administration. Democrats controlled both houses of Congress and the new Democratic president was too popular for opponents to attempt to block. As a result fifteen major bills were introduced and passed within the short three-month period of time from March 9th to June 16th of 1933.

• Emergency Banking Relief Act: introduced and enacted on March 9.
• Economy Act: introduced on March 10; enacted on March 15.
• Beer Tax Act: introduced on March 13; enacted on March 22.
• Agricultural Adjustment Act: introduced on March 16; enacted on May 12.
• Civilian Conservation Corps Act: introduced on March 21; enacted on March 31.
• Federal Emergency Relief Act: introduced on March 21; enacted on May 12.
• National Employment Act: introduced on March 21; enacted on June 6.
• Federal Securities Act: introduced on March 29; enacted on May 27.
• Emergency Farm Mortgage Act: introduced on April 3; enacted on May 12.
• Tennessee Valley Authority: introduced on April 10; enacted on May 18.
• Home Owners' Refinancing Act: introduced on April 13; enacted on June 13.
• Emergency Railroad Transportation Act: introduced on May 4; enacted on June 16.
• Farm Credit Act: introduced on May 10; enacted on June 16.
• National Industrial Recovery Act: introduced on May 17; enacted on June 16.
• Glass-Steagall Banking Act: introduced on March 9; enacted on June 16.

To improve service to farmers, President Roosevelt signed an executive order on March 27 creating the Farm Credit Administration (FCA). The agency was to coordinate loan activities of all these other agencies. Within only 18 months the FCA had refinanced 20 percent of all farm mortgages in the nation. Millions of farms facing foreclosure and thousands of small rural banks were saved. By 1941 the FCA had loaned almost $7 billion and had become part of the Department of Agriculture.

Youth Employment—CCC Reforestation Act

After stabilizing the banks, Roosevelt wanted to pass a land conservation work bill. He wanted to employ 250,000 young men in reforestation, flood control, and soil conservation projects. Such a bill would not only perform valuable conservation work, but would also provide work relief for youth who were particularly hard hit by unemployment brought on by the Depression.

In response Congress passed the Civilian Conservation Corps Reforestation Act on March 31. The act gave authority to the president to create the Civilian Conservation Corps (CCC), which he did by executive order on April 7. The CCC was aimed at young men between 18 and 25 years of age whose families were already on relief. It was operated by the U.S. Army. By August of 1933 275,000 men were placed in 1,300 camps and were assigned for six to 12 month tours to restore historic buildings, build roads, develop parks, fight forest fires, plant trees, and help in soil erosion and flood control projects. They received $30 a month plus uniforms, room, and board. Out of their monthly pay, $25 was automatically sent home to the workers' families. The program grew to one million men by 1935 and by its end in 1942 the CCC had employed three million young men.

Farmer Relief—AAA and Emergency Farm Mortgage Act

Relief for farmers was also a pressing matter. At the time 30 percent of the U.S. population lived on farms and President Roosevelt wanted to boost their purchasing power. A key victory of the First Hundred Days was passage of the Agricultural Adjustment Act on May 12. Farmers had been suffering from low farm prices throughout the 1920s, following the end of World War I. Already economically struggling, the Great Depression hit farmers especially hard. Farmer production remained high, even increasing with new innovations being steadily introduced during this period, but as production rose prices declined further. Debt built up in the 1920s resulting from purchasing newly available farm equipment that could not be repaid as the economy worsened.

The act sought to raise farm prices by encouraging farmers to lower their production. It created the Agricultural Adjustment Administration (AAA), which was designed to pay farmers not to plant a certain amount of their land. They were paid to grow less corn, cotton, pork, and other products. To solve immediate surpluses of cotton and hogs, the government paid cotton farmers a total of $200 million to plow up ten million acres of cotton and it also paid hog farmers to slaughter six million pigs. These actions drew considerable criticism by the public for destroying food at a time when many people were going hungry. In time, however, the program pushed farm prices up 50 percent to the benefit of many farmers.

Another major farm issue of the Depression besides low prices for farm products was high farmer debt. In addition to the Farm Credit Administration Congress passed the Emergency Farm Mortgage Act, also on May 12. To help with the debt problem the act provided new mortgages to farmers at lower interest rates.

A major criticism soon arose from advocates for farmers and the poor that neither of the AAA programs of crop reduction payments nor mortgage debt relief helped the small farmer. Those small farmers who owned their own land did not commonly have enough to set aside to qualify for government payments. The tenant farmers and sharecroppers who rented the land they worked were even more disadvantaged. The landowner would cut back acreage farmed and get rid of the tenants and sharecroppers, who were then left with little or no recourse. Small farm operators would have to wait for assistance under later programs. Many went broke in the meantime, and the later programs would only partially help those still farming.

Relief for the Unemployed—Federal Emergency Relief Act

Another key issue of the Depression addressed in the New Deal was relief for needy families. In July 1932 under President Herbert Hoover, Congress passed the Emergency Relief and Construction Act. Under this act the federal government loaned money to state and local governments to provide relief programs to the unemployed and needy. Federal funding was limited because of Hoover's continued emphasis that relief should primarily come from private organizations and local governments. By March of 1933, when President Roosevelt took office, funding for the program was depleted. Public pressure was great to pass another relief bill and Roosevelt and other relief advocates sought to shift the welfare burden from private charities and local governments to the national government.

One of several bills passed by Congress on May 12 was the Federal Emergency Relief Act, which created the Federal Emergency Relief Administration (FERA). The agency provided $500 million in direct aid to states for them to provide food and clothing to the unemployed, aged, and ill. President Roosevelt named one of his closest advisors, Harry Hopkins, to be its director. By the end of 1934 FERA had spent over $2 billion in relief. The program proved critical for providing immediate relief until other programs could become effective. President Roosevelt, however, did not want to simply give people money. Therefore he replaced FERA with works programs later.

Tennessee Valley Authority—TVA

The most ambitious government planning initiative created in the First New Deal was the Tennessee Valley Authority (TVA). The TVA was established on May 17, 1933. This ambitious program focused on broad economic development of the Southeast, a badly depressed region even before the Great Depression had arrived. Unemployment was high and many lived without access to electricity. President Roosevelt had a personal interest in developing federal hydroelectric power. The TVA, a government-owned corporation, gave him the opportunity to put his ideas into action.

Opponents called it a "Russian idea," since government ownership was perceived as closely linked to communism, and private utility companies opposed government competition. (A key aspect of communism is the ownership of industry by government.) The program went forward, however, and over the course of its existence renovated five dams and built twenty new ones. Improvements to the region were many, including flood control, improved navigation, cheap hydroelectric power, and new industrial development throughout the southeastern United States.

