The Three Rs: “Relief, Recovery, and Reform” through New Deal Programs
1.) The First New Deal (1933-1934)
The First Hundred Days
Americans voted for Franklin Delano Roosevelt in 1932 on the assumption that the Democrats would dole out more federal assistance than Hoover and the Republicans had. Indeed, immediately after taking the oath of office, FDR set out to provide relief, recovery, and reform in his bundle of programs known as the New Deal.
Roosevelt drew much of his inspiration for the New Deal from the writings of British economist John Maynard Keynes, who believed that a government’s deficit spending could prime the economic pump and jump-start the economy. With the support of a panicked Democratic Congress, Roosevelt created most of the “alphabet agencies” of the First New Deal within his landmark First Hundred Days in office.
The Banking Acts
On March 6, 1933, two days after becoming president, Roosevelt declared a five-day national bank holiday to close banks temporarily. During Hoover’s presidency, roughly 1,500 banks had closed each year, and FDR hoped that a short break would give the surviving banks time to reopen on more solid footing. Several days later, Congress passed the Emergency Banking Relief Act, which gave Roosevelt the power to regulate banking transactions and foreign exchange.
Several months later, Congress passed the Glass-Steagall Banking Reform Act to protect savings deposits. The act, in turn, created the Federal Deposit Insurance Corporation (FDIC), which insured an individual’s savings of up to $5,000 (today, it insures deposits of up to $100,000). The act also regulated lending policies and forbade banks from investing in the stock market. After the banking crisis was resolved, Roosevelt aired the first of his “fireside chats” to over 50 million radio listeners, encouraging Americans to redeposit their money in the newly opened banks.
The Civilian Conservation Corps(CCC)
In March 1933, Congress created the Civilian Conservation Corps (CCC), which hired unemployed young men to work on environmental conservation projects throughout the country. For a wage of thirty dollars a month, men worked on flood control and reforestation projects, helped improve national parks, and built many public roads. Approximately 3 million men worked in CCC camps during the program’s nine-year existence.
The Federal Emergency Relief Administration (FERA)
The “Hundred Days Congress” also created the Federal Emergency Relief Administration (FERA), in May 1933, to dole out roughly $500 million to the states. About half of this money was earmarked to bail out bankrupt state and local governments. States matched the other half (three state dollars for every one federal dollar) and distributed it directly to the people. FERA also created the Civil Works Administration (CWA), which helped generate temporary labor for those most in need.
The Agricultural Adjustment Administration (AAA)
Roosevelt also encouraged the creation of the Agricultural Adjustment Administration (AAA) to assist America’s farmers. The AAA temporarily reset prices for farm commodities, including corn, wheat, rice, milk, cotton, and livestock, and then began subsidizing farmers to reduce production. Before the depression, many debt-ridden farmers had increased crop production in order to earn more money. Ironically, this increased production had led to overproduction, which flooded the market and drove prices down, forcing farmers to plant even more the next year in a never-ending cycle. The AAA, however, began paying farmers extra to plant less or destroy their surplus crops in order to raise prices again. Congress also passed the Farm Credit Act to create the Farm Credit Administration (FCA) to provide loans to farmers in danger of bankruptcy and refinance their mortgages.
The AAA was quite controversial, as many critics wondered why landowners rather than sharecroppers and tenant farmers were receiving federal aid. Indeed, some landowners who received aid unjustly used it to purchase farm equipment, which had the potential to eliminate farm owners’ need for sharecroppers and tenant farmers entirely. Furthermore, many poorer and hungrier Americans were outraged that the government was paying farmers money to destroy perfectly edible crops in order to inflate prices. Despite these criticisms, however, the AAA did manage to raise prices to their pre–World War I highs.
The Tennessee Valley Authority(TVA)
Congress also created the Tennessee Valley Authority (TVA), whose goal was to modernize and reduce unemployment in the Tennessee River valley, one of the poorest and hardest-hit regions in the country. The agency hired local workers to construct a series of dams and hydroelectric power plants, which brought cheap electricity to thousands of people. The public corporation also created affordable employee housing, manufactured cheap fertilizer, and drained thousands of acres for farming.
The TVA, like the AAA, was highly controversial. Many conservatives claimed that government production of electricity was a mild form of socialism and that it disrupted market prices too much. Competing electric companies also attacked the TVA for selling cheaper electricity and lowering their profits. Still, the TVA had such a profound impact on the economy and quality of life in the Tennessee River valley region that the federal government initiated similar projects throughout the West and South. Within a decade, many major U.S. rivers were set up to produce hydroelectric power that provided both electricity and jobs.
