New Deal
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- For other uses of New Deal, see New Deal (disambiguation).
The New Deal was the name President Franklin D. Roosevelt gave to the series of programs between 1933–37 with the goal of relief, recovery and reform of the United States economy during the Great Depression. Dozens of alphabet agencies were created as a result. Historians distinguish the "First New Deal" of 1933 that had something for almost every group, and the "Second New Deal" (1935–37) that introduced an element of class conflict. The opponents of the New Deal, complaining of the cost and the shift of power to Washington, stopped its expansion after 1937, and abolished many of its programs by 1943. The National Recovery Administration was ruled unconstitutional by the Supreme Court. The main programs still important today are Social Security and the Securities and Exchange Commission (SEC).<ref> Other large programs that still exist under the original names include the Federal Deposit Insurance Corporation (FDIC), National Labor Relations Board and TVA. Many smaller programs were merged and re-merged over the years.</ref>
[edit] Relief, recovery, and reform
The New Deal had three components: direct relief, economic recovery, and financial reform; these were also called the 'Three Rs'.
Recovery was the effort in numerous programs to restore the economy to normal health. By most economic indicators this was achieved by 1937--except for unemployment, which remained stubbornly high until World War II began.
Reform was based on the assumption that the depression was caused by the inherent instability of the market and that government intervention was necessary to rationalize and stabilize the economy, and to balance the interests of farmers, business and labor. It included the National Recovery Administration (1933), regulation of Wall Street (SEC, 1933), the Agricultural Adjustment Act farm programs (1933 and later), insurance of bank deposits (Federal Deposit Insurance Corporation 1933) and the Wagner Act encouraging labor unions (1935). Despite urgings by some New Dealers, there was no major anti-trust program. Roosevelt said that he opposed socialism (in the sense of state ownership of factories), and only one major program, the Tennessee Valley Authority (1933), involved government ownership of the means of production. Milton Friedman is typical of a majority of economists who have criticized the NRA and AAA for setting prices and wages, which distorted the market.<ref>Parker 2002, Friedman, Two Lucky People (1998) p. 59.</ref>
Two old words now took on new meaning. "Liberal" no longer referred to classical liberalism but now meant a supporter of the New Deal; conservative meant an opponent. Whether the New Deal was successful in achieving the three Rs is usually approached not as a historical problem but as a current debate over whether the program should be a model for government action today. Liberals continue to battle conservatives. The term "New Deal" is also used to describe the liberal New Deal Coalition that Roosevelt created to support his programs, including the Democratic party, big city machines, labor unions, Catholic and Jewish minorities, African Americans, farmers, and most Southern whites.
By 1934, the Supreme Court began declaring significant parts of the New Deal unconstitutional. This led Roosevelt to propose the Court-packing Bill in 1937. Although the bill failed, the Supreme Court started upholding New Deal laws. By 1942, the Supreme Court had almost completely abandoned its "judicial activism" of striking down congressional laws, as accused by New Deal supporters. The Supreme Court ruled in Wickard v. Filburn that the Commerce Clause covered almost all such regulation allowing the necessary expansion of federal power to make the New Deal "constitutional".
[edit] The Origins of the New Deal
Upon accepting the Democratic nomination for president, Roosevelt promised "a new deal for the American people." (The phrase was borrowed from the title of Stuart Chase's book A New Deal published earlier that year.) Roosevelt entered office with no single ideology or plan for dealing with the depression. He was willing to try anything, and, indeed, in the "First New Deal" (1933-34) virtually every organized group (except the Socialists and Communists) gained much of what they demanded. This "First New Deal" thus was self-contradictory, pragmatic, and experimental. The economy eventually recovered from the deep pit of 1932, and started heading upward again until 1937, when the Recession of 1937 sent the economy back to 1934 levels of unemployment. Whether the New Deal was responsible for the recovery, or whether it even slowed the recovery, is a subject of debate.
The New Deal drew from many different sources over the previous half-century. Some New Dealers, led by Thurman Arnold, went back to the anti-monopoly tradition in the Democratic party that stretched back a century. Monopoly was bad for America, Louis Brandeis kept insisting, because it produced waste and inefficiency. However, the anti-monopoly group never had a major impact on New Deal policy.
From the Wilson administration, other New Dealers, such as Hugh Johnson of the NRA, were shaped by efforts to mobilize the economy for World War I, They brought ideas and experience from the government controls and spending of 1917-18.
And from the policy experiments of the 1920s, New Dealers picked up ideas from efforts to harmonize the economy by creating cooperative relationships among its constituent elements. Roosevelt brought together a Brain Trust of academic advisers to assist in his recovery efforts.
