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The New Deal

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The New Deal

From riches to rags: when the Great Depression hit in 1929, many Americans went from being princes to paupers, quite literally overnight, and millions of people lost everything they had. When Franklin D Roosevelt (FDR) won the Democratic nomination for President in 1932, he said:

I pledge you, I pledge myself, to a new deal for the American people.1

The New Deal refers to the domestic programs that Roosevelt would go on to implement to tackle the Great Depression between 1933 and 1939.

Democratic nomination

This is when the Democratic Party members vote for one of their members to be nominated to run for President. Whoever wins the nomination wins the backing of their party to run.

FDR's New Deal and the Great Depression

The New Deal FDR StudySmarter

In 1929 with the crash of the stock market (the Wall Street Crash), the Great Depression began. This led to mass poverty, hunger, homelessness and unemployment. The previous president, Herbert Hoover, had been blamed for the worsening of the Depression - he was against government intervention in the economy, so was reluctant to offer relief to the American people.

What was America like when Roosevelt became president?

In 1933, unemployment was at around 25%, the American banking and finance system was in crisis, and international trade had fallen by over 50% since 1930.

Republican laissez-faire economics in the 1920s had led to huge economic success and made many people extremely wealthy. However, this came at a cost; when the lack of government regulation led the bubble to burst and - quite literally overnight - the money in people's pockets became worth less than the paper it was printed on.

Laissez-faire economics is an economic philosophy of letting the markets do what they want, with an extremely small government and hardly any official regulation. Laissez-faire in French literally means "let it be done" or "let it do what it wants to do".

During his campaign, Roosevelt spoke largely about the New Deal but did not provide many specifics; nevertheless, he won easily over Hoover as he provided hope to the struggling American people.

Hoover's approachRoosevelt's approach
Hoover largely believed in laissez-faire economics.Roosevelt believed in progressivism, which aims to represent the people's interests through social and economic reform.
Hoover was reluctant to intervene directly in the economy, instead encouraging businesses, local and state governments, and charities to help with relief for the American people.Roosevelt supported direct intervention and introduced a sweeping range of programs to aid the American people and prevent a repeat situation.
When Hoover did eventually attempt to tackle the crisis with federal programs and funds, he focused on the effects rather than the causes.FDR focused first on the effects and then the causes, working to reform the underlying roots of the Depression.

The New Deal Programs

FDR began the process of implementing the New Deal on the very same day of his inauguration - 4 March 1933. The deal had three major aims, the ‘three R’s’: relief, recovery, and repeat.

The New Deal Badge for New Deal StudySmarterFDR's New Deal Campaign, Source: Wikicommons

There were two New Deals - the First from 1933 to 1934, which aimed at alleviating the impacts of the Great Depression and the Second from 1935 to around 1938, which focused on reforming the economy. Let's find out what each New Deal entailed.

The First New Deal

Many New Deal programmes were established in Roosevelt's first hundred days. He prioritised tackling the banking crisis and began a four-day "bank holiday".

  • Every bank in America was shut, which forced most of the small, unstable local banks out of business.
  • Only the stronger national banks survived.
  • During the banking closure, Roosevelt presented the Emergency Banking Act to Congress, which was passed the same day.

The Beer-Wine Revenue Act effectively ended the era of Prohibition by making it legal to sell beer and wine. This increased the government budget through taxes on alcohol. By the end of 1933, the 21st Amendment officially ended Prohibition.

Prohibition

A nationwide ban from 1920 to 1933 on the production, importation, transportation, and sale of alcoholic beverages

Banking Reforms

FDR passed three acts as part of the First New Deal that intended to stop banks from engaging in risky practices. Reforming the banks tackled America's economic weaknesses which had contributed to the Depression.