The program created thousands of jobs and the TVA became an international model for rejuvenating poor regions. It did, however, remain controversial—opposed by private power companies, disrupted landowners, and advocates for the most impoverished, who received relatively few TVA benefits.

Stock Market Reform—Federal Securities Act

More financial reform was the next challenge for Congress. The government needed to stabilize the stock market and protect private investors from the fraud that pervaded the market and largely led to its crash in 1929. Congress passed the Federal Securities Act on May 27th in the face of intense Wall Street opposition. The act required companies and stockbrokers to provide full information about new stocks to potential investors, including the financial condition of the company. False statements, which were abundant at the time of the 1929 stock market crash, would be subject to criminal prosecution. The Federal Trade Commission (FTC) was given oversight responsibilities and considerable legal powers to enforce the act.

The FTC had been created in 1914 to oversee business and avoid unfair practices. Under the Securities Act, companies filing false information were subject to criminal prosecution and civil suits by investors. The FTC received new powers to take legal action in gathering information about a company. This act was the first effort by the federal government to directly regulate the U.S. securities markets.

It met considerable opposition by business following its passage. They argued that it was too broad and vague in its prohibitions, which greatly hindered all future stock transactions. Congress would fix this problem in 1934 with passage of the Securities Exchange Act, which would protect investors through the establishment of the independent Securities and Exchange Commission.

Help to Find a Job—National Employment Act

For many years various proposals had been made to create a network for assisting people in finding jobs. None of the proposals, however, made it into law. With the onset of the Great Depression public interest in a job assistance network increased. A bill toward that end passed Congress in early 1931, only to be vetoed by President Herbert Hoover. The bill was reintroduced again in 1932 and once more as part of the New Deal in 1933.

Finally, the National Employment Act, also known as the Wagner-Peyser Act, was readily passed by Congress and signed into law on June 6, 1933. The act created the U.S. Employment Service within the Department of Labor and established the first nationwide employment service that matched jobs to workers. The act provided matching grants to states to establish local Employment Service offices. Many saw this bill as a necessary step before creating unemployment programs in later bills.

Homeowner Debt—Home Owners' Refinancing Act

Another immediate concern of President Roosevelt's was the number of people losing their homes through foreclosure due to the economic pressures of the Great Depression. Many homeowners were losing their jobs or facing reduced incomes. After over-spending on credit during the boom years of the 1920s, many people were suddenly caught in a major financial bind. By early 1933 Americans had $20 billion in home mortgages, while more than 40 percent of that amount was in default, placing the banks and other businesses holding the mortgages in dire trouble.

The Home Owners' Refinancing Act, passed on June 13, and provided $2 billion to refinance home mortgages for owners facing foreclosures. The act created the Home Owners Loan Corporation (HOLC) to provide the loans. The amount of assistance available was increased to almost $5 billion in 1935. The HOLC could also take properties foreclosed after January 1, 1930, and give them back to their owners under a finance plan. The homeowner would then pay back the money to HOLC over 15 years at low interest.

By 1936 the HOLC had made over 992,000 loans for more than $3 billion and had financed almost 20 percent of home mortgages in the United States. It stopped making loans after June 1936, when its funds for making loans as provided by Congress was depleted.

Farm Credit—Farm Credit Act

Because crop prices and farm income had dropped due to reduced consumer demand brought on by the hard times of the Depression many farmers were having trouble obtaining loans to help pay for production costs. After the president created, through executive order, the Farm Credit Administration on March 27, 1933, Congress passed the Agricultural Adjustment Act and the Emergency Farm Mortgage Act on May 12.

On June 16 Congress acted to formalize the Farm Credit Administration through the passage of the Farm Credit Act, which created a system of credit institutions for farmers. These included a central bank and twelve regional banks to support the work of local farm cooperatives. The banks would make money more available and help with the marketing of farm produce. The system replaced the Federal Farm Board, which was created earlier under the Hoover administration.

Banking Act of 1933 (Glass-Steagall)

President Roosevelt and Congress wanted to provide long-term assurance to the public that banks would remain strong. The Depression had greatly shaken public confidence in banks. People were hesitant to deposit their funds into a bank where they had little assurance of its actual financial health. Congress passed the Banking Act, commonly known as the Glass-Steagall Act, on June 16, 1933, creating the Federal Deposit Insurance Corporation (FDIC). This agency provided federal insurance for individual bank accounts up to $2,500.

The FDIC insurance program provided considerably more comfort to depositors and greater confidence in banks. The government would pay depositors up to the $2,500 to any person who lost their money because a bank went out business. This amount would cover most depositors at that time, particularly those who could least afford to lose their money.

The bill restructured how banks operated by separating commercial banking activities from investment activities. Investment banking activities primarily referred to buying and selling stocks and bonds. Assets could not be so readily lost during economic downturns. The existing Federal Reserve Board also gained much greater control over bank loan procedures. The bill faced opposition from the banking community, but public demand was too great. The act brought about a significant increase in federal involvement in business activities previously left to bankers and the states to manage. All national banks had to join the FDIC, as well as state banks participating in the Federal Reserve System.

Industry—National Industrial Recovery Act

The First New Deal focused primarily on economic relief and recovery in response to the Depression. By the 1930s it was clear that industry was the driving force of the U.S. economy rather than agriculture as it had been throughout U.S. history up to the 1920s. Therefore President Roosevelt and the New Dealers decided to stimulate industrial production and employment through national planning.

FDR also wanted to tackle the Great Depression, which caused problems of worker wage cuts, falling prices of manufactured products, and employee layoffs. Congress passed the National Industrial Recovery Act (NIRA) on June 16, 1933. President Roosevelt was not originally supportive of giving labor (unions) power, rather he preferred providing relief through benefits. When it became apparent that the NIRA was going to pass, however, he quickly shifted his support behind the bill.

A very complicated act, the NIRA created a process to establish codes of fair practice. The act sought to limit competition by developing agreements on prices, wages, and production among competing industries. The goal was to increase profits, expand production, and rehire laid-off workers. This type of activity is called "price-fixing" agreements. Congress suspended anti-trust laws that made such agreements illegal. The bill created the National Recovery Administration (NRA), which set prices for many products, established work hour standards, and banned child labor. The NIRA also prohibited adoption of new technologies that would lead to employee layoffs.