The National Industrial Recovery Act (NRA)
The 1933 National Industrial Recovery Act was the federal government’s first attempt to revive the economy as a whole. The bill created the National Recovery Administration (NRA) to stimulate industrial production and improve competition by drafting corporate codes of conduct. The NRA also sought to limit production of consumer goods to drive up prices. Furthermore, the act helped set up the Public Works Administration (PWA) to construct public roads, bridges, and buildings. In accordance with Keynesian economic theories, Roosevelt believed that improving the public infrastructure would put more money into the economy.
Restructuring American Finance
Finally, Roosevelt also lobbied Congress to establish new regulations on the financial sector of the economy. After taking office, he took the country off the gold standard, which allowed citizens and foreign countries to exchange paper money for gold. To prevent people from hoarding the precious metal, the president also ordered all private gold stocks to be turned over to the U.S. Treasury in exchange for paper dollars. Congress also created the Securities and Exchange Commission (SEC) to regulate trading on Wall Street and curb the out-of-control speculation that had led to the Crash of 1929.
The Three Rs and Their Legacy
Although the New Deal sometimes comes across as a cohesive package, much of the individual legislation passed during the First Hundred Days was conceived on the fly. So many special interest groups, such as big business and organized labor, were hounding the government for change that Roosevelt and Congress often felt they were being pulled in opposite directions.
Nevertheless, the New Deal policies did much to get Americans back on their feet. They not only provided relief, recovery, and reform but also drastically changed the federal government’s role in politics and society. Roosevelt’s successful application of Keynes’s economic theories transformed the Democrats into social welfare advocates. Even decades after the Great Depression, Democratic politicians would continue fighting for more government intervention in the economy, redistribution of wealth, and aid for the neediest.
Much of the legislation that the Hundred Days Congress drafted doled out immediate relief for the American people that President Hoover and the Republicans had failed to provide. The Federal Emergency Relief Administration’s relief assistance, for example, provided millions of Americans with enough money to make ends meet. The Civil Works Administration put the unemployed to work, and the Agricultural Adjustment Administration, the Tennessee Valley Authority, the National Recovery Administration, and the Public Works Administration kept millions of others alive as well. Americans were so relieved by the federal government’s quick action that many became die-hard Democrats and Roosevelt fans. The president’s optimism and can-do attitude, combined with the success of his immediate relief programs, made him almost politically untouchable during his first term.
Many of the same programs designed to provide immediate relief were also geared toward long-term economic recovery. The Civilian Conservation Corps and the Public Works Administration put millions of men to work not only to keep them employed but also to improve the national infrastructure. When the United States finally emerged from the Great Depression during World War II, it had hundreds of new roads and public buildings, widespread electrical power, and replenished resources for industry.
The third goal of the New Deal policies was to reform the banking and financial sector of the economy to curb bad lending practices, poor trading techniques, and corruption. The president’s decision to take the country off the gold standard proved to be a smart move because it boosted people’s confidence in the U.S. dollar. The Federal Deposit Insurance Corporation, created under the Glass-Steagall Act, eliminated untrustworthy banks that had plagued the country for more than a century. Once Americans became confident that their funds would be safe, the number of bank deposits surged. Likewise, the Securities and Exchange Commission in 1934, which weeded out bad investment habits, gave Americans more confidence in the stock market.
2.) The Second New Deal (1935-1938)
The legislation that Roosevelt and Congress passed between 1935 and 1938—was strikingly different from the First New Deal in certain ways. Perhaps most important, the Second New Deal legislation relied more heavily on the Keynesian style of deficit spending than the First New Deal did. Roosevelt altered his policy making in part because of complaints from critics and in part because, by 1935, it was clear that more Americans still needed federal relief assistance. Roosevelt thus aimed approximately half the Second New Deal programs and policies at long-term reform.
The Works Progress Administration
The first major legislation that Roosevelt and Congress passed in the Second New Deal—in response to the critics—was the Works Progress Administration (WPA). Created in 1935, the WPA was an effort to appease the “Longites” who clamored for more direct assistance from the federal government. The WPA was similar to the Public Works Administration of the First New Deal, this time hiring nearly 10 million Americans to construct new public buildings, roads, and bridges. Congress dumped over $10 billion into the projects in just under a decade.
The Social Security Act
Congress also passed the Social Security Act in 1935, creating a federal retiree pension system for many workers, funded by a double tax on every working American’s paycheck. The act also created an unemployment insurance plan to provide temporary assistance to those who were out of work, while also making funds available to the blind and physically disabled. Furthermore, Congress agreed to match federal dollars for every state dollar allocated to workers’ compensation funds.