Historian, Clarence B. Carson says:
At this remove in time from the early days of the New Deal, it is difficult to recapture, even in imagination, the heady enthusiasm among a goodly number of intellectuals for a government planned economy. So far as can now be told, they believed that a bright new day was dawning, that national planning would result in an organically integrated economy in which everyone would joyfully work for the common good, and that American society would be freed at last from those antagonisms arising, as General Hugh Johnson put it, from “the murderous doctrine of savage and wolfish individualism, looking to dog-eat-dog and devil take the hindmost.<ref>Carson, Clarence B. The Relics of Intervention part 4. New Deal Collective Planning</ref>
The New Deal faced some very vocal conservative opposition. The first organized opposition in 1934 came from the American Liberty League led by Democrats such as 1924 and 1928 presidential candidates John W. Davis and Al Smith. There was also a large loose grouping of opponents of the New Deal who have come to be known as the Old Right which included politicians, intellectuals, writers, and newspaper editors of various philosophical persuasions including classical liberals, conservatives, Democrats and Republicans.
[edit] World Comparisons
Britain was unable to adopt major programs to stop its depression. That led to collapse of Labour and replacement in 1931 by a National coalition (predominantly Conservative). Partially as a result there was no equivalent "New Deal" in Britain. In Nazi Germany, economic recovery was pursued through wage controls, suppression of unions, and spending programs such as public works; large-scale rearmament came later in the 1930s. In Mussolini's Italy, the economic controls of his corporate state were tightened. In the Soviet Union, Stalin continued his massive program of economic planning and state ownership. The apparent failure of capitalism led some Americans to consider communist or fascist ideology.m
[edit] The First Hundred Days
Having won a decisive victory in the 1932 presidential election, and with his party having decisively swept Congressional elections across the nation, Roosevelt entered office with unprecedented political capital. Many Congressmen had their favorite projects, like the Tennessee Valley Authority plan of Senator George Norris, which the administration adopted and treated as its own. Finally there were numerous Hoover plans that he could not get passed but were ready to go, such as the emergency banking laws. Americans of all political persuasions were demanding immediate action, and Roosevelt responded with a remarkable series of new programs in the “first hundred days” of the administration.
[edit] The "Bank Holiday" and the Emergency Banking Act
Roosevelt hurled the blame at businessmen and bankers with religious rhetoric: "Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men....The money changers have fled from their high seats in the temple of our civilization."
By March 4 all banks in the country were virtually closed by their governors, and Roosevelt kept them all closed until he could pass new legislation. On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's administration; the act was passed and signed into law the same day. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. 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, thus stabilizing the banking system. In all of 1933, 4,004 small local banks were closed and were merged into larger banks. (Their depositors eventually received 85 cents on the dollar of their deposits.) Economists Milton Friedman and Anna Schwartz<ref>1963 p 330</ref> said, "The 'cure' came close to being worse than the disease." To avoid future "cures" the Congress created the Federal Deposit Insurance Corporation in June, which insured deposits. In practice the day of the bank run was virtually ended by the FDIC. Roosevelt issued Executive Order 6102 requiring that by next January all private gold be turned in for paper money at face value. (Legally he was following the March 9 law.) After January 1934 he then devalued the international value of the dollar by 40 percent in terms of gold and refused to honor gold obligations on any paper dollars or bonds redeemed. The Supreme Court, though with five justices condemning the repudiation of the obligation, ruled on principle that the bondholders did not suffer a loss in purchasing power when the price of gold was adjusted upward relative to paper dollars and therefore could not demand gold. However, Roosevelt had prepared a radio address beforehand to announce his refusal to enforce the decision if the Court were to rule in favor of the bondholders.<ref>Pusey, Merlo J. F.D.R. vs. the Supreme Court, American Heritage Magazine, April 1958,Volume 9, Issue 3</ref>
The economy had hit rock bottom in March 1933 and now it started to expand. As historian Broadus Mitchell notes, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically."<ref>Mitchell p 404.</ref> Economic indicators show the economy reached nadir in the first days of March, then began a steady, sharp upward recovery that persisted until 1937 when it was hit with the Recession of 1937, creating a depression within a depression. Thus the Federal Reserve Index of Industrial Production hit its lowest point of 52.8 in July 1932 (with 1935-39 = 100) and was practically unchanged at 54.3 in March 1933; however by July 1933, it reached 85.5, a dramatic rebound of 57% in four months.
[edit] The Economy Act
The Economy Act, drafted by Budget Director Lewis Douglas was passed on March 20, 1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by 40%. It saved $500 million a year and reassured deficit hawks like Douglas that the new president was fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget which he balanced, and the "emergency budget" needed to defeat the depression. It was imbalanced on a temporary basis.