More than 740 codes of fair competition were established through meetings between business leaders, workers, and consumers. The NIRA also guaranteed workers the right to form unions and to conduct collective bargaining, which means employees, as a group, could negotiate for better pay and working conditions with an employer. Critics of the NIRA claimed that the act favored big business and that many code violations occurred. Many businesses who participated had to restructure their business operations in order to be in compliance.

The act also created a jobs program. The Projects Works Administration (PWA) was created by executive order on the same day as passage of the NIRA—June 16—in order to operate the jobs program. A sum of $3.3 billion was set aside to stimulate the economy and increase employment. Workers were to build public projects such as parks, schools, and airports. The agency, however, saw only limited success.

Railroad Recovery—Emergency Railroad Transportation Act

The railroad industry was economically struggling by the early 1930s. Two factors were responsible for the significant decline in income—the stock market crash and competition from the growing trucking industry. Many railroad companies had previously established considerable debt and intense competition of the late nineteenth century led to overbuilding of duplicate lines and sizable capital investments. The nation's railroad system was in desperate need of reorganization to make it profitable once again.

The Emergency Railroad Transportation Act, passed on the final day of the First Hundred Days on June 16, pushed for recovery measures. The act allowed bankrupt railroads to reorganize. The act also divided the nation's railroad system into regions and each region was assigned to eliminate duplication of service and begin sharing the use of tracks and terminals. The act also exempted railroads from anti-trust laws.

The Emergency Railroad Transportation Act met with great resistance, however, from railroad companies, railroad employees, and local communities that were afraid of losing their jobs and service. Large users of the railroad system for the transport of goods also feared losing cheap competitive fares for shipping their freight. By 1936 the effort to reorganize the railroad system had lost momentum.

Government Grows

Once Congress completed its special session on June 16, President Roosevelt was left to establish a means to carry out the laws. Through the remainder of 1933 he created various boards and councils by executive order to carry out the various relief and recovery programs. These boards and councils included the Consumers' Advisory Board (June 26), the Cotton Textile National Industrial Relations Board (July 9), the Emergency Council (July 11), the Central Statistical Board (July 27), the National Planning Board (July 30), the Coal Arbitration Board (August 4), the National Labor Board (August 5), the Petroleum Administrative Board (August 28), the National Emergency Council which replaced the Emergency Council (November 17), and the Petroleum Labor Policy Board (December 19). Three new agencies were also created.

More Farm Reform—Commodity Credit Corporation Despite the AAA and FCA programs begun earlier during the First Hundred Days, farmers were still having problems late in 1933 with wide price fluctuations through the year for their produce. To stabilize prices President Roosevelt created the Commodity Credit Corporation on October 18. The agency was to assist farmers in marketing their produce by providing them loans so they could hold their produce off the market until better prices came along. The Corporation made it easier for farmers to get loans through private banks by guaranteeing payment of their loans. By 1936 the Corporation had helped with $628 million in loans to farmers and by 1940 loans made to farmers totaled nearly $900 million.

Winter Work—Civil Works Administration Though economic conditions had improved during 1933 companies were producing more goods than consumers could afford to buy. The growing inventories of unsold goods led to more layoffs that winter. Under authority of NIRA, President Roosevelt created the Civil Works Administration (CWA) on November 17 to help unemployed workers through the 1933–1934 winter. The CWA funded a massive employment program to perform public work. By the following February over 4.2 million workers were employed and public work became a basic key part of the New Deal. The CWA constructed 255,000 miles of streets, 40,000 schools, and 469 airports and provided salaries for 50,000 rural schoolteachers. The program ended in mid-1934 as the funding allocated by Congress had been spent.

As part of the CWA, the Public Works of Art Project was established on December 10, 1933, to bring work relief to artists. Within a few months over 3,600 artists and assistants were employed in art production projects costing about $1.3 million. The artists created murals and sculptures for public buildings, receiving between $35 and $45 a week. This was the first federally funded nationwide art program, an idea that would return in the Second New Deal as part of the Works Progress Administration.

Bringing Electricity to the Farm—Electric Home and Farm Authority With the earlier development of the TVA program, cheap electricity was available in a large portion of the Southeast. But few rural homes had electrical appliances because of their limited need. To boost electrification in rural areas, Congress created the Electric Home and Farm Authority (EHFA) on December 19. The agency set up a system of credit through local appliance companies so that farmers could afford to buy refrigerators, stoves, and other electric appliances. The program was effective and remained quite active through the remainder of the 1930s.

More Legislation in 1934

In 1934 Congress once again passed a number of acts, including the Gold Reserve Act, Farm Mortgage Refinancing Act, Federal Farm Bankruptcy Act (Frazier-Lemke bill), Securities Exchange Act, Corporate Bankruptcy Act, and the National Housing Act. Also established were the National Recovery Review Board (March 7) and National Labor Relations Board (June 19).

The Price of Gold—Gold Reserve Act With the prices of goods and services decreasing well below desired levels during the Depression, President Roosevelt was determined to use various methods to raise them back up. One strategy controversial among conservatives was Roosevelt's decision to abandon the gold standard on April 19, 1933. The gold standard represented an international system in which every nation on the standard had the value of its money rigidly tied to a certain amount of gold. For instance one dollar in U.S. currency would equal a certain amount of ounces of gold. By removing the U.S. economic system from the gold standard the value of the U.S. money was no longer rigidly set. The federal government could, as a result, manipulate its money supply, printing more money would decease its value and raise prices.

To further spur price increases, in late 1933 President Roosevelt also decided the federal government should start buying gold at steadily increasing prices. This scheme failed, however, as farm and commodity prices continued to fall. The government stopped buying gold in January 1934 and Congress passed the Gold Reserve Act on January 30. The act gave authority to the federal government to set the price of gold in the United States.

Farmer Bankruptcy—Farm Mortgage Refinancing Act and Federal Farm Bankruptcy Act As reflected in the First Hundred Days priorities, the plight of farmers was extreme. Farmers, suffering from low prices for their crops, could not keep up with their monthly payments on their farm mortgages. Given the success of the HOLC for relieving homeowner debt, Congress passed the Farm Mortgage Refinancing Act on January 31, 1934. The act created the Federal Farm Mortgage Corporation to issue $2 billion in loans to refinance farms. Many, however, were hopelessly in debt far beyond the value of their farms. To provide relief and hope, Congress passed the Federal Farm Bankruptcy Act on June 28, which allowed federal courts to reduce a farmer's debt to near his farm value. The farmer could then keep farming and then repurchase their farms with small payments on loans with very low interest rates.

