Download The New Deal

Unit 5 Reading
The New Deal
The New Deal represents the response of President Franklin D. Roosevelt's administration to the
Great Depression that gripped the nation from 1929 to 1941. In accepting the Democratic
nomination for president in 1932, Roosevelt proposed a "new deal for the American people," a
promissory phrase that described a wide array of bold policies and programs. Roosevelt himself
maintained that the New Deal would be an experiment that might indeed meet with failure, but
that it was better for the country if the government tried to bring some relief and failed, than for it
never to try at all. The New Deal bolstered the banking system, stabilized the stock market, put
many unemployed people to work, assisted those unable to find work or incapable of working,
fought poverty, and instituted an old-age insurance system. It brought tremendous controversy as
well, particularly regarding the expansiveness of the federal government's role in American
society. While the avowed goal of ending the depression was not achieved (economic
mobilization for World War II accomplished that end), the New Deal decisively determined the
domestic economic and political contours of American society for the remainder of the 20th
century.
In the throes of the country's worst economic depression, Roosevelt used the legislative leverage
gained by the 1932 electoral victories of Democrats, who captured both the White House and
substantial majorities in Congress, to launch an astonishing number of bills during a specially
convened session of Congress termed the First Hundred Days from March 9 to June 16, 1933.
The legislation passed during the Hundred Days revolved around three major issues that
Roosevelt deemed crucial to stabilizing the country: shoring up the failing banking system;
assisting ailing farmers across the country to produce more food and ensure it reached consumer
markets; and getting as many Americans back to work as possible. Toward this end, Congress
passed a series of innovative laws that extended federal influence into unprecedented areas of
American life.
To restore confidence in American banks and financial institutions, Congress passed the
Emergency Banking Relief Act (March 9), the Economy Act (March 20), the Federal Securities
Act (May 27), the Gold Repeal Joint Resolution (June 5), and the Banking Act (June 16), the
latter of which created the Federal Deposit Insurance Corporation (FDIC) to insure depositors'
accounts, thereby lowering the risk of runs on individual banks and general bank panics. To aid
farmers, Congress enacted the Agricultural Adjustment Act (May 12), the Farm Credit Act (June
16), and the Emergency Railroad Transportation Act (June 16). The most important of these acts
was the Agricultural Adjustment Act, which subsidized farmers who curtailed production toward
increasing prices and decreasing the volatility of the market. Congress also undertook the massive
Tennessee Valley Authority project (May 18), which not only promised to create a huge power
source for much of the Southeast, but also offered flood control for thousands of farmers in the
Mississippi River Valley. In an effort to reduce the overwhelming unemployment rate in the
country, Congress passed the Civilian Conservation Corps Reforestation Relief Act (March 31),
the Federal Emergency Relief Act (May 12), the National Employment System Act (June 6), and
most important, the National Industrial Recovery Act (NIRA) (June 16). The latter of these bills
marked a monumental change in the federal government's role in the economy. Its many
provisions established both the National Recovery Administration (for setting standards for
production, prices, and wages, as well as provisions protecting labor that included specifications
regarding maximum hours, minimum wages, safe working conditions, and the right of collective
bargaining) and the Public Works Administration, the first national peacetime effort at job
creation, employing workers to reconstruct the nation's infrastructure of highways, dams, airports,
low-cost housing, and so forth.
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While incomplete, this list reveals the breadth and depth of New Deal programs, many of which
were from blueprints of the so-called brain trust that advised the president. This diverse group of
academics often assumed leading roles in the agencies of their design. In tandem with Roosevelt's
pragmatic political temperament, these public intellectuals made certain the apparent hodgepodge
of New Deal programs would not take on any one ideological hue. While any one group of
constituents may have taken offense at a part of a program or policy, there was plenty in the New
Deal that was sufficiently redolent of vision and purpose to mobilize the vast majority of
Americans behind successive Roosevelt administrations.
Although the most dramatic congressional action came during the First Hundred Days, New Deal
policies continued to be enacted on a fairly continuous basis over the next several years. For
example, the Securities Exchange Act of 1934 supplemented legislation from the previous year,
establishing the Securities Exchange Commission to further counter deception, manipulation, and
fraud in the buying and selling of stocks, bonds, and other securities. While such measures
significantly fortified the fragile financial system, progress on the broader front for the relief of
suffering and improved economic welfare was far more uneven and sporadic. To be sure,
Roosevelt did succeed in improving the general mood and modest expectations of the citizenry—
no small achievement given the tenacity of the economic depression. However, the overall
financial picture of both the country as a whole and individual citizens remained bleak.
