The New Deal (Basic Lecture and Notes)

New Deal, a name given to the peacetime programme of United States President Franklin Dolean Roosevelt.
It consisted of innovative measures taken between 1933 and 1938 to counteract the effects of Great Depression. No single political philosophy or set of coherent goals ever unified these disparate programmes, most of which he developed with the aid of the so-called Brain Trust.


The main theme of the New Deal was that government took over the responsibility of economic well being of the people in America. This was a new thing in American history because Americans themselves had been supporting a limited role of the government in the economy. The economic depression had brought up a situation where in the government was expected to play an active role. Therefore, the government tried to interfere in every type of the activity of the American economic sphere. It was desired by the people. It was a period of "government encouragement and supervision of economic growth".


Further, "the measures adopted during the 1930’s were of unprecedented scope and involved far-reaching changes in the relation between government and business".


The stress was on the relation between government and business.
Heading: The Hoover Administration:


Sub Heading: Hoover’s Attitude:


Hoover was not interested in increasing the role of the government in taking over the responsibility of solving the economic problems of the people. However, the economic problems of the people of America was a result of economic depression and therefore, it fell in different category. Therefore, Hoover was reluctantly forced into accepting the responsibility of solving the economic problem of the people of America.


"he was a strong believer in the virtues private enterprise and what he called "rugged individualism"".
Hanooverian Attitude towards the Depression and Government responsibility to the common man’s economic troubles:

He was totally of different view and attitude over the issue of the government responsibility of the unemployed people. He believed if the government took over the responsibility of the problem of the unemployed people they would develop the habit of looking towards Washington every time they faced such a problem. He also felt that it would increase the dictatorship of the bureaucracy. He felt that in such a situation the actual freedom would be lost to the people of America. However, on the other hand, he also felt that it was the responsibility of the government in such a situation that it should give the financial help to the business in order to save them from total collapse.


"But his willingness to give Federal aid to corporations, while denying it to starving people, inevitably caused him to appear as callously indifferent to human suffering."


The Hoover Programme:


Some of the main steps taken by Hoover for two years after the great fall in the stock exchange were as follows:
1. He increased the spending of the Federal government over the public welfare works.
2. He asked the businessmen not to cut the wages.
3. He increased the credit to the business concerns.
4. He encouraged the big business houses to continue with their activities and gave them hope that the days of profit making would soon return.
5. When he found that the monetary systems of Europe had collapsed, he allowed the deferment of the loan payment of Europe to America.
6. He also gave support to the property owners so that they could save themselves from bankruptcy.


The Congress wanted that the government should extent direct monetary help and relief directly to the effected people like the unemployed and the farmers. President Hoover did not accept this proposal.


Hoover adopted however similar relief work as per his thinking.


He established Reconstruction Finance Corporation. It gave loans to the business corporation on easy terms.


He established twelve Federal Home Loan Banks. They extended loans on easy terms to the property owners who had to pay for the mortgage terms.


He established Federal Land Banks. Such banks extended loans to the farmers to save their farms which they had mortgaged to buy more lands.


He made many changes in monetary policy of the Federal Reserve System so that the banks could extend more loans to the business corporations. The deficit of cash by the government was covered by increasing the taxes.


Hoover was not able to raise the confidence of the people of America which in contrast, Roosevelt was able to do because of his personality. It has been emphasised by many scholars that the President Hoover was quite efficient administrator and a true American in his ethics and values. However, the need of the hour was demanding some thing more from the President which he was not able to do. Roosevelt was declared very successful but there was criticism also. Even then Roosevelt was more successful even when he had basically adopted the policies of Hoover. Hoover was not able to attract the general people only because of some such features of his personality which were not any drawback of personality. They were the real features of the American man. It was only that the need of the hour was some thing different.
The Election of 1932
There were mainly negative results of the Hoover programmes. The policies had ruined the banks. The currency had become weak. The balance of payment suffered from deficit. The people had started withdrawing money from the banks. The business houses adopted many bad practices to make profit when they were being giving easy loans. The easy loans were being given to improve the economy of the country but they were interested in making more money. It was not benefiting the common man. The fear of common was increasing. The banks adopted different means to discourage the people from withdrawing money from the banks. Therefore, Hoover lost the election to democrat candidate Franklin Delano Roosevelt.


There was praise and criticism of Roosevelt way of working. However, it is done in a way of admiration for the President. The theme is that he was able to raise the faith of the people in them and the American economy. There was criticism but there were results also which could not be overlooked. Secondly, his New Deal did not deal only with the economy but also with the world situation in which he worked for the defeat of the Axis powers. Thirdly he was in favour of the common masses. It was the common people who were not happy with the policies of Hoover.


