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New Deal: the story on HearLore | HearLore
New Deal
On the 4th of March 1933, the United States faced a financial system on the brink of total collapse as every state governor had authorized bank holidays, leaving millions of Americans with no access to their life savings. Franklin Delano Roosevelt entered office with a nation paralyzed by fear, where 40 percent of all banks had failed between 1929 and 1933, and the remaining institutions were under siege by panicked depositors. The crisis was so severe that Herbert Hoover had considered a bank holiday but rejected it for fear of inciting a panic, yet Roosevelt did the unthinkable by closing every bank in the country for four days. He used his radio fireside chats to explain the crisis in simple terms, telling the American people that the only thing they had to fear was fear itself. When the banks reopened on the 9th of March 1933, three-quarters of the Federal Reserve System banks were back in business within three days, and billions of dollars in hoarded currency and gold flowed back into the system. This bold move stabilized the banking system and led to the creation of the Federal Deposit Insurance Corporation, which insured deposits for up to 2,500 dollars and ended the risk of bank runs for decades to come.
The First Hundred Days
Roosevelt entered office with enormous political capital and responded with a remarkable series of new programs in the first hundred days of his administration, during which Congress granted every request he made. The economy had hit bottom in March 1933 and then started to expand, with the Federal Reserve Index of Industrial Production rising from 54.3 in March 1933 to 85.5 by July 1933, a dramatic rebound of 57 percent in four months. The Emergency Banking Act was passed and signed into law on the 9th of March 1933, providing for a system of reopening sound banks under Treasury supervision. The Economy Act, drafted by Budget Director Lewis Williams Douglas, was passed on the 15th of March 1933, proposing to balance the regular federal budget by cutting the salaries of government employees and cutting pensions to veterans by 15 percent. This act saved 500 million dollars per year and reassured deficit hawks that the new president was fiscally conservative. Roosevelt argued there were two budgets: the regular federal budget, which he balanced, and the emergency budget, which was needed to defeat the depression. It was imbalanced on a temporary basis, and Roosevelt soon found himself running spending deficits to fund his numerous programs. The First Hundred Days established a new relationship between the government and the people, with the government taking an active role in managing the economy and providing relief to those in need.
The Agricultural Crisis
Common questions
What did Franklin D. Roosevelt do on the 4th of March 1933 to stabilize the banking system?
Franklin D. Roosevelt closed every bank in the country for four days to stop the financial collapse. When the banks reopened on the 9th of March 1933, three-quarters of the Federal Reserve System banks were back in business within three days. This action led to the creation of the Federal Deposit Insurance Corporation which insured deposits for up to 2,500 dollars.
How did the Agricultural Adjustment Act raise farm prices in May 1933?
The Agricultural Adjustment Act raised farm prices by creating artificial scarcity through setting total output limits for commodities like corn, cotton, and wheat. The program paid land owners subsidies for leaving some of their land idle and forced up farm prices by plowing up growing cotton and killing six million piglets. This strategy doubled the average income of farmers by 1937 before the Supreme Court declared the act unconstitutional in 1936.
What rights did the National Labor Relations Act of 1935 guarantee to workers?
The National Labor Relations Act of 1935 guaranteed workers the rights to collective bargaining through unions of their own choice. The act established the National Labor Relations Board to facilitate wage agreements and suppress repeated labor disturbances. It also led to tremendous growth in labor union membership especially in the mass-production sector.
How many workers did the Works Progress Administration employ and what did they build?
The Works Progress Administration employed more than 8.5 million workers who built 650,000 miles of highways and roads and 125,000 public buildings. These workers also constructed bridges, reservoirs, irrigation systems, parks, and playgrounds including the Lincoln Tunnel and the San Francisco Oakland Bay Bridge. The program also financed hospitals and schools while forbidding competition with private enterprises.
What was the purpose of the Social Security Act established in 1935?
The Social Security Act established a permanent system of universal retirement pensions and unemployment insurance for the United States. It also provided welfare benefits for the handicapped and needy children in families without a father present. Roosevelt insisted that the program be funded by payroll taxes to give contributors a legal and political right to collect their benefits.
Farm income had fallen by over 50 percent since 1929, and by the beginning of 1933, agricultural markets nearly faced collapse with wheat rotting in the fields in Montana and sheep slaughtered and left to rot in Oregon. The Agricultural Adjustment Act created the Agricultural Adjustment Administration in May 1933, which aimed to raise prices for commodities through artificial scarcity by setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat. The AAA paid land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. To force up farm prices to the point of parity, growing cotton was plowed up, bountiful crops were left to rot, and six million piglets were killed and discarded. The idea was to give farmers a fair exchange value for their products in relation to the general economy. In 1936, the Supreme Court declared the AAA to be unconstitutional, stating that a statutory plan to regulate and control agricultural production was a matter beyond the powers delegated to the federal government. The AAA was replaced by a similar program that did win Court approval, which subsidized farmers for planting soil-enriching crops such as alfalfa that would not be sold on the market. The average income of farmers almost doubled by 1937, and the AAA established an important and long-lasting federal role in the planning of the entire agricultural sector of the economy.