The Federal Farm Bankruptcy Act was clearly not popular among some creditors who would not be repaid the amount originally owed by the farmers. Therefore loan organization challenged the act in the courts and the Supreme Court declared the act unconstitutional the following year. The Court's ruling provided a boost to New Deal critics, who strongly argued that the president was expanding the powers of government well beyond the limits provided in the Constitution. Roosevelt and his supporters, however, strongly disagreed with the ruling, believing the Court was reading the Constitution far too narrowly, particularly in times of national economic crisis.

In response to the Court's decision Congress provided a new, revised process to help farmers. Congress also passed the Farm Mortgage Moratorium Act in 1935, which allowed foreclosed farmers to rent their land from the creditor, usually a bank, for up to three years. In this way the creditor got his money, while at the same time the farmer was given a chance to pay off his debts.

More Stock Market Reform The Securities Act passed in the First Hundred Days had not revitalized stock market investing and companies became fearful of the vaguely described prohibited activities and associated penalties. To address these major concerns and rejuvenate stock trading, Congress passed the Securities Exchange Act on June 6. The new act more narrowly defined the prohibited actions and the penalties. It also transferred responsibility of stock market oversight from the FTC to the newly established Securities and Exchange Commission (SEC). The commission, under leadership of Joseph P. Kennedy, father of future president John F. Kennedy, was charged to regulate the stock market and control the sharing of stock information. The act was successful in reviving trade and private capital investment. Changes in stock trading were cautiously introduced through the next following years.

Corporate Bankruptcy President Roosevelt and Congress wanted to extend the same relief to corporations that they had provided to homeowners, farmers, and others facing bankruptcy. They hoped to save companies so that they could begin hiring more workers and increase the nation's production of manufactured goods. With widespread support, President Roosevelt signed the Corporate Bankruptcy Act into law on June 7. The act made it easier for a corporation to seek reorganization and not be blocked by a small number of shareholders or creditors. A corporation needed approval of only 25 percent of stockholders to apply for restructuring its debt. A resulting reorganization plan required approval of 67 percent of stockholders to go into effect. All of a company's creditors were required to honor the new organization.

Home Construction To further assist homeowners struggling to afford new houses during the Depression Congress passed the National Housing Act on June 28, 1934. The act established the Federal Housing Administration (FHA). Almost one third of those who were unemployed had previous experience in the construction trades. The FHA was designed to revive the housing industry by providing jobs in home construction and repair of existing homes. The FHA also helped new homebuyers get low interest mortgages. It encouraged lower interest rates by banks by guaranteeing repayment of home mortgage loans.

Amendments to the act in 1938 expanded its ability to promote construction of new houses. From 1934 to 1940 the FHA assisted homeowners in repairing over 1,544,200 houses and building over 494,000 new houses. It also provided over $4 billion in loans. Homes became affordable for many people who were previously unable to buy a home.

The First New Deal and Its Critics

President Roosevelt's perception of government's role in society went against the popular political culture of the day. Roosevelt's and the New Dealers' activism was challenged from many directions—conservative and liberal politicians, business leaders, trade groups such as realtors, Congress, and even the U.S. Supreme Court. They each had their reasons—unique to their own interests—for concern over the radical new approach of the president.

Conservatives believed that the First New Deal went beyond limits on power given by the Constitution to government, particularly to the president. Liberals believed much more radical change was called for, including government ownership of banks and industry, while business leaders believed government had no role in the private marketplace. Trade groups resisted government regulation of their activities. Some members of Congress did not want to delegate such sweeping authority to the president for setting industry regulations and other actions. Eventually the Supreme Court would deliver setbacks by ruling several key First New Deal programs unconstitutional.

Despite the many critics of his bold new approach, President Roosevelt was able to accomplish a great deal. His successes were in large part owing to the desperation of the public due to the severe hardships brought on by the Great Depression and by Roosevelt's own personal skills in reaching the public through speeches and Fireside Chats.

Contributing Forces

President Hoover and His Response to the Great Depression

Herbert Hoover entered the presidency in 1929 with a reputation uniquely different from his predecessors. Previous administrations believed in a very limited government role in people's lives. Hoover had gained a strong reputation as a humanitarian, by serving major roles in food relief for Europeans during World War I and assistance for the downtrodden at home. This humanitarian perspective, however, was balanced with the ideal of individual self-reliance. Therefore the government role in Hoover's thinking should be to encourage cooperation within U.S. society to solve problems and any financial government assistance should still be quite limited. Hoover believed handouts would undermine character and individualism.

With the economy beginning its decline in late 1929 following the stock market crash, Hoover clung to his belief in a balanced federal budget and was unwilling to create massive government debt through direct relief programs. He believed it was primarily the role of private organizations and churches to tend to the needy. Also, Hoover's demeanor was very reserved and he did not connect well with the public desperate for a sympathetic leader during difficult times.

Hoover refused to acknowledge that a long-term problem existed. Meanwhile citizens lost confidence in the banks that were failing due to lost investments in the stock market and loans not being repaid by its customers. People no longer could tell how financially healthy their own banks were. If a rumor started about a specific bank, depositors would rush to withdraw their funds, causing a financial problem if none previously existed. They also decreased their buying of consumer goods. They were hoarding their money for necessities, especially if the Depression would keep getting worse. This led to a faster decline as employers laid off workers and homeowners lost their homes and people increasingly resented Hoover's unwillingness to help.

By 1931 local relief funds in many areas were running out and private donations were decreasing. New homeless shantytowns became known as "Hoovervilles," an uncomplimentary reference to the president. Responding to the worsening economy, Hoover started taking some action. Some jobs were created through federal public works projects such as Hoover Dam and Grand Coulee Dam construction. To help homeowners who were unable to make their payments and falling into foreclosure, Hoover created the Federal Home Loan Bank in 1932. In 1932 the Reconstruction Finance Corporation (RFC), which also offered loans, was created. But these sources of assistance went directly to the mortgage companies. They offered little real assistance to the actual homeowners in making their payments. Housing values were dropping, and the financial health of the lending institutions was failing.

In regard to job losses and wage cuts in businesses, Hoover took the course of trying to persuade business leaders to not lay off workers and to not lower wages. He also encouraged state and local governments to join with private charities in helping the needy.

Similarly, Hoover created the Federal Farm Board in 1929, prior to the stock market crash, to help the already struggling farmers market their produce. The goal of the Board was to raise produce prices without forcing a decrease in production. The Board relied on voluntary efforts of farmers to reduce their production. This approach proved inadequate to help agriculture out of its economic problems.