Roosevelt thus reflected the classical Democratic party position, dating back to Andrew Jackson and the Jacksonian Democrat days. Roosevelt was initially in favor of balancing the budget but he would soon find himself using deficit spending in order to fund the numerous programs he created. Douglas, however, rejecting the distinction between a regular and emergency budget, resigned in 1934, and became an outspoken critic of the New Deal. Roosevelt strenuously opposed the Bonus Bill that would give World War I veterans a cash bonus. Finally, Congress passed it over his veto in 1936, and the Treasury distributed $1.5 billion in cash to 4 million veterans just before the 1936 election.
At least until John Kennedy in 1960 New Dealers never fully recognized the Keynesian argument for government spending as a vehicle for recovery. Most economists of the era, along with Henry Morgenthau at the Treasury, rejected Keynesian solutions and favored balanced budgets.
[edit] The Farm Programs
Roosevelt was keenly interested in farm issues, and emphasized that true prosperity would not return until farming was prosperous. Many different programs were directed at farmers. The first hundred days produced a federal program to protect commercial farmers from the uncertainties of the depression through subsidies and production controls. This program began with the Agricultural Adjustment Act, creating the Agricultural Adjustment Administration (AAA), which Congress passed in May 1933. The Act reflected the demands of leaders of major farm organizations, especially the Farm Bureau, and reflected debates among Roosevelt's farm advisers such as Henry A. Wallace, Rexford Tugwell, and George Peek. The AAA implemented a provision for crop reductions known as the "domestic allotment" system of the act. Under this system producers of corn, cotton, dairy products, hogs, rice, tobacco, and wheat would decide on production limits for their crops. The AAA would then pay land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. Farm prices were to be subsidized up to the point of parity. Some crops were ordered to be destroyed and some livestock slaughtered to maintain prices. The idea was that the less produced, the higher the price, and the farmer would benefit. Farm incomes increased significantly in the first three years of the New Deal. However, this was at the expense of consumers who had to pay more. The AAA established an important and long-lasting federal role in the planning on the entire agricultural sector of the economy. The AAA did not provide for any sharecroppers or tenants or farm laborers who might become unemployed, but there were other New Deal programs especially for them.
Roosevelt, Eleanor Roosevelt, and many New Dealers were highly sympathetic to the marginal farmers who lived on the land in severe poverty, especially in the South. Major programs addressed to their needs included the Resettlement Administration (RA), the Farm Security Administration (FSA), the Rural Electrification Administration (REA), the Tennessee Valley Authority (TVA) and rural welfare projects sponsored by the WPA, NYA, Forest Service and CCC, including school lunches, building new schools, opening roads in remote areas, reforestation, and purchase of marginal lands to enlarge national forests.
The AAA was the first program on such a scale on behalf of the troubled agricultural economy, and it established an important and long-lasting federal role in the planning on the entire agricultural sector of the economy.
In 1936, the Supreme Court declared the AAA to be unconstitutional, stating that "a statutory plan to regulate and control agricultural production, [is] a matter beyond the powers delegated to the federal government..." The AAA was replaced by a similar program that did win Court approval. Federal regulation of agricultural production has been modified many times since then, but together with large subsidies it is still in effect in 2006.
[edit] Relief
The administration launched a series of relief measures and welfare agencies to give meaningful jobs to the unemployed, especially unskilled laborers. The largest programs were the Civilian Conservation Corps (CCC), the Civil Works Administration (CWA), the Federal Emergency Relief Administration (FERA), the National Youth Administration (NYA), and above all, the Works Progress Administration (WPA). The WPA employed a maximum of 3.3 million in November 1938.<ref>According to Nancy Rose' Put to Work.</ref> However, even at this level of WPA employment, unemployment (counting WPA as employment) was still 12.5% in 1938 according to figures from Micheal Darby.<ref>Darby, Michael R.Three and a half million U.S. Employees have been mislaid: or, an Explanation of Unemployment, 1934-1941. Journal of Political Economy 84, no. 1 (1976): 1-16.</ref> All these emergency programs were terminated in 1942-43, when unemployment had vanished due to World War II related employment offers.
In 1933 the administration launched the Tennessee Valley Authority, a project involving dam construction planning on an unprecedented scale in order to curb flooding, generate electricity, and modernize the very poor farms in the Tennessee Valley region of the Southern United States.