The New Dealers of Roosevelt:
Cordell Hull of Tennessee, was the Secretary of State.
Second major was Postmaster General James a. Farley.
Secreatry of treasury Henry Morgenthau
The three main New Dealers were Harold Ickes,
Secretary of the Interior, Henry A. Wallace,
Secretary of Agriculture and
Frances Perkins, Secretary of Labour.


Brain Trust: It was the group of Professors and newspapermen who advised him on legislation and wrote the speeches of the President.


The New Deal in Operation:


"the only thing we have to fear is fear itself." This was the message of the New Deal which the President Roosevelt had given in his first inaugural address.


The first step of the President was that he called the special session of the Congress and got his plan implemented.


In the next three months, number of laws were made to achieve that goal.


The main achievement of the President Roosevelt was, "during his first hundred days in office he restored the faith of the American people in their capacity to control their destiny."


Roosevelt made Henry Morgenthau as his secretary of treasury.
Secretary of agriculture was Henry a. Wallace.
Harold Ickes became the secretary of the interior.
Frances Perkins the first woman to hold a cabinet post became the secretary of labour.
Harry Hopkins was administrator of relief.


Brain Bank
Roosevelt also roped in many professors, social workers and journalists. They along with his trusted deputies, were called New Dealers. The name of prominent advisors were Prof. M. L Wilson, Prof. Adolf Berle, Raymond Moley and Rexford Tugwell.


New Deal Under Roosevelt:


Dealing with Banking Problem:


The first problem of Roosevelt was the collapse of the banking system.


The panic against Banking system had spread in the agriculture region that is the West plains. Roosevelt declared Banking Holiday. He sent experts to evaluate the banking system of agrarian regions. Then he pumped into the system one billion dollars from Reconstruction Finance Corporation (RFC). Within ninety days from March 4, 1933, President was able to reopen the banks.


Administrative Work:


With in hundred days, Roosevelt got Congress to pass nearly fifteen new laws. These laws covered employment relief, agricultural aid, mortgage supports, industrial cooperation, banking reforms and others.


The NRA and the AAA:
NRA and AAA were the heart of New Deal. In June 1933, National Industrial Recovery Act was passed. Under it National Recovery Administration was formed. Under the Act, the major sectors of Industries were asked to form code of self-governance which was to be looked after by NRA.


General Huge Johnson was made the President of NRA.


With in the four months of the establishment of NRA, the various business groups had drafted nearly seven hundred documents on the codes which would govern their business. Both, the large business concern dominated one field of trade and the trade unions where no major business groups ruled the trade were involved in making such codes. These codes were related to prices, wages and level of competition which was to be permitted during that period.


The 7A clause of the National Reconstruction Administration (NRA) permitted the workers to organize and bargain collectively with the employers. John L. Lewis of the United Mine Workers union made use of this clause effectively for the workers of the steel industry.


Agriculture Adjustment Act was passed in May 1933. It covered marketing agreements, commodity loans, export subsidies, government purchases, production restriction and currency inflation.


Under this act, Agriculture Adjustment Administration was established. During earlier months, the Administration paid farmers to destroy their crop and slaughter their animals so that to reduce the surplus and maintain prices. Then, it also directed farmers to sow crops to particular limit only in order to regulate the prices in the market. This solution was called the parity clause. This was supposed to work in a manner that the earnings of the farmers should increase to a level of their spending. This was to be achieved by controlling and maintaining prices at particular level and check them from falling.


The Agriculture Adjustment Administration was headed by George Peek and Chester Davis. They were associated with farmers associations like American Farm Bureau Federation. They asked farmer to adopt the plans given by the Administration. The work of administration had virtually brought the power to the farmers and the Federal government did not interfere as long as they were cooperating in the plans of the Administration. On the other hand, the farmers were free to adopt the plans which suited them the most.


Financial Regulation:


The finance was considered as the main cause of the depression. The bankers were accused of disowning their responsibilities in face of a crisis which was termed as the cause of the depression. The Congress investigated that the bankers had misused with the funds of the banks to indulge in the speculation in the stock market and it was termed as the cause of the great fall.


"Through the Glass-Steagall Act of 1933, Congress required banks to separate their investment in securities from normal commercial banking."


IN 1934, the Securities and Exchange Commission was established. SEC regulated the working of Stock Exchanges.


The Reconstruction Finance Corporation gave easy loans to solvent banks. This brought money into banking system and banking system revived with the help of the Federal government and Federal financing.


In 1933, congress formed Federal deposit Insurance Corporation. The Corporation insured the deposit of the small savers.


The Federal government established Farm Credit Administration. The Administration gave easy loan to Farm owners who had bought land on loans.