Hoover's approach of limited government involvement and encouragement of voluntary actions proved inadequate for the severity of the economic problems. The financial problems were far bigger and more widespread than he gave credit for. Private charities were over whelmed by the demand of those in need. By 1932 one out of every four workers was unemployed. Millions of workers took pay cuts by having their hours decreased or working for lower pay rates for the same number of hours. In one instance, 25,000 women attempted to apply for six vacant jobs cleaning offices. Many former businessmen sold apples or other items on sidewalks or shined shoes on street corners. Wholesale prices had dropped 32 percent, one third of banks had closed, over 40 percent of home mortgages were technically in default, and industrial production had declined by half.

By the summer of 1932 Hoover was convinced that the low point of the depression had been reached and recovery on its own would occur. But the nation's banking system began unraveling that autumn as the 1932 presidential elections were approaching in November. His opponent in the race, New York Governor Franklin Roosevelt, offered the public a new direction. Roosevelt believed the situation was not about to improve without more aggressive government action. In New York Roosevelt had shown a willingness to take bold actions and experiment with the economy. Clearly under Hoover, private enterprise had been unable to recover on its own.

More About… The Alphabet Soup of Organizations

To carry out programs created by Congress through the numerous bills passed during the "First New Deal" from 1933 to 1934, President Franklin Roosevelt and the legislature established a host of new agencies. Given their long names these agencies were often known by the first letters of their names. The multitude of organizations made up an entire alphabet of recovery measures referred to as the "Alphabet Soup" of agencies. The actual derivation of that phrase is not well documented.

There was the Agricultural Adjustment Administration (AAA), the National Recovery Administration (NRA), Federal Emergency Relief Administration (FERA), Public Works Administration (PWA), Tennessee Valley Authority (TVA), Home Owners' Loan Corporation (HOLC), Farm Credit Administration (FCA), Federal Deposit Insurance Corporation (FDIC), Civilian Conservation Corps (CCC), Civil Works Administration, and Electric Home and Farm Authority (EHFA). These agencies reached into just about every area of peoples' lives. More were to be added in the next several years as part of the Second New Deal.

Perspectives

Critics of the New Deal Increase

Opposition to President Roosevelt's new government measures began surfacing from various directions in early 1934. When proposals to regulate the stock market began to surface, the business community had enough. Business conservatives called President Roosevelt's key advisors communists and power-hungry bureaucrats. Private power companies opposed the TVA program claiming government interference with private business. State and local governments were uneasy with the growing federal presence.

The New Deal programs attracted critics from the Left also. Socialists claimed President Roosevelt and Congress did not go far enough in changing the structure of capitalism through economic reform. They also charged the program was following the path to a dictatorship as in Germany and Italy. Roosevelt during this early period of the New Deal, however, clearly had the strong support of the general public. He could afford to largely ignore these criticisms though some bothered him personally. Roosevelt shifted his focus away from trying to work with big business to regulating business and emphasizing assistance for the middle class, workers, and the poor to strengthen his support.

Conservative Critics Unite

Conservatives were alarmed by President Roosevelt's boldness. In addition to issuing hundreds of proclamations and executive orders, the President had even expanded his presidential staff beyond legal limits by appointing some of his staff advisors to high government positions. Sometimes executive orders would create important government policy, something normally left to Congress. Conservatives were especially upset with President Roosevelt issuing executive orders to establish new monetary policies.

They were also dismayed with the broad powers Congress itself was delegating to Roosevelt and his Cabinet regarding control over various economic activities. Congress granted Roosevelt powers to close and open banks, provide relief to the poor, raise farm produce prices, and provide relief to industry. Conservatives believed too much government funding was provided for direct relief and the government went too far to control business, particularly agriculture and industry through the AAA and NIRA. Like President Hoover, they believed the free market economy of the United States would revive itself. They were convinced government interference through attempts to regulate the production and supply of goods and to control prices was hindering revival.

The strongest conservative critics, largely wealthy business owners, banded together in 1934 to form the American Liberty League. Two former Democratic presidential candidates, Al Smith and John W. Davis, were included in the organization, which believed the New Deal measures violated personal property rights. Jovett Shouse, a corporate lawyer, was named chairman of the organization. Many of its members had opposed Roosevelt in the 1932 presidential election. They claimed AAA was "fascist control of agriculture," the NIRA "unconstitutional" and relief programs as the "end of democracy." Not all businesses joined but some prominent leaders remained firmly behind President Roosevelt. The president believed business opposition was ironic since he was trying to save the very economic system that made the businessmen wealthy to begin with.

Liberal Critics Attack

Political liberals were also tough First New Deal critics. Three of particular note were advocates for the poor and needy. They were Charles Coughlin, Francis Townsend, and Huey Long. Coughlin was a Roman Catholic priest from the Detroit, Michigan, area who originally supported President Roosevelt and the New Deal programs but soon became disappointed. He believed they were not adequately reaching the most needy. Coughlin, having extensive influences, advocated for guaranteed annual incomes and nationalization of banks. He had a weekly national radio program that broadcast his views across the nation to some forty million listeners.

Dr. Francis Townsend, a doctor in Long Beach, California, believed the aged were being ignored. Townsend proposed a national pension plan that would provide monthly payments to the elderly. Townsend Clubs sprung up throughout the nation in support of his plan.

Senator Huey Long of Louisiana was an outspoken advocate for the poor. Interested in future presidential prospects, Long proposed a social program called Share Our Wealth, proclaiming "Every Man a King." The proposal gained strong support up until Long's assassination in 1935. Pressure from supporters of Townsend and Long pushed Roosevelt to create expansive social insurance programs in the Second New Deal.

Support in the Center

Despite the high profile attacks on President Roosevelt and his First New Deal programs, the general public was highly supportive. Business leaders and Congress found it highly unpopular among the public to openly criticize or block the New Deal's proposals. This support was reflected in the large volume of mail received by Roosevelt from the public and the exceptionally high number of people listening to his Fireside Chats. Roosevelt drew a friendly crowd wherever he went and the public believed President Roosevelt truly cared and was trying hard to help the difficult situation.

March of 1933 would end up being the bottom of the Great Depression. Widespread popularity of the programs led to further Democratic political gains in the 1934 mid-term elections in both houses of Congress. Desperation in early 1933 was a strong motivation to support new, creative programs, perhaps less acceptable in better times. President Roosevelt would find it difficult to gain such a broad based support again as the early public desperation faded. Momentum for the First New Deal slowed by late 1934 and was essentially lost in 1935.