[edit] Repeal of prohibition
In a measure that garnered substantial popular support, Roosevelt, in his first days of office, moved to put to rest one of the most divisive cultural issues of the 1920s. He supported and signed a bill to legalize the manufacture and sale of beer, an interim measure pending the repeal of Prohibition, for which a constitutional amendment (the Twenty-first) was already in process. The amendment was ratified later in 1933. Prohibition had been a rather unpopular amendment and lead to bootlegging, or the illegal manufacture and sale of liquor within the United States.
[edit] Communists in New Deal
Right wing critics complained that the New Deal was infiltrated with Communists. The most important group (in the Department of Agriculture) was fired in 1934, but Whittaker Chambers and Alger Hiss went deeper underground.<ref>Ellen Schrecker, The Age of McCarthyism: Brief History (2002); Sam Tanenhaus. Whittaker Chambers: A Biography (1997)</ref> Outside government, the far left was exerting considerable influence in the labor movement (it dominated the new CIO), and was building a network of membership organizations. Thus the American League Against War and Fascism was formed in 1933 and, in 1937 became American League for Peace and Democracy. There followed the America Youth Congress, 1934; League of American Writers, 1935; National Negro Congress, 1936; and the American Congress for Democracy and Intellectual Freedom, 1939. All had significant Communist connections, and fought furious battles with the anti-Communist left. <ref> Leuchtenburg (1963) 281-3; Irving Howe, Lewis A. Coser, and Julius Jacobson, The American Communist Party: a critical history, 1919-1957 (1957); James R. Barrett, William Z. Foster and the Tragedy of American Radicalism (2002).</ref>
[edit] Puerto Rico
A separate set of programs operated in Puerto Rico, headed by the Puerto Rico Reconstruction Administration. It promoted land reform and helped small farms; it set up farm cooperatives, promoted crop diversification, and helped local industry. It was directed by Ernest Gruening.
[edit] Reform: (NIRA)
[edit] Business, labor, and government cooperation
Besides programs for immediate 'relief' the New Deal embarked quickly on an agenda of long-term 'reform' aimed at avoiding another depression. Falling prices hurt the economy; the New Dealers responded to demands to inflate the currency by a variety of means. Another group of reformers sought to build consumer and farmer co-ops as a counterweight to big business. The consumer co-ops did not take off, but the Rural Electrification Administration used co-ops to bring electricity to rural areas. (As of 2005, many still operate.)
Roosevelt realized that these initial actions were nothing but short term solutions, and that more comprehensive government programs would be necessary. In the roughly three years between the Great Crash and Roosevelt's First Hundred Days, the industrial economy had been suffering from a vicious cycle of deflation. Since 1931, the U.S. Chamber of Commerce, then and now the voice of the nation's organized business, had been urging the Hoover administration to adopt an anti-deflationary scheme that would permit trade associations to cooperate in stabilizing prices within their industries. While existing antitrust laws clearly forbade such practices, organized business found a receptive ear in the Roosevelt administration.
The Roosevelt administration, packed with reformers aspiring to forge all elements of society into a cooperative unit (a reaction to the worldwide specter of business-labor "class struggle"), was fairly amenable to the idea of cooperation among producers.
The Roosevelt administration, insisted that business would have to ensure that the incomes of workers would rise along with their prices. The product of all these impulses and pressures was the National Industrial Recovery Act (NIRA), the most important undertaking of the First Hundred Days, that was passed by Congress in June 1933.
The NIRA guaranteed to workers the right of collective bargaining and helped spur some union organizing activity, but much faster growth of union membership came after the 1935 Wagner Act. The NIRA established the National Recovery Administration (NRA), which attempted to stabilize prices and wages through cooperative "code authorities" involving government, business, and labor. The NRA included a multitude of regulations imposing the pricing and production standards for all sorts of goods and services. Some ridiculed it as the "National Run Around." Most economists were dubious because it was based on fixing prices to reduce competition.<ref>Parker</ref> Historian Jim Power, in FDR's Folly says that the above-market wages rates dictated by the NRA made it more expensive for employers to hire people, and therefore unnecessarily maintained high unemployment and prolonged the Depression.
To prime the pump and cut unemployment, the NIRA created the Public Works Administration (PWA), a major program of public works. From 1933 to 1939 PWA spent $6 billion with private companies to build 34,500 projects, many of them were quite large.
[edit] The NRA "Blue Eagle" campaign
At the center of the NIRA was the National Recovery Administration (NRA), headed by former General Hugh Samuel Johnson. Johnson called on every business establishment in the nation to accept a stopgap "blanket code": a minimum wage of between 20 and 40 cents an hour, a maximum workweek of 35 to 40 hours, and the abolition of child labor. Johnson and Roosevelt contended that the "blanket code" would raise consumer purchasing power and increase employment.
