New Deal

The New Deal was President Franklin Delano Roosevelt's legislative program. As implemented during the 1933-1938 period, it included numerous congressional enactments and presidential orders that were intended to provide economic relief, recovery, and reform. Its purposes were to relieve the suffering of the Amerca people in the throes of the Great Depression, and its execution

(For an annotated list of New Deal measures and institutions see the addendum subpage)

(For the sequence of New Deal legislative measures see the timelines subpage)

Background

Roosevelt first promised "a new deal for the American people" in his acceptance speech at the 1932 Democratic National Convention.

(The background to the New Deal is described in the article on the Great Depression in the United States and its economic implications and international context are described in the article on the Great Depression.)

Overview: the three Rs

The New Deal had three components: relief, recovery, and reform - The Three RS.

The Relief component was intended to put the unemployed to work and help those hardest hit by the depression. It expanded the previous administration's work relief program, and added an extensive further sequence of employment-generating schemes, followed by the introduction of a number of social security and unemployment insurance systems.

The Recovery component was intended to restore confidence in the banks and otherwise to return the country to prosperity by restricting competition, controlling prices and raising real wages, by industrial and farming subsidies, and by infrastructure investment.

The Reform component consisted mainly legislation designed to regulated the conduct of the banks and of the remainder of the financial system.

The New Deal programs

Emergency measures

The "Bank Holiday" and the Emergency Banking Relief Act

The exceptionally severe US banking crises of 1931-33 led to the failure of large numbers of banks and by March 1933, many of the survivors were on the point of closing their doors to depositors. Just one day into his presidency, Roosevelt declared a "bank holiday," effectively putting all financial transactions to a halt. Four days later, Congress passed his Emergency Banking Relief Act, much of which had been drafted by Hoover administration officials. This legislation provided for reopening sound banks under Treasury Department supervision. Three-quarters of the remaining banks in the Federal Reserve System reopened within the next three days and currency and gold flowed back into them within a month, thus stabilizing the banking system. Despite presidential opposition, Congress also created the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $5,000, and which put an immediate stop to the Depression Era spate of bank runs, and provided for the supervision of banks.

The Economy Act

As a result of pressure from "deficit-hawks" among its members (who feared that the government's would cause a large departure from the President's election promise of a balanced budget), Congress passed the Economy Act which cut the salaries of government employees and cutting pensions to veterans and reduced government expenditure by about $500 million a year.

Relief programs

The administration launched a series of programmes and agencies to provide work for the unemployed, the largest of which were the Civilian Conservation Corps, the Civil Works Administration, the Federal Emergency Relief Administration the National Youth Administration, and largest of all, the Works Progress Administration (WPA). (The numbers employed by last-mentioned reached 3.3 million in November 1938. and although there had by then been a major reduction in level of unemployment even then amounted to 12.5% of the working population.)

Other programmes established the concept of a minimum wage, created insurance for the unemployed, sick and old, established healthcare supprt systems, and abolished child labor. However, it is often claimed that the most important of the relief measures that were introduced was the Social Security Act of 1935.

Recovery programmes

The Farm Programs

Several measures were introduced to arrest the fall in agricultural prices that had been causing hardship in the country's farming industy. The first Agricultural Adjustment Act, which was passed on May 12, 1933, created the Agricultural Adjustment Administration. This agency imposed negotiated limits on the production of corn, cotton, dairy products, hogs, rice, tobacco, and wheat, and compensated farmers from funds raised by a tax on food processing. It also ordered crops to be destroyed and livestock to be slaughtered. Over the next three years, food prices rose, and farm incomes increased significantly. A Gallup Poll printed in the Washington Post revealed that a majority of the American public opposed the AAA. Several other agencies were also introduced to help the farming community, including the Resettlement Administration, the Farm Security Administration, the Rural Electrification Administration, and the Tennessee Valley Authority. The government also sponsored rural welfare projects such as the provision of school lunches, the building of new schools, the opening of roads in remote areas, and the transfer of marginal lands to national forests.

Infrastructure projects

A number of infrastructure projects were created by the Public Works Administration (PWA) , that had been established by the National Industrial Recovery Act, and the Tennessee Valley Authority . By June 1934 the Public Works Administration had created over 13,000 federal projects and over2,000 non-federal projects, including rural electrification, canals, tunnels, bridges, highways, streets, sewage systems, and housing areas, as well as hospitals, schools, and universities..