National Court Rulings

Besides big business, conservative, and liberal opposition to the federal measures, the U.S. Supreme Court provided some severe blows as well. Business interests challenged the Agricultural Adjustment Act (AAA) and National Industrial Recovery Act (NIRA). Here, the Supreme Court delivered two stunning decisions setting back President Roosevelt's New Deal reform efforts.

First, in 1935, the Court struck down the NIRA in Schecter Poultry v. United States, when the Court ruled that Congress unconstitutionally gave its own legislative powers to the executive branch. Only Congress could regulate interstate commerce, yet Roosevelt through the NIRA largely had a free hand to set policy for specific industries without the need for congressional approval. It also claimed the industry codes violated the interstate commerce clause of the Constitution because many of the businesses participating only conducted business in a single state. Those businesses operating within states, it concluded, were the responsibility of states to regulate, not the federal government.

For similar reasons the Court in 1936 struck down the AAA, asserting that the federal government could not tax food-processing companies. Again, these were businesses operating within single states and according to the U.S. Constitution could only be regulated by state governments.

International Disillusionment

Economic prosperity in Europe in the 1920s was largely fueled by the industrial and financial strength of the United States. Following World War I the United States had become the world's leading producer, lender, and investor. Most dramatic was the impact on Germany. Germany, facing stiff international fines following its defeat in World War I, was particularly dependent on U.S. investments in the 1920s. After the stock market crash U.S. investments declined sharply, causing German production to decrease dramatically. The decline of the U.S. economy after the stock market crash of 1929 affected other nations as well.

Great Britain, once the financial leader of the world, was steadily losing ground. Stunning the world on September 21, 1931, British Parliament suspended the gold standard. This meant British currency, once the world's most dependable currency, would no longer be backed with gold. Britain's action proved a world landmark event in disrupting the international monetary system. Following Britain, 20 other countries left the gold standard by spring of 1932. No longer were fixed exchange rates between nations tied to gold and each nation could now manipulate their own currencies as they saw fit.

A major part of the declining world economy was also due to the sharp drop in world trade, triggered by new policies by the United States and other nations. World trade declined 40 percent. As a result a sharp decline of income and widespread unemployment hit Europe. By 1933 U.S. foreign investments in Europe dropped by 68 percent. Many of the world's leaders looked to President Roosevelt and his New Deal in early 1933 to help stabilize the global economic situation. A special world economic conference was called for by June in London to seek solutions.

But Roosevelt, continuing the trend of his predecessors, chose to focus his New Deal programs on domestic economic reform to the exclusion of cooperation with Europe. To the shock of many countries, Roosevelt took the United States off the gold standard on April 19, 1933, just weeks before the world conference began. This action caused further decline of economic hope in Europe. Europeans were bitter that the United States would not fulfill its new world leadership role in working cooperatively to solve the economic problems. European and other foreign nations were not to be part of the New Deal.

More significantly, with major financial problems mounting in Germany and little help coming from the New Deal, Adolf Hitler's National Socialist party—proclaiming a New Order—gained strength. Later in 1933 Adolf Hitler firmly held the ruling position over the struggling nation. Ironically Roosevelt's New Deal and Hitler's New Order were beginning at the same time. The New Order denounced democracy and capitalism and in only a few years led to the very costly World War II.

Impact

A key goal of the first three months, called the First Hundred Days, was to build a broad base of political support. FDR tried to provide something for everyone—bankers, farmers, corporations, unemployed, railroads, stock investors, and homeowners. Congress passed more than fifteen major laws in the First Hundred Days of President Roosevelt's first term

of office. A whirlwind of change in the U.S. government resulted. The government's role in society greatly increased and many new faces entered Washington's political circles. President Roosevelt and Congress had greatly expanded government's role in the nation's economy. The NIRA was the first direct government involvement in private business activities. Most importantly at the time, public confidence in the nation's future significantly rebounded. After the first 18 months five million unemployed workers had found jobs. Some business leaders even found a few of the programs—the NRA, Emergency Banking Act, and Economy Act—to their liking.

A Second New Deal

Many were unhappy with the First New Deal's reform changes of the national economic system and did not like new taxes. Many feared a dictatorship was growing as in Europe at the time. Business hostility, damaging Supreme Court decisions, and opposition from Townsend, Coughlin, and Long were critical factors influencing President Roosevelt in late 1934. With legislative momentum lost and his popularity in decline, Roosevelt shifted to a new approach. As he began preparing to run for a second presidential term he observed that mass unemployment and widespread poverty persisted in America. He decided to place greater emphasis on social reform, anti-trust action, and more aggressive government spending. The foundation was laid for the "Second New Deal," which would begin in 1935.

The Second New Deal in responding to some criticism, loss of business support, and declining public enthusiasm would chart a new course aimed at long-term reform of the U.S. economic system. This reform would include greater regulation of U.S. business activities and social programs offering greater long-term financial security for the citizens. The numerous acts of the Second New Deal included would be the Social Security Act, the National Labor Relations Act, the Emergency Relief Appropriations Act creating the Works Progress Administration, a Wealth Tax Act, the Rural Electrification Act, the Bankhead-Jones Farm Tenancy Act, the Wagner-Steagall Housing Act, and a new Agricultural Adjustment Act.

Roosevelt and the Court

Another outcome of the First New Deal was a resulting war between President Roosevelt and the U.S. Supreme Court. With adverse decisions such as Schechter Poultry Corp. v. United States (1935) striking down the NIRA and AAA, President Roosevelt was greatly angered by the Court. Following his reelection in 1936, the president decided on aggressive action. In February of 1937 he went to Congress, this time to persuade Congress to pass reform legislation for the Court. The president wanted the size of the Court expanded from nine to fifteen so that he could appoint six new justices who would be more receptive of New Deal programs.

Critics referred to the proposal as the "court-packing bill," and brought substantial protest from members of Congress and the press. They believed President Roosevelt was interfering with the constitutional balance of powers between the three branches of government. The president, perhaps over-estimating his popularity, suffered damage to his public image. Public opinion, however, was against the Court as well in striking down key First New Deal programs. Fortunately for President Roosevelt some justices changed their views on the government role in business while other justices retired. President Roosevelt made seven appointments through the next four years and the Court, as a result, made more favorable rulings to the new government programs. Because of Roosevelt's overly bold move, much support was lost for new programs.

Lasting Achievements

Economic results of the First New Deal programs were modest. Unemployment fell from 13 million in 1933 to 11.4 million in 1934. Farm income rose fifty percent, but still remained below 1929 levels, while industrial production and wages increased somewhat. On the other hand, four million homeowners had their property saved by the HOLC and many millions had their bank savings protected by the FDIC.