To mobilize political support for the NRA, and the administrations "blanket code", Johnson launched the "NRA Blue Eagle" publicity campaign to boost his bargaining strength to negotiate the codes with business and labor. The NRA negotiated specific sets of codes with leaders of the nation's major industries; the most important provisions were anti-deflationary floors below which no company would lower prices or wages, and agreements on maintaining employment and production. In a remarkably short time, the WPA won agreements from almost every major industry in the nation. Six months after the NRA went into effect industrial production dropped 25 percent. According to some economists, the NRA increased the cost of doing business by 40 percent.<ref name="Reed">Reed, Lawrence W. Great Myths of the Great Depression Mackinac Center for Public Policy.</ref> By the time it ended in May 1935, industrial production was 22% higher than in May 1933.
On May 27 1935, the NRA was found to be unconstitutional by a unanimous decision of the U.S. Supreme Court in the case of Schechter v. United States. On that same day, the Court unanimously struck down the Frazier-Lemke Act portion of the New Deal as unconstitutional.
[edit] Second New Deal
[edit] Legislative successes and failures
In the spring of 1935, responding to the setbacks in the Court, a new skepticism in Congress, and the growing popular clamor for more dramatic action, the administration proposed or endorsed several important new initiatives. Historians refer to them as the "Second New Deal" and note that it was more radical, more pro-labor and anti-business, than the "First New Deal" of 1933-34. The National Labor Relations Act (July 5), also known as the Wagner Act, revived and strengthened the protections of collective bargaining contained in the original (and now unconstitutional) NIRA. The result was a tremendous growth of membership in the labor unions comprising the American Federation of Labor. Labor thus became a major component of the New Deal political coalition. Roosevelt nationalized unemployment relief through the Works Progress Administration (WPA), headed by close friend Harry Hopkins. It created hundreds of thousands of low-skilled blue collar jobs for unemployed men (and some for unemployed women and white collar workers). Applicants for WPA jobs did not have to be Democrats, but their foremen quickly explained that Roosevelt created their paychecks and that conservative Republicans wanted to abolish the program. The National Youth Administration was the semi-autonomous WPA program for youth. Its Texas director, Lyndon Baines Johnson, later used the NYA as a model for some of his Great Society programs in the 1960s.
In the very long run, the most important program of 1935, and perhaps the New Deal as a whole, was the Social Security Act (August 14), which established a system of insurance against old age. It also set up unemployment insurance and welfare benefits for such protected groups as dependent children and the handicapped. It established the modern framework for U.S. welfare system. Roosevelt insisted that it should be funded by payroll taxes rather than from the general fund; he said, "We 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 my social security program." One of the last New Deal agencies was the United States Housing Authority, created in 1937 with some Republican support to abolish slums.
[edit] Defeat: Court Packing and Executive Reorganization
Roosevelt, however, emboldened by the triumphs of his first term, set out in 1937 to consolidate authority within the government in ways that provoked powerful opposition. Early in the year, he asked Congress to expand the number of justices on the Supreme Court so as to allow him to appoint members sympathetic to his ideas and hence tip the ideological balance of the Court. This proposal provoked a storm of protest.
In one sense, however, it succeeded; Justice Owen Roberts, almost certainly in response to the threat, switched positions and began voting to uphold New Deal measures, effectively creating a liberal majority in West Coast Hotel Co. v. Parrish and National Labor Relations Board v. Jones & Laughlin Steel Corporation thus departing from the Lochner v. New York era and giving the government more power in questions of economic policies. Journalists called this change "the switch in time that saved nine." But the "court packing plan," as it was known, did lasting political damage to Roosevelt and was finally rejected by Congress in July.
At about the same time, the administration proposed a plan to reorganize the executive branch in ways that would significantly increase the president's control over the bureaucracy. Like the Court-packing plan, executive reorganization garnered opposition from those who feared a "Roosevelt dictatorship" and it failed in Congress; a watered-down version of the bill finally won passage in 1939.
[edit] Attacks Right and Left
Historians on the left argue that Roosevelt saved capitalism in his first term when he could have destroyed it and easily nationalized the banks and the railroads. [Conkin]
Historians on the right and left have generally been disappointed with Roosevelt's second term. On the Old Right, there have been charges of an FDR "executive dictatorship" since the 1930s. Journalist John T. Flynn, for example, denounced FDR as a socialistic radical and a despot in The Roosevelt Myth (1956).