Industrial policies

The cornerstone of New Deal industrial policy was the work of the Nationanal Recovery Agency, that was devised in the belief that the severity of the Depression was due to excessive business competition that reduced prices and wages, which in turn lowered demand and employment . New Deal agencies encouraged collusive agreements to refrain from price competition and the strengthening of the bargaining power of trade unions. Businesses were asked to accept a "blanket code" which set a minimum wage of between 20 and 40 cents an hour, a maximum working week of 35 to 40 hours. The principal enabling legislation for those policies was the National Industrial Recovery Act (NIRA), and its main agencies also included the Public Works Administration and the National Planning Board. By 1934, National Recovery Agency's codes covered over 500 industries, and nearly 80 percent of private, non-agricultural employment.

On May 27, 1935 the Supreme Court ruled that the National Industrial Recovery Act was an unconstitutional delegation of legislative power, mainly because of to its suspension of the antitrust laws. President Roosevelt objected to the Court’s decision, declaring that "The fundamental purposes and principles of the NIRA are sound. To abandon them is unthinkable. It would spell the return to industrial and labor chaos". As a partial replacement, the National Labor Relations Act - known as the "Wagner Act" Act, made negotiations with trades unions compulsory, and created the National Labor Relations Board with the duty to enforce the provisions of the Act.

Reform progammes

The reform programmes were an expression of belief in the need to regulate the country's financial system in order to preserve public confidence and maintain economic stability. The Federal Deposit Insurance Corporation was given responsibility for supervision of the thrifts and of those banks that were not members of the Federal Reserve System and the Securities and Exchange Commission for the supervision of other financial organisations. The 1933 Glass-Steagall Act (Banking Act) sought to protect depositors by prohibiting commercial banks from engaging in the more risky activity of investment banking.

The effects of the New Deal programs

The identification problem

No objective assessment of the effects of the New Deal is logically possible without a solution to the identification problem that arises from "the unobservability of counterfactual outcomes" . Most of the available assessments embody subjective judgments about what would have happened had there been no New Deal. At one extreme are those who judge that, without the New Deal, there would have been a rapid economic recovery, and at the other extreme are those who consider the counterfactual outcome to be a total breakdown of the economy. (Such differences are clearly brought out in the use of rival versions of the unemployment outcome. The 14.3% version of the 1937 unemployment level that is usually quoted by members of the former group counts those working on New Deal projects among the unemployed; on the assumption that all were engaged on "boondoggles" that did not merit classification as employment, whereas the 9.2% version favoured by the latter group excludes New Deal employees from the unemployment figures on the assumption that all were engaged on fully productive activities .)

Social implications

It is widely accepted, however, that - in the short term, at least - the New Deal averted, a great deal of poverty-induced suffering. Before the creation of the New Deal, America did not have a national social security system such as were then common in Europe, but only scattered locally-administered provisions comparable to the Elizabethan poor law . By 1933, the incomes of millions of American families had fallen below subsistence level. and but for New Deal relief, many would have died of starvation. Objective evidence on the subject is scarce, but studies using such statistics as had been available at the time suugest that the New Deal raised fertility rates, reduced death rates and crime rates compared with what woud have hapened without it.

Political implications

The New Deal's constitutionality

The rationale of the National Industrial Recovery Act, in particular implied the permanent abandonment of the existing system of free-market capitalism. It encountered bitter opposition by the business community, and it was frequently challenged as unconstitutional.

In 1935, in the landmark case of Schechter Poultry Corp. v. United States, the Supreme Court ruled unanimously that the National Industrial Recovery Act was an unconstitutional delegation of congressional authority. The following year, in United States v. Butler, it declared the Agricultural Adjustment Act of 1933 to be "a matter beyond the powers delegated to the federal government."

In 1937, President Roosevelt responded with a proposal to "pack" the Supreme Court by adding five new justices. The court packing proposal failed, but the Court subsequently began upholding New Deal legislation, and by 1942 it had nearly abandoned its earlier "judicial activism."

Economic implications

Recovery

The extent to which the New Deal hastened or hampered America's recovery from the Great Depression is a matter of continuing controversy. There are, nevertheless, a few aspects of the question on which there is some semblance of a consensus. For example, few would now question the proposition that the restoration of confidence in the banking system was a necessary condition for recovery, or the success of Roosevelt's actions in that respect. But there is evidence to suggest that the effect of the National Industrial Recovery Act was to delay recovery by introducing a seriously damaging reinforcement into the "stickiness" of wage-determination. Opinions differ concerning the effectiveness of the New Deal's fiscal stimulus, but since that stimulus was in any case, small by comparison with the downturn , that question cannot be considered to be of much importance

(For a more detailed examination of the economic consequences of the New Deal, see the article on the Great Depression, and its Tutorials subpage [2] and for a summary of the relevant economic statistics see the Tutorials subpage of the article on the Great Depression in the United States [3].)

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