What measures did Roosevelt introduce to deal with the Depression?

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The New Deal

 [Can Franklin Achieve ... Some Notable Successes Not Failures?]

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

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

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

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

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

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

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

• Relief (helping the poor and unemployed to survive)

• Recovery (getting the economy going again) and

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

And Roosevelt's New Deal had two parts. 

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

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

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

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

Going Deeper

The following links will help you widen your knowledge:

Basic accounts from BBC Bitesize

Clear account from Social Studies Help

BBC Bitesize podcast on Roosevelt - Roosevelt speaks for himself

BBC Sounds - The New Deal (excellent)

The New Deal  - BBC Witness History

YouTube

The New Deal and the TVA

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

The First New Deal

1. Confidence

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

   1. Abolished Prohibition:

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

   2. Fireside Chats:

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

   3. Bank holiday:

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

   4. Stock Exchange:

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

 

2. Finance and the Economy

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

   1. Budget:

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

        (These measures actually made the depression worse.)

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

   2. Bankruptcies:

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

   3. Prices and Wages:

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

   4. Currency:

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

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

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

 

3. Alphabet Agencies

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

   1. CCC (Civilian Conservation Corps):

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

   2. FERA (Federal Emergency Relief Administration):

      • provided matched funding to help states organise payments to the unemployed and homeless.

   3. PWA (Public Works Administration):

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

   4. WPA (Works Progress Administration):

      • ran projects which provided work for the unemployed, e.g. in arts, drama, media, and literacy projects, as well as in construction, and running relief programmes – although its wags were poor millions earned a small amount and felt valuable.

   5. TVA (Tennessee Valley Authority):

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

   Other Agencies included: the Farm Security Administration (FSA), the Home Owners Loan Corporation (HOLC) and the Civil Works Administration (CWA).

      

The Second New Deal

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

The most important elements of this opposition were:

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

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

Therefore, in the run up to the 1936 election and after it, Roosevelt followed a much more radical 'reform' agenda:

 

4. Social Security Act (1935):

   • Provided America's first system of social welfare. 

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

   • gave help to people with physical disabilities.

   • gave help to children in need.

   • set up a national system of unemployment insurance. 

 

5. National Labour Relations Act (1935):

   • Also known as the Wagner Act. 

   • To replace the banned NRA.

   • Protected workers' right to join a trade union. 

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

 

6. Soil Conservation Act (1935):

   • To replace the banned AAA. 

   • Allowed the government to continue subsidising farmers. 

 

7. National Housing Act (1937):

   • Provided loans to buy houses. 

   • Reduced excessive rents. 

 

8. Fair Labour Standards Act (1938):

   • Set hours and conditions of work. 

   • Fixed a minimum wage.