Despite its vocal critics, the Social Security Act had an enormous impact on Great Depression–era Americans and future generations. It brought the most sweeping change of the Second New Deal legislation as it not only gave income to some of the most destitute in society but also forever changed the way Americans thought about work and retirement. The paycheck taxes were advertised as a personal retirement savings plan even though those tax dollars were actually being redistributed as soon as they were collected. Nevertheless, retirement came to be seen as something every worker could enjoy. Still, many criticized the Social Security system for not extending pensions to enough people, particularly unskilled black and women laborers.
The Second New Deal provided even more assistance to farmers. After the Supreme Court declared the Agricultural Adjustment Administration unconstitutional in 1936, Democrats immediately responded with the passage of the Soil Conservation and Domestic Allotment Act that same year. This act continued to subsidize farmers to curb overproduction and also paid them either to plant soil-enriching crops (instead of wheat) or to not grow any crops at all. In 1938, Congress also created a Second Agricultural Adjustment Administration to reduce crop acreage. Meanwhile, the United States Housing Authority (USHA),created by Congress in 1937, gave assistance to American urbanites, building new houses for over half a million Americans.
The Indian Reorganization Act
Native Americans also received federal assistance during Roosevelt’s second term. In 1934, Congress passed the Indian Reorganization Act (IRA) to promote tribal organization and give federal recognition to tribal governments. The IRA also reversed the 1887 Dawes Severalty Act, changing the relationship between various tribes and the federal government. The Dawes Act had weakened tribal affiliations because it stated that only individual Native Americans—not tribal councils—could own land.
Despite Roosevelt’s efforts to alleviate Native American suffering, however, the IRA was only partially successful. Some tribes had difficulty understanding the terms of the new treaty, while others, such as the Navajo in the Southwest, flat-out rejected it. Many tribes saw more immediate benefit from relief programs such as the Civilian Conservation Corps, Public Works Administration, and Works Progress Administration, in which nearly 100,000 young Native American men participated.
These labor reforms had a lasting effect on America. The Wagner Act paved the way for more effective collective bargaining and striking, and within a year, fledgling labor unions had I-line workers in the General Motors automobile factory, for example, used the Wagner Act to initiate a series of sit-down strikes, in which workers would sit at their stations and refuse to leave, preventing the company from hiring new, non-union “scab” workers to fill in for the strikers. By 1937, General Motors had recognized its workers’ right to organize.
New Deal Critics
Predictably, Roosevelt’s New Deal came under attack from the right, from Republicans, conservative Democrats, bankers, and Wall Street financiers who claimed that it doled out too many federal handouts. Many of these critics also feared that the policy and programs involved were a dangerous step toward socialism and the destruction of the American capitalist system. Such misgivings were understandable given the political atmosphere in the 1930s, as communism was becoming a more imminent threat. In fact, Soviet agents in the United States went so far as to launch a “popular front” campaign to actively support the president. Moreover, an unprecedented number of people joined the American Communist Party during the decade.
Perhaps more surprising, the New Deal also came under attack from the far left. Many socialist activists denounced the New Deal because they believed that it was too conservative and that it did not provide enough relief and assistance. Over the years, many historians have tended to agree with this argument. Several have argued that the Great Depression would not have been so devastating for so long had Roosevelt handed more federal money out to a greater number of Americans.
Coughlin and Long
One of the most vocal of Roosevelt’s critics was Father Charles Coughlin. A Catholic priest from Michigan, Coughlin began broadcasting a weekly radio show in 1930 that outwardly criticized the New Deal. Within a few short years, Coughlin had amassed a following of 40 million listeners who agreed with his anti–New Deal opinions. He blamed the Great Depression on Wall Street, crooked financiers, and Jews and campaigned for the nationalization of the entire American banking system.
Senator Huey P. Long of Louisiana was another major thorn in Roosevelt’s side, albeit from the left rather than the right. Long was among those who believed that the New Deal was not doing enough to help Americans. Believing that income inequality had caused the depression, he promoted his own “Share the Wealth” program (sometimes referred to as the “Every Man a King” program), which would levy enormous taxes on the rich so that every American family could earn at least $5,000 a year. Long enjoyed enormous popularity during the first few years of Roosevelt’s first term but was assassinated in 1935.
3.) The Demise of the New Deal (1935–1939)
By 1935, New Deal critics were becoming more numerous and vocal. Congressmen, including even some Democrats, had overcome the initial panic and were becoming more fiscally conservative as Franklin Delano Roosevelt’s deficit spending soared. More important, aging, conservative appointees dominated the Supreme Court and had begun to strike down several key laws of the First New Deal.