Conversely, historians on the left have denounced the New Deal as a conservative phenomenon that let slip the opportunity to radically reform capitalism. Since the 1960s, "New Left" historians have been among the New Deal's harsh critics. (For a list of relevant works, see the list of suggested readings appearing toward the bottom of the article.) Barton J. Bernstein, in a 1968 essay, compiled a chronicle of missed opportunities and inadequate responses to problems. The New Deal may have saved capitalism from itself, Bernstein charged, but it had failed to help—and in many cases actually harmed—those groups most in need of assistance. Paul K. Conkin in The New Deal (1967) similarly chastised the government of the 1930s for its policies toward marginal farmers, for its failure to institute sufficiently progressive tax reform, and its excessive generosity toward select business interests. Howard Zinn, in a 1966 essay, criticized the New Deal for working actively to actually preserve the worst evils of capitalism.
Yet, much of the more recent work on the New Deal has been less interested in the question of whether the New Deal was a "conservative" or "revolutionary" phenomenon than in the question of constraints within which it was operating. Political sociologist Theda Skocpol, in an influential series of articles, has emphasized the issue of "state capacity" as an often-crippling constraint. Ambitious reform ideas often failed, she argued because of the absence of a government bureaucracy with significant strength and expertise to administer them. Other more recent works have stressed the political constraints that the New Deal encountered. Both in Congress and among certain segments of the population conservative inhibitions about government remained strong; thus some scholars have stressed that the New Deal was not just a product of its liberal backers, but also a product of the pressures of its conservative opponents.
[edit] The New Deal and the "broker state"
[edit] Government Role: balance labor, business and farming
Despite the dismal record in aiding marginal farmers and African Americans, among others-- contrasted with its often frequent generosity toward certain business interests--the New Deal was to elevate and strengthen new interest groups so as to allow them to compete more effectively for the interests by having the federal government evolve into an arbitrator in competition among all elements and classes of society, acting as a force that could mediate when necessary to help some groups and limit the power of others. By the end of the 1930s, business found itself competing for influence with an increasingly powerful labor movement, one that was engaged in mass mobilization and sometimes militant action; with an organized agricultural economy, and occasionally with aroused consumers. The New Deal accomplished this by creating a series of state institutions that greatly, and permanently, expanded the role of the federal government in American life. The government was now committed to providing at least minimal assistance to the poor and unemployed; to protecting the rights of labor unions; to stabilizing the banking system; to building low-income housing; to regulating financial markets; to subsidizing agricultural production; and to doing many other things that had not previously been federal responsibilities.
Thus, perhaps the strongest legacy of the New Deal, in other words, was to make the federal government a protector of interest groups and a supervisor of competition among them. As a result of the New Deal, political and economic life became politically more competitive than before, with workers, farmers, consumers, and others now able to press their demands upon the government in ways that in the past had been available only to the corporate world. Hence the frequent description of the government the New Deal created as the "broker state," a state brokering the competing claims of numerous groups. If there was more political competition, there was less market competition. Farmers were not allowed to sell for less than the official price. The transportation industry (especially airlines, trucking and railroads) was tightly regulated so that every firm had a guaranteed market and management and labor had high profits and high wages, all at the cost of high prices and much inefficiency. Quotas in the oil industry were fixed by the Railroad Commission of Texas with the federal Connally Hot Oil Act of 1935<ref>The Handbook of Texas Online: Connally Hot Oil Act of 1935</ref> guaranteeing that illegal "hot oil" would not be sold. To the New Dealers, the free market meant "cut-throat competition" and they considered that evil. Not until the 1970s and 1980s would most of the New Deal regulations be relaxed.
Thus, it did not transform American capitalism in any genuinely radical way. Except in the field of labor relations, corporate power remained nearly as free from government regulation in 1939 as it had been in 1933, but that changed dramatically during the war, as Washington took control over wage rates, prices, and allocation of raw materials, and sent military officers into munitions plants. All the relief programs were closed down during the war, but one major program survived--Social Security--to become the liberal hallmark of the New Deal into the 21st century.
[edit] African Americans
However, this so-called "broker state" would offer much less influence to those groups either too weak to demand assistance or not visible enough to arouse widespread public support.
The most notable group to receive much less influence than others in the broker state was African Americans. Many leading New Dealers, including Eleanor Roosevelt, Harold Ickes, Aubrey Williams and Harry Hopkins worked hard to ensure Blacks received at least 10% of welfare assistance payments. But the New Deal did not try to undercut segregation or change the second class political status of Blacks in the South. Roosevelt did appoint an unprecedented number of African Americans to second-level positions in his administration that collectively were called the Black Cabinet, perhaps due to the influence of his wife, Eleanor Roosevelt, a vocal advocate of easing discrimination. Roosevelt and Hopkins worked with big city mayors to welcome Black political organizations that made the transition from the GOP to the Democratic party in 1934-36.