Most importantly the First New Deal began a major transition in American life. A whole new relationship grew between Americans and their government. Before the First New Deal only the U.S. Postal Service played a daily role in citizens' lives, but this changed dramatically in 1933. By the beginning of the twenty-first century, farmers still planted according to federal allotments, the FDIC still insured bank deposits, and the SEC still oversaw stock exchange activity. The HOLC introduced long-term, even payment mortgages, and provided uniform house appraisal methods. The FHA established home construction national standards. Overall the First New Deal legislation introduced a great level of standardization on which the U.S. citizens could rely. The Second New Deal would build on these changes.

Another lasting achievement of the First New Deal was advances in natural resource use and conservation. The Tennessee Valley Authority was possibly the brightest accomplishment of all. The TVA greatly benefited the Tennessee Valley area and the Southeast in general, by building dams, providing inexpensive electricity, making rivers more navigable for shipping, producing fertilizers, and planting new forests. The TVA also provided low interest loans to homeowners and businesses. In the 1990s residents in the region still paid only about one-third the cost for electricity than the rest of the nation. Similarly the Civilian Conservation Corps left a lasting mark on National Forests and Western public rangeland, in addition to major contributions to Midwest farmland conservation.

Notable People

Raymond Moley (1886–1975). Moley earned a Ph.D. from Columbia University in 1918 and became a professor of public law there in 1928. Moley was also research director for the New York State Crime Commission in 1926 and 1927. Roosevelt selected Moley as a key advisor during his 1932 election campaign. Moley assembled the Brain Trust and was its unofficial leader helping Roosevelt with his campaign speeches and development of future policy.

Though the Brain Trust largely disbanded following the successful presidential campaign, Moley remained a close Roosevelt adviser helping select officials for his administration. Moley was a key person behind the First Hundred Days surge of new laws in early 1933. He also wrote most of Roosevelt's speeches and Fireside Chats from 1933 until 1935. As Roosevelt's philosophies began to change Moley became more uncomfortable, particularly with Roosevelt's attack on the Supreme Court in 1937. Moley continued on the staff of Columbia University after the 1930s.

>Rexford Tugwell (1891–1979). Having earned a Ph.D. in agricultural economics from the University of Pennsylvania, Rexford Tugwell became a professor at Harvard University. He was an advocate for government regulation of private enterprise and national farm programs. Tugwell was a key member of the Brain Trust assisting Roosevelt's 1932 presidential campaign. In 1933 Roosevelt recruited him to be Assistant Secretary of Agriculture under Henry Wallace as well as economic adviser to Roosevelt. Tugwell was eager to use the New Deal to guide economic and social change in the United States. He played a major role in writing the Agricultural Adjustment Act.

In 1935 Roosevelt appointed Tugwell to head the Resettlement Administration, which was to assist poor farmers in relocating to better lands as well as many other controversial goals. The agency became part of another agency in 1937 and Tugwell resigned. He later was appointed governor of Puerto Rico through World War II (1939–1945) before returning to an academic post at the University of Chicago.

Adolf Berle (1895–1971). Berle was one of the three original Brain Trust members along with Moley and Tugwell. An exceptional student, Berle graduated from Harvard at eighteen years of age and Harvard Law School at twenty-one. He worked in army intelligence during World War I. Berle became a corporate lawyer and law school professor at Columbia University and he authored a highly influential economics book in 1932, The Modern Corporation and Private Property, discussing the trend of concentrated wealth and power in 200 corporations.

Being an advocate of government regulation of business, Berle became an influential advisor to Roosevelt during the 1932 presidential election campaign. Not wanting a position in Washington, Berle remained in New York where he assisted in the city's financial recovery. Berle finally did come to Washington as assistant secretary of state for FDR from 1938 until 1944. He later advised President John F. Kennedy on Latin American issues in the early 1960s.

Hugh Johnson (1882–1942). Johnson became the key figure carrying out industrial reform in the National Recovery Administration (NRA). A graduate of the U.S. Military Academy at West Point, Johnson was a member of the War Industries Board in World War I. Following the war he became vice-president and lawyer for the Moline Plow Company later becoming chairman of the board. With his business and industry background, FDR nominated him to head the NRA in 1933.

Johnson's responsibility was to create industrial codes and he personally designed the familiar "blue eagle" symbol of the NRA. An unpopular program with most major industries, he had the difficult job of convincing businesses to join. He successfully gained momentum up to September of 1933, but he soon became the center of controversy with the unpopular program. Johnson left the NRA in October of 1934 and worked as a WPA administrator in New York. He left President Roosevelt's administration in 1935 and became an outspoken critic of the president and the New Deal.

Robert F. Wagner (1877–1953). Wagner was born in Hesse-Nassau, Germany, and immigrated to New York City when he was eight years old. He first won election to the New York legislature in 1904 where he was politically progressive toward domestic reform issues. Wagner was responsible for the successful passage of over fifty New York industrial and labor reform bills in 1914. He believed in government oversight and the rights of organized labor.

Elected to the U.S. Senate in 1926 Wagner focused on unemployment issues. He favored public works programs and brought this interest to reality in New Deal programs, such as the National Industrial Recovery Act. During the First Hundred Days of the New Deal Wagner was central in developing codes for industrial conduct. While still Senator, he became head of the National Labor Board in August of 1933. It was rare for an elected Congressman to serve as an administrative head as well. The Board was charged with resolving labor disputes.

Wagner continued as a key figure after the First New Deal with his brightest moment coming as sponsor of the National Labor Relations Act, more commonly known as the Wagner Act. Congress passed the bill in July 1935. He also was a key sponsor of the Social Security Act that same year. Two years later he saw passage of the Wagner-Steagall Housing Act, a public housing bill. He was unsuccessful, however, in seeking anti-lynching legislation. Wagner went on to become known as the major architect of the U.S. welfare state.

Primary Sources

Expectations of the Roosevelt Era

Many citizens were exceptionally anxious as Franklin D. Roosevelt prepared to move into the White House. An article from The Nation, entitled "Do We Need a Dictator?" (March 1, 1933, Vol. 136, p. 220), published three days before Roosevelt's inauguration clearly reflects the conflicting desire of wanting something dramatic done about the nation's problems, but nothing too dramatic. People had clearly given up on President Herbert Hoover, but they were also fearful of Europe's rise of dictators, particularly Adolf Hitler and the German Nazis. In answering the article's title question of "Do we need a dictator?" the author states,

Emphatically not! Nothing in the existing situation, grave, critical, and menacing as it is, warrants the overthrow of our system of government or the concentration in the hands of the incoming President of powers which are not already his under the Constitution. Congressional government has not broken down. The time has not come to abandon our faith in our democratic institutions, or to proclaim to the world that they cannot stand the stress and strain of the present economic crisis. There is no inherent virtue or wisdom in a dictator not to be found in a President.

