New Deal

• 1. Introduction

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  The New Deal arrived in 1933 as a wager that democratic government could pull a nation back from the edge of collapse. When Franklin D. Roosevelt took the oath of office at noon on the 4th of March 1933, every state governor in the country had already authorized bank holidays or restricted withdrawals. Many Americans had no access to their bank accounts at all. Farm income had fallen by more than half since 1929. Between 1930 and 1933, an estimated 844,000 non-farm mortgages had been foreclosed. One in four workers was unemployed. Political and business leaders feared revolution and anarchy. Joseph P. Kennedy Sr., who stayed wealthy through those years, later recalled feeling willing to give up half of everything he owned just to be sure of keeping the other half under law and order. What followed over the next five years was one of the most ambitious legislative projects in American history: dozens of new agencies, hundreds of new laws, and a fundamental argument over what democratic government owed its citizens. The phrase itself had a precise beginning, a deliberate coinage, and a contested legacy. This is the story of how a crisis became a program, and how that program remade American politics for a generation.

• 2. A Nation Before the New Deal

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  From 1929 to 1933 manufacturing output shrank by one third, a contraction so severe that economist Milton Friedman would later call it the Great Contraction. Prices fell by 20%, and that deflation made repaying debts punishing. Unemployment climbed from 4% to 25%, and beyond the headline figure, another third of all employed persons had been downgraded to part-time work at far smaller paychecks. Taken together, nearly half the nation's productive capacity sat idle. Before 1933, the United States had no national safety net, no public unemployment insurance, and no Social Security. Relief for the poor fell to families, private charities, and local governments, and as conditions worsened year after year, those resources fell short of demand by wider and wider margins. Between 1929 and 1933-40% of all banks in the country failed: 9,490 out of 23,697 collapsed. Bank runs had played a central role in the catastrophe. Once enough depositors believed a bank might become insolvent and rushed to withdraw, that belief became self-fulfilling. Milton Friedman and Anna Schwartz later argued that the drain of money from the banking system forced the entire economy to contract along with it. Herbert Hoover had considered a bank holiday to stop the runs but rejected the idea, fearing it would trigger panic. Roosevelt would take a different view, and the contrast between those two judgments shaped the opening act of the New Deal.

• 3. Coining the Phrase

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  Stuart Chase, an adviser to Roosevelt, first used the phrase "New Deal" as the title of an article published in the progressive magazine The New Republic a few days before Roosevelt delivered his nomination speech. Speechwriter Rosenman added the phrase to his draft of the address at the last minute. Upon accepting the 1932 Democratic nomination, Roosevelt promised "a new deal for the American people." He went on to win the election in a landslide over incumbent Herbert Hoover, whose administration had been widely viewed as ineffective. In his campaign speeches Roosevelt had already committed to specific elements of what the program would become: unemployment relief and public works, in particular. Roosevelt's intellectual framework attributed the Depression to inherent market instability and insufficient aggregate demand, following what was then the emerging Keynesian model. That framework drove his core argument: stabilizing and rationalizing the economy required massive government intervention. Among his more consequential early appointments was Frances Perkins as Secretary of Labor. Her stated priorities on taking the job included a forty-hour workweek, a minimum wage, worker's compensation, unemployment compensation, a federal ban on child labor, direct federal aid for unemployment relief, Social Security, a revitalized public employment service, and health insurance. That list reads, in retrospect, nearly as a prospectus for the entire New Deal.

• 4. The First Hundred Days

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  Walter Lippmann captured the transformation in a single observation: at the end of February the country was, in his words, "a congeries of disorderly panic-stricken mobs and factions," and by the end of June it had become "again an organized nation confident of our power to provide for our own security and to control our own destiny." Roosevelt met with Congress for 100 consecutive days, and in that span Congress granted every request he made and passed a few additional programs he had not asked for. On the 9th of March 1933, Roosevelt sent to Congress the Emergency Banking Act, drafted largely by Hoover's own top advisers. It passed and was signed into law the same day. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month. The Glass-Steagall Act then established the Federal Deposit Insurance Corporation, which insured deposits up to $2,500 and eliminated the structural risk of bank runs. The effect was stark: throughout the 1920s more than five hundred banks had failed per year. After 1933 that figure fell to fewer than ten per year. The Economy Act, drafted by Budget Director Lewis Williams Douglas, cut government salaries and veterans' pensions by fifteen percent, saving $500 million per year. Roosevelt justified this as balancing the regular federal budget while running a separate emergency budget to fight the Depression. Douglas disagreed with that distinction and resigned in 1934, becoming an outspoken critic.

• 5. Relief for the Unemployed

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  Unemployment stood at 25% when Roosevelt took office, and relief was the most immediate obligation the New Deal accepted. The Civilian Conservation Corps enrolled young men aged 17 to 28 from families on relief, sending them to construction camps for six months. Their parents received $25 a month. Labor unions insisted there be no training in specialized skills. Three million young men passed through the program. The Public Works Administration spent $3.3 billion between 1933 and 1935 to build 34,599 projects through contracts with private companies: government buildings, airports, hospitals, schools, roads, bridges, and dams. The PWA also built two aircraft carriers and other warships. Then came the Works Progress Administration, supervised by Roosevelt's close friend Harry Hopkins. The WPA employed more than 8.5 million workers, who built 650,000 miles of highways and roads and 125,000 public buildings, along with bridges, reservoirs, irrigation systems, parks, and playgrounds. Prominent results included the Lincoln Tunnel, the Triborough Bridge, LaGuardia Airport, the Overseas Highway, and the San Francisco-Oakland Bay Bridge. Federal One, the WPA's New York branch, created jobs for writers, musicians, artists, and theater workers. The Federal Writers' Project operated in every state, producing a famous guidebook series and hiring writers including Margaret Walker, Zora Neale Hurston, and Anzia Yezierska to document folklore. Other writers interviewed elderly formerly enslaved people and recorded their accounts. Economic historians led by Price Fishback later estimated that every additional $153,000 in relief spending (in 1935 dollars) was associated with a reduction of one infant death, one suicide, and 2.4 deaths from infectious diseases in the 114 largest cities.