The WPA, NYA, and CCC relief programs allocated 10% of their budgets to blacks (who comprised about 10% of the total population, and 20% of the poor). They operated separate all-black units with the same pay and conditions as white units. The African American community responded favorably, so that by 1936 the majority who voted (usually in the North) were voting Democratic. This was a sharp realignment from 1932, when the most African Americans preferred the Republican ticket. The New Deal thus established a political alliance between African Americans and the Democratic Party that survives into the 21st century.
Roosevelt believed that other matters were far more pressing than racial discrimination. Never willing to lose the support of Southern Congressional Democrats, he declined to support legislation making lynching a federal crime, while denouncing lynching in speeches. He declined to advocate banning the poll tax, used by Southern whites to deny the vote to Southern blacks. He refused to use the relief agencies to challenge local patterns of discrimination: the NRA tolerated widespread practices of paying blacks less than whites; blacks were largely excluded from employment at the TVA; the FHA refused to provide mortgages to blacks moving into white neighborhoods; and the AAA was ineffectual in protecting the interests of black sharecroppers and tenant farmers.
Some liberal historians argue the New Deal laid the ground work for the "broker state" to be expanded a generation later, mostly through the work of the next wave of liberal reform—the civil rights movement and the Great Society—to embrace groups marginalized in the 1930s. However, many African American historians insist that the Civil Rights movement owed everything to black activists, and very little to the New Deal. Note that the New Deal was especially beneficial to white ethnic minorities, who responded with 80-90% of their votes for Roosevelt's reelection.
[edit] The recession of 1937 and recovery
The Roosevelt administration was under assault during FDR's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. Keynesian economists speculated that this was a result of a premature effort to curb government spending and balance the budget, while conservatives said it was caused by attacks on business and by the huge strikes caused by the organizing activities of the CIO and the American Federation of Labor (AFL).
Roosevelt rejected the advice of Morgenthau to cut spending, and decided big business was trying to ruin the New Deal by causing another depression that voters would react against by voting Republican. It was a "capital strike" said Roosevelt, and he ordered the FBI to look for a criminal conspiracy (they found none). Roosevelt moved left and unleashed a rhetorical campaign against monopoly power, which was cast as the cause of the new crisis. Ickes attacked automaker Henry Ford, steelmaker Tom Girdler, and the superrich "Sixty Families" who supposedly comprised "the living center of the modern industrial oligarchy which dominates the United States." Left unchecked, Ickes warned, they would create "big-business Fascist America -- an enslaved America." The president appointed Robert Jackson as the aggressive new director of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II began and big business was urgently needed to produce war supplies. [Kennedy p 352]
But the administration's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the vitriolic pleas of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. The New Deal had in fact engaged in deficit spending since 1933, but it was apologetic about it, because a rise in the national debt was opposite of what the Democratic party had always preached. Now they had a theory to justify what they were doing. Roosevelt explained his program in a fireside chat in which he finally acknowledged that it was therefore up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation."
Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued that the New Deal had been very hostile to business expansion in 1935-37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive anti-trust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.
Lawrence Reed notes that "when a nationally representative poll by the American Institute of Public Opinion in the spring of 1939 asked, “Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?” the American people responded “yes” by a margin of more than two-to-one. The business community felt even more strongly so"<ref name="Reed"/> Roosevelt's Treasury Secretary, Henry Morganthau, said in May 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."
[edit] World War II and the end of the Great Depression
The Depression, however, continued until the U.S. entered the Second World War; Roosevelt, once committed to war in Europe and Asia, then had little choice. Under the special circumstances of war mobilization, massive war spending doubled the GNP. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output as an expression of patriotism. Patriotism drove most people to voluntarily work overtime and give up leisure activities to make money after so many hard years. Patriotism meant that people accepted rationing and price controls for the first time. Cost-plus pricing in munitions contracts guaranteed that businesses would make a profit no matter how many mediocre workers they employed, no matter how inefficient the techniques they used. The demand was for a vast quantity of war supplies as soon as possible, regardless of cost. Business hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 12 million working-age men serving in the military. These events magnified the role of the federal government in the national economy. In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist state. However, spending on the New Deal was far smaller than on the war effort.
In the first peacetime year of 1946, federal spending still amounted to $62 billion, or 30% of GNP. Wartime spending and other measures were able to provide an enormous output. Between 1939 and 1944 (the peak of wartime production), the nation's total output almost doubled. This, along with the conscription and removal of soldiers, meant that civilian unemployment plummeted—from 14% in 1940 to less than 2% in 1943 as the labor force grew by ten million. Millions of farmers left marginal operations, students quit school, and housewives returned to the labor force. The war economy was not run on the basis of free enterprise, but was the result of government/business cooperation, with government bankrolling business.