What we are suffering from is far less the weaknesses of the Congress than the total absence of clear-cut, wise, and constructive leadership in the White House … The truth is that we have had no White House guidance of a progressive kind, none to challenge the imagination or to sketch out far-reaching policies … We have had from Mr. Hoover the weakest kind of effort to provide a program for the country … He misconceived the crisis from the beginning, misrepresented it to the public, announced that it was rapidly passing by and was nothing to be worried about. When he was forced to admit the gravity of the situation he was unable to make any worth-while recommendations. It is not possible to know at this date whether Mr. Roosevelt will be able to prove to the country that he has sufficient knowledge and wisdom to guide us in this emergency … If the President-elect sounds the keynote and takes the aggressive in well-reasoned suggestions, Congress will follow him willingly or will be compelled to by public opinion.

Making His Mark Quickly

In his inauguration speech delivered at noon on Saturday, March 4, 1933, Franklin Roosevelt immediately addressed the difficult challenge ahead typically in a spirit of optimism. At the time the U.S. banking system was collapsing, farmers in the Midwest were nearing open rebellion, residents in the southern Great Plains were suffering from massive dust storms, 25 percent of the workforce or over 12 million people were out of work, and millions of others lived in daily fear that they might be the next to lose their jobs. After being greatly disappointed with the little response by President Hoover and his administration, the nation listened intently to see what Roosevelt had to offer to relieve their suffering and despair (from Roosevelt, The Public Papers and Address of Franklin D. Roosevelt, pp. 11—16).

I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of the nation impels. This is pre-eminently a time to speak the truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great nation will endure as it has endured, will revive and will prosper. So, first of all, 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.…

Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.…

Our greatest primary task is to put people to work.…

An Assessment of the New Congress

The following editorial, "A War Congress," was published in The Business Week on June 17, 1933 (p. 32). It was the day after the First Hundred Days of the special session of Congress had drawn to a close. In just three months Congress had passed fifteen major bills and forever changed the face of government. The powers of the president were dramatically increased. Clearly the policies of Hoover to provide limited help and wait for recovery to come on its own had been dismissed.

Many Congresses have come and gone almost unremarked; there is no likelihood that the briefest history of the United States ever will omit to mention the special session of 1933. In three months, it enacted more and broader legislation than any previous session, save perhaps in wartime.

Indeed, it behaved like a war Congress. It came into office on the wave of a great popular upheaval, deeply impressed with the fact that the people wanted things done and no mistake about it. On the day it was sworn into office, it was sobered and stunned by the national banking disaster. It faced an emergency comparable in gravity to war…

With minimum of partisanship and of haggling, with a maximum of expedition, it proceeded to cope with the situation. As in wartime, it placed in the hands of the executive, for the period of the emergency, vast powers which ordinarily it guards jealously from encroachment.

It refused to be turned from this course by taunts of "abdication" or cries of "dictatorship." To delegate is not to relinquish; great powers have been delegated to the executive before, and always recovered when the emergency was passed. Nor is this a dictatorship. Dictators are not named by the normal procedure of strong constitutional governments; they seize power from weak governments, overthrowing constitutions …

The wolves of depression have to be shot, and without the delay … It is essentially a one-man job … [T]he whole money, credit, and price system on which business depends is the most completely artificial thing in the world, and there is no such thing as "natural" recovery, and never was.… The major part of the task of rebuilding economic health remains to be done.

Suggested Research Topics

• What were the major goals of the First New Deal programs and who helped form the First New Deal's policies? Was this an appropriate government response to the economic crisis?
• Why were some people and organizations not supportive of the First New Deal programs? How could the First New Deal have been expanded to include other nations?
• How were U.S. relations with other nations affected by the Great Depression and the First New Deal?
• Research the various relief and recovery programs offered by the First New Deal. What would have happened if Hoover had been reelected President?
• How did President Roosevelt's proclamation of a nationwide "bank holiday" help end the banking crisis that occurred in 1932–1933?

Bibliography

Sources

Andersen, Kristi. The Creation of a Democratic Majority, 1928–1936. Chicago: University of Chicago Press, 1979.

"Do We Need a Dictator." The Nation, March 1, 1933.

Fusfeld, Daniel R. The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal. New York: Columbia University Press, 1956.

McJimsey, George. The Presidency of Franklin Delano Roosevelt. Lawrence: University of Kansas Press, 2000.

Olson, James S., ed. Historical Dictionary of the New Deal: From Inauguration to Preparation for War. Westport: Greenwood, 1985.

Reagan, Patrick D. Designing a New America: The Origins of New Deal Planning, 1890–1943. Amherst: University of Massachusetts Press, 1999.

Roosevelt, Franklin D. The Public Papers and Addresses of Franklin D. Roosevelt, Volume Two, 1933. New York: Random House, Inc., 1938.

Schlesinger, Arthur M., Jr. The Coming of the New Deal: The Age of Roosevelt. Boston: Houghton Mifflin Company, 1988.

"A War Congress." The Business Week, June 17, 1933.

Further Reading

Conkin, Paul Keith The New Deal. Arlington Heights, IL: Harlan Davidson, 1992.

Edsforth, Ronald. The New Deal: America's Response to the Great Depression. Malden, MA: Blackwell Publishers, 2000.

Freidel, Frank. Franklin D. Roosevelt: Launching the New Deal. Boston: Little, Brown, 1973.

Hosen, Frederick E. The Great Depression and the New Deal: Legislative Acts in Their Entirety (1932–1933) and Statistical Economic Data (1926–1946). Jefferson, NC: McFarland & Company, 1992.

Leuchtenberg, William E. Franklin D. Roosevelt and the New Deal, 1932–1940. New York: Harper & Row, 1963.

Moley, Raymond, and Eliot A. Rosen. The First New Deal. New York: Harcourt, Brace & World, Inc., 1966.

"New Deal Network: A Guide to the Great Depression of the 1930s." available from the World Wide Web at http://newdeal.feri.org.

"Roosevelt University, Center for New Deal Studies." available from the World Wide Web at http://www.roosevelt.edu.

Sternsher, Bernard. Hope Restored: How the New Deal Worked in Town and Country. Chicago: Ivan R. Dee, 1999.

See Also

Causes of the Crash ; New Deal (Second)