Nevertheless, despite some conservative criticism of the New Deal and its expanded vision of
government involvement in American life, most of the public enthusiastically supported
Roosevelt's programs, particularly as his reassuring fireside chats, a series of radio broadcasts to
the public beginning on March 12, 1933, reinforced public support for his policies. However, the
New Deal suffered a series of setbacks from within the federal government that threatened to
dismantle much of Roosevelt's program.
The U.S. Supreme Court was deeply involved in determining the structure, limits, and fate of the
New Deal agenda. At first, it appeared the Court would accept New Deal acts and policies, along
with state regulatory actions in concert with the spirit of those initiatives, as seen in its ruling in
Home Building and Loan Association v. Blaisdell (1934) and Nebbia v. New York (1934) when it
supported some New Deal legislation. However, the Court's judicial philosophy had been shaped
in a cultural milieu of laissez-faire economic doctrine as taught in the classical school of
economics, which championed free-market ideology and employers' rights over those of
organized labor. On May 27, 1935, a day that Roosevelt and his supporters later labeled Black
Monday, the Supreme Court declared NIRA unconstitutional in Schechter Poultry Corp. v.
United States (1935). Furthermore, in Humphrey's Executor v. United States (1935), the Court
denied the president the power to replace members of independent regulatory agencies, a crucial
executive function to ensuring the success of New Deal programs as Roosevelt decreed. The
following year, in United States v. Butler (1936), the Court voided the Agricultural Adjustment
Act, and in Carter v. Carter Coal Co. (1936), the Court made clear its constricted view of the
interstate commerce clause of the Constitution, rejecting Roosevelt's contention that the clause
justified such high levels of federal involvement, the constitutional thesis on which the entire
New Deal program was based.
The Court's ruling on such essential components of the New Deal forced Roosevelt and his
supporters to revise much of the legislation passed during the First Hundred Days during another
flurry of congressional activity known as the Second New Deal, a period lasting approximately
from the spring of 1935 to the middle of 1936. Once again, Congress passed an extraordinary
number of laws in a fairly short period of time. Among the most important of the new legislation
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was the National Labor Relations Act (July 5, 1935), also known as the Wagner Act. Replacing
the NIRA, this act established the National Labor Relations Board (NLRB), which was
empowered to oversee elections for prospective union representation and exercise oversight
functions with respect to possible unfair labor practices, both of which did much to elevate the
status of organized labor in the country. The same year saw the passage of the Social Security Act
(August 14), perhaps the most important achievement of the New Deal, as it established funding
for old-age pensions (through taxes on employers and employees), unemployment compensation,
and welfare benefits for dependent children and the handicapped. The most lasting achievement
of the New Deal era, the Social Security Act not only provided relief to millions of people during
the depression, but it also served as the basis of the modern American welfare system. Finally,
1935 witnessed the birth of the Works Progress Administration (WPA), which created jobs for
millions of unemployed Americans, largely on infrastructural public projects similar to those of
the earlier PWA. Unprecedented in scale, the WPA also directed a small portion of its funds to
support public works projects in the arts, marking the first time in American history that the
federal government granted such subsidies.
After his landslide reelection in 1936, Roosevelt was determined not to let the Supreme Court
obstruct his efforts to impose government control on America's unregulated market economy. He
thus proposed a judicial reorganization bill in early 1937 in an attempt to increase the number of
justices on the Supreme Court, planning to appoint justices more sympathetic to his views who
could then out-vote the justices on the existing Court. Soon known by friend and foe alike as the
Court-packing plan, this attempt by the executive branch to expand the federal judiciary failed for
a number of reasons, particularly as both Congress and the public looked askance at Roosevelt's
attempt to force a separate branch of the federal government to conform to his will. Yet while
Roosevelt lost this battle, one that many understood as a threat to the independence and integrity
of the Court, he may have inadvertently prodded the standing Court in a new direction, as at least
two justices switched their stances in future decisions to give the Court a more pro-Roosevelt
leaning. Several major pieces of New Deal legislation were soon upheld by the nation's highest
tribunal, including the Social Security Act and the Wagner Act.