The Federal government also formed Home Owners Loan Corporation. The Corporation also provided easy loans to the House owners who had raised their houses on loan.


Public Relief:


PWA


The public relief work was undertaken as one of the task of National Industrial Recovery Act of 1933. Under this Act, the Congress allowed the expenditure of 3.3 billion dollars for generating jobs for the unemployed. The task was achieved through Public Work Administration. The PWA was placed under Harold Ickes. He was very conscious about using the money given by the Congress.
The Civilian Conservation Corps worked commendably for first hundred days. It provided job to the unemployed. Through them, it got them work for reforestation, soil conservation, and flood control.


FERA


In order to provide the general relief, Federal Emergency Relief Administration (FERA) was established.
Under FERA, Civil Works Administration was formed. It provided relief given by FERA on local level which was based on popular participation. The CWA was headed by Harry Hopkins.


The Tennessee Valley Authority: (Highly Important as it has appeared as a separate question also. It should be covered under Rehabilitation and Recovery feature of New Deal)


"The most daring government venture of the early New Deal was the Tennessee Valley Authority."


The Tennessee Valley project has its genesis a previous debate over the government role in building of a dam at Muscle Shoals, Alabama. Henry Ford had proposed to build this dam. But a Senator, George Norris of Nebraska, blocked this proposal on the argument that such a project should be carried out by the government itself. This debate had taken place during 1920s in the war days.


The Tennessee Valley project was an attempt at regional rehabilitation by the government in 1933. The project was given extensive powers. The work carried out by it was spread over seven states. It built seven dams and many canals. In addition to that, it carried the task of preserving the soil, protection against the floods and production of electricity and its distribution. The project continued for two decades.


From the beginning, it created controversy, when it started selling power on government fixed prices. It was not liked by the private power producing companies.


The main feature of the project was that it was carried by the local participation. It was started by Washington but while deciding the various projects of dams, farms and soil conservation, it did not take direction from Washington. The local authorities and groups which were associated with the project directed the course of the project. All the groups were region groups. It included Chambers of commerce, leagues of bankers, commercial farming associations and their local associates from the department of Agriculture and state agricultural colleges. The political benefits accrued from such welfare activities were enjoyed by the local groups which were associated with the project. It was a grand success in the field of local cooperation.


The Tennessee Valley project was the first step of the American Federal government to retain the public control of the power generation and distribution. It was a policy which was mooted by Senator Norris in case of Muscle Shoals power sites in 1920.


(A Revision and Point Form Coverage)


In May 1933 Congress set up the Tennessee Valley Authority.


The task of the Tennessee Valley Authority was to build and operate the dams. The second task was to sell the electricity.


The third task was to manufacture fertilizer, flood control and conservation.


All such activities were desired to improve economy and social life of the people of the valley.


The project covered seven states and benefited twenty lakh people which belonged to a poverty stricken region in America.


The Achievements of TVA:


By 1940, seven dams were completed under the TVA.


The standard of living of the people in this region improved due this investment.


The TVA had worked with the local cooperation. The local farmers and businessmen were involved. The participation was on voluntary level. Hence, it reduced the dependence on Washington. It also reduced the political interference due to voluntary local participation in the schemes of the project.


Criticism and containment:
The private businessmen did not like the success of the TVA. They argued that the projects were able to fix lesser rate because it was financed by the government. The schemes were not paying the tax and the interest.


The politicians also not liked the success of the scheme. The project did not encourage the participation and interference of the politicians.


The opposition to the scheme was undertaken by Wendell Willkie who was the president of the confederation of private companies. The government tried to counter their criticism and opposition by buying the competing business concerns on liberal rate. But the businessmen and politicians did not like the idea of the success of TVA in other parts of the country. Therefore, it remained confined to Tennessee Valley.


Set Backs to New Deal before the Second New Deal:


The hopes of 1933 for early recovery proved illusory. Many of the hastily drafted early bills were declared unconstitutional by the US Supreme Court. These reverses, plus increasing political opposition to Roosevelt, triggered a second flood of legislation, beginning in 1935, which some observers called the Second New Deal. Roosevelt now exploited developing class divisions, formed closer alliances with organized labour, and increasingly castigated the big-business groups that opposed his New Deal programmes.


The New Deal lost its attraction by 1935. The National Reconstruction Administration was not working rightly. The Business houses had enjoyed the use of the new codes for their benefits but not ready to extend the benefit to the workers. Even Roosevelt had lost interest in the activity of the Administration. The Roosevelt administration itself starting criticizing the working of the National Reconstruction Administration. It was mocking called National Run Around. The agricultural experiment under AAA did not bring result. The farmers were groaning that their income had not increased to the level of 1929. The country faced the food scarcity. There was drought


Formulas for Prosperity: (Source Bailyn)
These formulas were given by Huey Long of Louisiana, Charles Coughlin of Detroit and Francis E. Townsend of California. These formulas were Share our Wealth, inflation and old-age pension.