• 6. Agriculture and Rural America

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  In Montana, wheat was rotting in fields because it could not be profitably harvested. In Oregon, sheep were slaughtered and left to rot because meat prices did not cover the cost of getting them to market. Farm income had already been under chronic pressure through the 1920s as mechanization and new inputs drove overproduction; the Depression then pushed agricultural markets to near-collapse. Roosevelt's Secretary of Agriculture, Henry A. Wallace, was central to the response. The Agricultural Adjustment Administration, created in May 1933, aimed to raise prices through artificial scarcity. The AAA paid landowners subsidies for leaving land idle, funded by a new tax on food processing. To force prices to what the program called parity, ten million acres of growing cotton were plowed under, bumper crops were left to rot, and six million piglets were killed and discarded. The average income of farmers almost doubled by 1937 under this regime. The original AAA targeted landowners, however, and made no provision for sharecroppers, tenants, or farm laborers who might lose work as a result. A Gallup poll published in The Washington Post found that a majority of the American public opposed the AAA. In 1936 the Supreme Court declared the AAA unconstitutional, and a replacement program was designed around subsidizing soil-enriching crops like alfalfa rather than paying farmers for leaving fields bare. The Tennessee Valley Authority, launched in 1933, addressed a different dimension of rural poverty: dam construction on an unprecedented scale to curb flooding, generate electricity, and modernize impoverished farms across the Tennessee River basin. The Rural Electrification Administration, using cooperatives, then carried electricity to rural areas far beyond that region. Between 1935 and 1940, the percentage of rural homes lacking electricity fell from 90% to 40%.

• 7. The Second New Deal and Labor

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  By 1935 stock prices were still below pre-Depression levels and unemployment still exceeded 20%. Facing new skepticism in Congress and growing pressure for more dramatic action, Roosevelt and his allies passed what historians call the Second New Deal. The Social Security Act of 1935 was, by most accounts, its centerpiece. Until then only a dozen states had old-age insurance programs, and these were severely underfunded; just one state, Wisconsin, had unemployment insurance at all. The United States was the only major industrial country without any national social security system. Roosevelt insisted the program be funded through payroll taxes rather than general revenue, saying the contributions gave workers "a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program." The National Labor Relations Act of 1935, the Wagner Act, guaranteed workers the right to collective bargaining through unions of their own choosing and established the National Labor Relations Board. The result was rapid growth in union membership, especially in mass-production industries led by the American Federation of Labor and the newer, more radical Congress of Industrial Organizations. The Fair Labor Standards Act of 1938 set a maximum workweek of 44 hours and a minimum wage of 25 cents per hour, banned child labor for those under 16, and forbade hazardous employment for those under 18. The wages of 300,000 workers, especially in the South, were raised as a result, and the hours of 1.3 million were reduced. The Wealth Tax Act of 1935 imposed an income tax of 79% on incomes over $5 million. Given what that level of income meant in the 1930s, the rate effectively applied to a single individual: John D. Rockefeller. Roosevelt admitted in a private conversation with Raymond Moley that the bill's real purpose was "stealing Huey Long's thunder."

• 8. Political Realignment and Legacy

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  Roosevelt's New Deal produced a coalition that remade the Democratic Party's electoral base: labor unions, blue-collar workers, big-city machines, racial minorities (most importantly African Americans), white Southerners, and intellectuals. In the 1936 election, voters on relief payrolls cast 82% of their ballots for Roosevelt. Labor union members voted for him at an 80% rate. Irish, Italian, and Jewish voters followed in similar proportions. The nation's 106 cities with populations over 100,000 gave Roosevelt 70% of their votes, compared to 59% in the rest of the country. A 2013 study found that an average increase in New Deal relief and public works spending produced a 5.4 percentage point increase in the 1936 Democratic voting share, with estimated persistence suggesting that spending increased long-term Democratic support by 2 to 2.5 percentage points. The coalition dominated presidential elections into the 1960s. Yet the New Deal also embedded lasting discriminatory structures. The Home Owners' Loan Corporation, through its redlining maps, backed mortgages only in neighborhoods without what its guidelines called "inharmonious racial groups." Black Americans were effectively denied federally backed mortgages. The federal government required that neighborhood-building projects it backed be explicitly segregated, and required racially restrictive covenants that banned white homeowners from selling to Black buyers. Historians still debate whether the New Deal achieved full economic recovery; most accept that full employment came only when the United States entered World War II in December 1941. Massive war spending then doubled the gross national product. John Maynard Keynes himself noted in 1937 that it was, in his view, politically impossible for a capitalist democracy to organize expenditure on the scale needed to prove his case, except in wartime. What the New Deal did demonstrate, according to the Encyclopaedia Britannica, was the restoration of faith in American democracy at a moment when many people believed the only remaining choices were communism and fascism.