Just as Roosevelt was rejoicing in the Court's compliance with his policies, another crisis
emerged to heighten tensions and threaten financial disaster once again, prompting the final
phase, or the Third New Deal. Beginning in 1937, Roosevelt attempted to balance the federal
budget, as he became increasingly concerned that the massive public expenditures were placing
the federal government hopelessly in debt, thereby threatening the country's financial stability. He
hoped that the economy had recovered sufficiently so that private industry would reassume some
of the responsibilities that the federal government had previously upheld. Therefore, he advocated
a reduction of public expenditures and federal funding to various programs. The result was a
major recession that lasted throughout 1938, although other factors contributed to the recession as
well. In response, Roosevelt renounced any intention to balance the budget and launched a
massive new public campaign against the power of monopolies in the American economy, which
many people blamed for the recession, by beefing up the antitrust division of the Justice
Department. Congress passed several new pieces of legislation during this period, although far
fewer than either of the previous two New Deal phases. Among the most important was the
Agricultural Adjustment Act (1938) (February 16), the Fair Labor Standards Act (June 25), and
the Revenue Act (May 27).
After 1938, public enthusiasm for New Deal programs waned, as Americans saw little
improvement in their financial situations, despite the flurry of government activity in their behalf.
Also, Roosevelt became increasing involved in foreign affairs when the outbreak of World War II
in Europe on September 1, 1939 plunged much of the world into a brutal war. As Roosevelt
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negotiated with the belligerent powers to keep the United States neutral, the war achieved what
the New Deal did not: economic recovery. Industries and businesses throughout the United States
began expanding production to meet the demands of war-ravaged Europe, initiating a wave of
prosperity for America that lasted until the end of the century with few interruptions.
Historians, politicians, and the public continue to debate the effect and impact of the New Deal,
with all agreeing that it was a remarkable time in American history. Few can argue that organized
labor made substantial gains during the New Deal, benefiting from the political and economic
climate that recognized the rights of workers to bargain collectively for their labor. If
unionization represented an attempt to loosen the concentration of economic power from below,
so to speak, the antitrust division of the Justice Department represented a corresponding attempt
from above, as a revival of antimonopoly sentiment was wedded to an aggressive enforcement of
antitrust law.
Roosevelt's massive spending programs also put to the test an economic theory that came to play
a major role in government behavior later in the century known as Keynesian economics. British
economist John Maynard Keynes argued that government intervention in the economy could
moderate boom-to-bust cycles that had become a permanent feature of the capitalist marketplace.
Roosevelt's uninhibited willingness to use the federal government to stimulate aggregate demand
and thereby raise output and employment could be seen as an empirical and historical
confirmation of a key Keynesian proposition—namely, with the tools of fiscal policy a
government can influence aggregate demand in order to cut unemployment. Although few
understood Keynesian economics during the New Deal, the theory had a tremendous influence on
the policies of U.S. politicians in decades to come.
Perhaps most significantly, the New Deal instituted a division in American welfare practice
between public assistance and social insurance, the latter an entitlement program wherein
eligibility is determined by fixed criteria (e.g., age, as is the case with Social Security). Because
social insurance programs cut through class lines, they did not carry the historical stigma attached
to public assistance to the poor. Furthermore, the New Deal sanctioned a grants-in-aid model in
which states receiving federal monies were responsible, within federal guidelines, for setting
precise benefit levels, a practice that historically has resulted in an irrational disparity between
states in their allocation of federal funds. A third feature of the contemporary welfare state
bespeaks a troublesome development: the government's increasing penchant for purchasing the
delivery of welfare services from corporations or agencies in the private sector. This so-called
franchising has muddled distinctions between "profit motive" and "social service," rendering the
task of public oversight and accountability less reliable and more onerous. Nevertheless, the very
idea of providing basic social services to all Americans in need originated with the New Deal and
found full expression in President Lyndon B. Johnson's Great Society vision during the 1960s.
The New Deal culminated in a uniquely American patchwork version of the welfare state, and it
greatly expanded the role of the federal government in American life, according it responsibilities
that previously were the arbitrary prerogative of individual states and the private sector. The
value and wisdom of this American welfare state remains one of the primary sources of political
controversy in the United States to this day. While liberals highlight the great disparities in
American society between the "haves" and the "have nots," conservatives blame the American
welfare system for fostering complacency and sapping the drive and ambition of the American
public.
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