A major result of the full employment at high wages was a sharp, permanent decrease in the level of income inequality. The gap between rich and poor narrowed dramatically in the area of nutrition, because food rationing and price controls guaranteed a reasonably priced diet to everyone. Large families that had been poverty-stricken in the 1930s had four or five or more workers, and shot to the top one-third income bracket. Overtime made for huge paychecks in the munitions factories; white collar workers were fully employed too, but they did not receive overtime and their salary scale was no longer much higher than the blue collar wage scale.
Economist Robert Higgs (1987), argues that the War did not end the Great Depression but a return to normality after the war, as the government relaxed wage controls, price controls, capital controls, reduced tariffs and other trade barriers, and eliminated the rationing of goods and the relaxing of Federal control over American industries ended it.
[edit] Conflicting interpretation of the New Deal economic policies
[edit] Depression Statistics
"Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically."<ref>Mitchell, p. 404.</ref> Economic indicators show the American economy reached nadir in summer 1932 to February 1933, then began recovering until the Roosevelt recession of 1937-1938. Thus the Federal Reserve Industrial Production Index hit its low of 52.8 on 1932-07-01 and was practically unchanged at 54.3 on 1933-03-01; however by 1933-07-01, it reached 85.5 (with 1935-39 = 100, and for comparison 2005 = 1,342).<ref>Industrial Production Index</ref> In Roosevelt's twelve years in office the economy had an 8.5% compound annual growth of GDP,<ref>Historical Statistics of the United States (1976) series F31</ref> the highest growth rate in the history of any industrial country,<ref> Angus Maddison, The World Economy: Historical Statistics (OECD 2003); Japan is close, see p 174</ref> however, recovery was slow --by 1939 GDP per adult was still 27% below trend.<ref name="Cole">Cole, Harold L and Ohanian, Lee E. New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis, 2004.</ref> And, throughout the New Deal the median joblessness rate was 17.2 percent and never went below 14 percent.
| Statistic<ref>U.S. Dept of Commerce, National Income and Product Accounts Real GDP and GNP; Mitchell 446, 449, 451; Consumer Price Index AND M2 Money Supply: 1800-2003</ref> | 1929 | 1931 | 1933 | 1937 | 1938 | 1940 |
|---|---|---|---|---|---|---|
| Real Gross National Product (GNP) (1) | 101.4 | 84.3 | 68.3 | 103.9 | 96.7 | 113.0 |
| Consumer Price Index (2) | 122.5 | 108.7 | 92.4 | 102.7 | 99.4 | 100.2 |
| Index of Industrial Production (2) | 109 | 75 | 69 | 112 | 89 | 126 |
| Money Supply M2 ($ billions) | 46.6 | 42.7 | 32.2 | 45.7 | 49.3 | 55.2 |
| Exports ($ billions) | 5.24 | 2.42 | 1.67 | 3.35 | 3.18 | 4.02 |
| Unemployment (% of civilian work force) | 3.1 | 16.1 | 25.2 | 13.8 | 16.5 | 13.9 |
(1) in 1929 dollars (2) 1935-39 = 100
| Unemployment | ||
| % labor force | Lebergott | Darby |
| 1933 | 24.9 | 20.6 |
| 1934 | 21.7 | 16.0 |
| 1935 | 20.1 | 14.2 |
| 1936 | 16.9 | 9.9 |
| 1937 | 14.3 | 9.1 |
| 1938 | 19.0 | 12.5 |
| 1939 | 17.2 | 11.3 |
| 1940 | 14.6 | 9.5 |
| 1941 | 9.9 | 8.0 |
| 1942 | 4.7 | 4.7 |
| 1943 | 1.9 | 1.9 |
| 1944 | 1.2 | 1.2 |
| 1945 | 1.9 | 1.9 |
</TD> </TR> Derby counts WPA workers as employed; Lebergott as unemployed source: Historical Statistics US (1976) series D-86; Smiley 1983<ref> Smiley, Gene, "Recent Unemployment Rate Estimates for the 1920s and 1930s," Journal of Economic History, June 1983, 43, 487-93.</ref>
[edit] Relief Statistics
Families on Relief 1936-41<H3></CENTER>
| Relief Cases 1936-1941 | |
| monthly average in 1,000 | |
| 1936</FONT> | <TD> 1937</FONT></TD><TD> 1938</FONT></TD><TD> 1939</FONT></TD><TD> 1940</FONT></TD><TD> 1941</FONT></TD>