The other major problem which came up was the rise in the incidences of strikes in different trades. It was mark the end of the appeal of New Deal. There was demand for local issues which required solution.


Second New Deal 1936 Onwards


Relief and Old-Age Insurance:


IN January 1935, Roosevelt started with the program of relief works and comprehensive social security measures.


WPA


In April 1935, Congress established the Works Progress Administration (WPA). The Congress gave 5 billion dollars for this project. Harry Hopkins was made the head of WPA. It found jobs for the unemployed. It employed nearly two million people in the work of theatrical productions, road making etc. However, it proved a temporary measure.


SSA


In August 1935, the Social Security Act was passed. It turned out as a long-term measure. It provided old age pension. The fund was raised from tax on the workers wages and employers.


The employers were also taxed to provide compensation to the employed. It also provided for equal grants to the state government. It provided aid to dependent mothers, children and disabled.


The tax for the social security was burden for the poor. Secondly, the amount of compensations and aids under this act varied from state to state. A large number of different jobs were not covered under this act. It was only 1970, it covered all the employees.


NLRA


In July 1935, congress passed the National Labour Relations Act which is popularly known as Wagner Act. The Act gave recognition to the labour unions and their rights. The National Labour Relations Board was established. It conducted the elections of the labour unions in companies. It checked companies from denying right to the workers.


WPA, Social Security Act and Wagner Act were received with great emotions.
It gave hope at the bottom of society and horror at the top.


FTA (Bankead-Jones Act 1937)


In 1937, Bankhead-Jones Act, Farm Tenancy Act was passed in 1937. It organised the Farm Security Administration. It extended credit to the tenants so that they could purchase the farms they were working. The administration also organised the cooperative community for small farmers. It tried to protect the interests of small farm labourers. However, the budget of the Farm Security Administration was very small. It did not show good results.


FLSA


In 1938, the Congress passed Fair Labour Standards Act. It settled the minimum wage and overtime works wages. It banned child labour. It was based on the principle that, "the national government should protect the economic welfare of its poorer citizens".


Railroads, Shipping and Housing: (Source: Henry Bamford Parkes and Bailyn )


The main plan was to make investment in the Railway industry also.


Industry had a different scenario. There was over expansion on private basis in industry during the 1920s. There was no scope for the government for making investment in the industry. However, there were three sectors which suffered problem and needed support. These three sectors were railways, shipping and housing.


The railway suffered because of the advent of the automobiles. They were passing through heavy indebtedness. The Reconstruction Financial Corporation extended money to the railway companies so that they could modernize their infrastructure and win back their customers. The government however did not provide money to wipe out their debts.


In case of Shipping, Federal government adopted different policy. It adopted the policy of subsidizing the shipping industry. Merchant Marine Act was passed in 1936. Under the Act, Maritime Commission was established. The Commission started the project of building fifty ships every year and then to sell them to private companies for commercial operation.


The housing was having different nature of problem. The slums had increased. There was need for cheaper housing which private construction companies were not ready to provide. The private constructors suffered due to high real estate values and costly construction materials. The building unions were another big hindrance in providing cheap apartment constructed by commercial construction companies.


New Deal tackled this problem by government participation. Federal Housing Authority was established in 1934. It provided cheaper housing loans and expected the housing private commercial companies to provide the construction.


In 1937, United State Housing Authority was established. It lent money to the local governments for the construction of low cost houses. However, the efforts did not bring any appreciable results. It was only after the World War II, that the local authorities looked to this problem in a serious manner. It was then, the housing problem was solved and housing activity started in real manner and contributed to the economy.


Conclusion:

The New Deal was over, but it had permanently expanded the role of the federal government, particularly in economic regulation, resource development, and income maintenance. Although in itself it failed to stimulate full economic recovery, it provided the federal government not only with increased controls over money supply and Federal Reserve policies but also with increased understanding of the economic consequences of its own taxing, borrowing, and spending—thus helping it to limit the impact of later recessions. Many of Reforms taken during this period became major laws and established policies of American nation by 1960.


Sources:
Henry Bamford Parkes
Bailyn and five authors.
Spartacus site of John Simkin
History of America given by Embassies of America on their sites.
(No major record has been maintained while making above points. Secondly it forms a part of general bank prepared over a period of eight years. However, the main answer structure is based on Parkes and Baylin and rest of the information was just added below the headings taken from their books.)