The Labor Movement
The National Labor Relations Act of 1935, also known as the Wagner Act, finally guaranteed workers the rights to collective bargaining through unions of their own choice. The Act also established the National Labor Relations Board to facilitate wage agreements and to suppress the repeated labor disturbances. The result was a tremendous growth of membership in the labor unions, especially in the mass-production sector, led by the older and larger American Federation of Labor and the new, more radical Congress of Industrial Organizations. Labor thus became a major component of the New Deal political coalition. The Fair Labor Standards Act of 1938 set maximum hours of 44 per week and minimum wages of 25 cents per hour for most categories of workers. Child labor of children under the age of 16 was forbidden, and children under 18 years were forbidden to work in hazardous employment. As a result, the wages of 300,000 workers, especially in the South, were increased, and the hours of 1.3 million were reduced. The Wagner-Peyser Act of 1933 established a national system of public employment offices, and the Anti-Kickback Act of 1934 established penalties for employers on Government contracts who induce employees to return any part of pay to which they are entitled. The Railway Labor Act of 1926 was amended to outlaw company unions and yellow dog contracts, and to provide that the majority of any craft or class of employees shall determine who shall represent them in collective bargaining.
The Social Safety Net
The most important program of 1935, and perhaps of the New Deal itself, was the Social Security Act, which established a permanent system of universal retirement pensions, unemployment insurance, and welfare benefits for the handicapped and needy children in families without a father present. Roosevelt insisted that it should be funded by payroll taxes rather than from the general fund, saying that he put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap his social security program. The United States was the only modern industrial country where people faced the Depression without any national system of social security. Until 1935, only a dozen states had implemented old-age insurance, and these programs were woefully underfunded. Just one state, Wisconsin, had an insurance program. The Social Security Act established the framework for the U.S. welfare system, and it remains one of the largest programs still in existence today. The Act also included provisions for the development of vocational education in the States by appropriating funds for the fiscal years 1935, 1936, and 1937, and Public Act 296 amended the United States Bankruptcy Act with safeguards for labor.
The Works Progress Administration
Roosevelt nationalized unemployment relief through the Works Progress Administration, headed by close friend Harry Hopkins, which employed more than 8.5 million workers who built 650,000 miles of highways and roads, 125,000 public buildings, as well as bridges, reservoirs, irrigation systems, parks, and playgrounds. Prominent projects included the Lincoln Tunnel, the Triborough Bridge, the LaGuardia Airport, the Overseas Highway, and the San Francisco, Oakland Bay Bridge. The WPA financed a variety of projects such as hospitals, schools, and roads, and was forbidden to compete with private enterprises, so the workers had to be paid smaller wages. The Rural Electrification Administration used cooperatives to bring electricity to rural areas, and between 1935 and 1940, the percentage of rural homes lacking electricity fell from 90 percent to 40 percent. The National Youth Administration was another semi-autonomous WPA program for youth, and its Texas director, Lyndon B. Johnson, later used the NYA as a model for some of his Great Society programs in the 1960s. The WPA was organized by states, but New York City had its own branch Federal One, which created jobs for writers, musicians, artists, and theater personnel. The Federal Writers' Project operated in every state, where it created a famous guide book and hired many writers, including Margaret Walker, Zora Neale Hurston, and Anzia Yezierska, to document folklore. Other writers interviewed elderly ex-slaves and recorded their stories. Under the Federal Theater Project, headed by charismatic Hallie Flanagan, actresses and actors, technicians, writers, and directors put on stage productions. The tickets were inexpensive or sometimes free, making theater available to audiences unaccustomed to attending plays. One Federal Art Project paid 162 trained woman artists on relief to paint murals or create statues for newly built post offices and courthouses.
The Political Realignment
The New Deal produced a political realignment, reorienting the Democratic Party's base to the New Deal coalition of labor unions, blue-collar workers, big city machines, racial minorities, white Southerners, and intellectuals. The realignment crystallized into a powerful liberal coalition which dominated presidential elections into the 1960s, as an opposing conservative coalition largely controlled Congress in domestic affairs from 1939 onwards. In 1938, the Republican Party gained seats in Congress and joined with conservative Democrats to block further New Deal legislation, and some of it was declared unconstitutional by the Supreme Court. The Congress that assembled in January 1939 was quite unlike any with which Roosevelt had to contend before, with southerners holding a much stronger position. The House contained 169 non-southern Democrats, 93 southern Democrats, 169 Republicans, and 4 third-party representatives. For the first time, Roosevelt could not form a majority without the help of some southerners or Republicans. The 1938 elections proved a decisive point in the consolidation of the conservative coalition in Congress, with the liberal bloc in the House halved, and conservative Democrats escaping relatively untouched. The new Senate was split about evenly between pro- and anti-New Deal factions. Despite these challenges, Roosevelt turned his attention to the war effort and won reelection in 1940 and 1944. Republican President Dwight D. Eisenhower left the New Deal largely intact, even expanding it in some areas, and in the 1960s, Lyndon B. Johnson's Great Society used the New Deal as inspiration for a dramatic expansion of progressive programs.