In the 1935 Schechter v. United States ruling, for example, a majority of justices declared that the National Recovery Act was unconstitutional. They argued that the act gave too much power to the president and was an attempt to control intrastate commerce. The following year, justices also struck down the Agricultural Adjustment Administration in Butler v. United States on the grounds that it was unconstitutional and tried to exert federal control of agricultural production.
Roosevelt’s Court-Packing Scheme
Roosevelt believed that the National Recovery Act and the Agricultural Adjustment Administration were crucial to reviving the American economy and feared that any more conservative Supreme Court rulings would cripple or even kill New Deal policy entirely. In 1937, to prevent this from happening, the president petitioned Congress to alter the makeup of the Supreme Court on the pretense that the justices, old age was affecting their ability to work and concentrate. Roosevelt asked for the power to appoint as many as six new justices, bringing the total to fifteen, and to replace justices over the age of seventy. The true aim of the request was obvious: it would enable Roosevelt to effectively stack the deck to ensure that only pro–New Dealers would sit on the Court.
The court-packing scheme backfired. Rather than win over Democrats and New Dealers in Congress, Roosevelt shocked supporters with his attempt at misusing his executive powers. The president’s blatant disregard for the cherished separation of powers stunned even the American people. Roosevelt repeatedly denied charges that he was trying to bend the entire federal government to his will and defended his belief that aging justices were often incapable of performing their duties. The court-packing debate dragged on for several months before Congress and Roosevelt reached a compromise. Congress made minor reforms in the lower courts but left the Supreme Court untouched.
Consequences of the Court-Packing Scheme
The court-packing scheme took a severe toll on Roosevelt’s popularity and marked the beginning of the end of the New Deal. Politicians and regular Americans alike were keenly aware that the federal government under the tight control of a single individual would be nothing more than a dictatorship; no matter how benevolent or well intentioned the leader happened to be. Roosevelt’s clumsy attempts to disguise his intentions had the effect only of making him look guilty. As the public grew suspicious of “dictator” Roosevelt, fellow Democrats in Congress began to vote more conservatively, and the chances of any more significant New Deal legislation being passed became slim.
Ironically, the court-packing scheme may have helped Roosevelt in one way. Supreme Court Justice Owen Roberts, who had notoriously struck down New Deal laws in the past, mysteriously began to vote in favor of the Wagner Act and the Social Security Act after Roosevelt announced his plan to replace six justices. Historians are still uncertain as to why Roberts suddenly looked favorably upon the New Deal, but few believe it was mere coincidence.
The Roosevelt Recession
In 1937, Roosevelt began to scale back deficit spending, because he believed that the worst of the Great Depression had passed and because he was receiving pressure from conservatives in Congress (and even from ardent New Dealers in his own cabinet). The size of the Works Progress Administration, for example, was severely reduced, as were agricultural subsidies.
This decision to cut back spending turned out to be premature; however, as the economy buckled again, resulting in what became known as the Roosevelt Recession. The stock market crashed for a second time in 1937, and the price of consumer goods dropped significantly. Contrary to conservative beliefs, the economy simply had not pulled far enough out of the depression to survive on its own. The embattled Roosevelt only made himself look worse by trying to place the blame on spendthrift business leaders. The American people were not convinced, and as a result, Democrats lost a significant number of seats in the House and Senate in the 1938 congressional elections. This return of Republican power effectively killed the New Deal.
No End to the Depression
Despite the numerous positive effects that the New Deal had, it failed to end the Great Depression. Millions of Americans were still hungry, homeless, and without jobs as late as December 1941, when the United States entered World War II. Many historians and economists have suggested that the New Deal would have been more successful if Roosevelt had put a greater amount of money into the economy, but this conclusion is debatable. Only after the surge in demand for war-related goods such as munitions, ships, tanks, and airplanes did the economy finally right itself and begin to grow.
The Legacy of the New Deal
The New Deal was a crucial turning point in the history of the U.S. government. Politics had never before been so involved in—or exerted more control over—the daily lives of regular Americans as it was during Roosevelt’s terms in office in the 1930s. Critics lamented that the United States had transformed itself into a welfare state. Indeed, the budget deficit increased dramatically every year, and the national debt more than doubled in just ten years.
However, the New Deal did in fact help millions of Americans survive the Great Depression. Unlike his predecessor, Herbert Hoover, Roosevelt tried to directly help as many people as the conservatives in Congress and the Supreme Court would allow him to. His New Deal legislation helped create new jobs, build houses and shelters for the homeless, and distribute food to the hungry. New Deal policy also raised agricultural commodity prices, put banks back on solid footing, and greatly improved the national infrastructure. Moreover, the New Deal created a number of long-standing government institutions, such as Social Security, that we still have today.