Act What it did
Securities ActThis act aimed to protect investors against fraud, as well as introducing federal controls on the stock market. The Securities Exchange Act introduced further regulation of the financial markets, as well as creating the Securities and Exchange Commission (SEC) to enforce the new laws.
Glass Seagull ActThis separated investment banking from commercial banking to stop banks from investing American citizens' personal savings. Commercial banks had to find a new way to source money for investments and lending. The Federal Reserve System now had much greater regulatory control.
Securities Exchange Act This act established the Securities and Exchange Commission (SEC) to regulate trading practices.

Federal Reserve System

The US central banking system, made up of 12 regional Federal Reserve banks

Roosevelt’s Alphabet Agencies

As well as reforming the banking system, Roosevelt also tackled the rampant rates of unemployment through his public works projects, which are often referred to by their abbreviations - hence the name "alphabet agencies". These agencies were to provide federal short-term aid to those in financial trouble and the unemployed.

Date

Name

Purpose

5 April 1933

CCC – Civilian Conservation Corps

This agency employed single young men to engage in federally-funded conservationist jobs on government land. The projects included planting trees, fighting forest fires, and building flood prevention barriers and forest roads and trails.

6 May 1933

WPA – Works Progress Administration

This administration was created to provide jobs for the middle-aged and older workforce in construction. This programme provided around 8.5 million jobs and a huge amount of construction work, including around 125,000 public buildings, 8000 parks, 650,000 miles of road, and 75,000 bridges.

12 May 1933

AAA – Agricultural Adjustment Act

This act aimed to save the agricultural industry from further demise by providing governmental subsidies for output costs to boost the cost of crops.

12 May 1933

FERA - Federal Emergency Relief Act

The FERA provided grants to government workers. The aim was to protect their salaries as well as to fund soup kitchens and other agencies that provided direct aid to those most in need.

18 May 1933

TVA – Tennessee Valley Authority

This act introduced an electric power network that covered seven states. This enabled these areas to supply electricity at cheap rates.

16 June 1933

NRA - National Recovery Act

The NRA intended to boost businesses, and stabilise profits and workers’ wages. It created industry codes that fixed wages and prices, and allowed workers to unionise. This was meant to help communities deeply affected by the collapse of business and agriculture.

16 June 1933

FDIC - Federal Deposit Insurance Corporation

This created a banking insurance policy that guaranteed that anyone who deposited money into a bank that was under the Federal Reserve would be entitled to a pay-out even if their bank failed.

6 June 1934

SEC – Securities and Exchange Commission

This was set up as part of the Security and Exchanges Act to restore the stock market and allow investors to once again invest in the market with confidence. This was done by ending misleading sales practices such as buying sales on margin.

The Gold Standard

On 20 April, Roosevelt abandoned the Gold Standard.

Gold standard

A monetary system in which a nation’s currency is relative to the value of gold - when the value of gold increases or decreases, so does the value of the currency.

The Gold Standard became damaging to the economy when the Great Depression hit because many people began to hoard their gold due to mistrust in banks. This made the price of gold unstable, which in turn affected the value of the dollar negatively.

The Second New Deal

The Second New Deal differed from the first through its focus. It aimed to provide workers rights and protections while also implementing policies to stimulate employment.

Date

Name

Purpose

8 April 1935

Emergency Relief Appropriation

Replaced FERA and employed around 8.5 million Americans in jobs such as creating murals, construction, and public works.

6 July 1935

Wagner Act

Secured workers’ rights by legalising their ability to mobilise together and address working conditions. This could be done with a union or without.

1 May 1935

Resettlement Administration

Aided the farming industry. This government agency bought around ten million acres of farmland to relocate struggling rural and urban families into government-planned communities.

14 August 1935

Social Security Act

Provided a form of welfare to those who needed it. Those eligible were children in low-income households, the elderly, and the disabled.

25 June 1938

Fair Labour Standards Act

Solidified workers’ rights, as it aimed to establish a federal agreed minimum wage and working hours.

America and the New Deal

Generally, the New Deals were considered a success. Reasons for this include:

  • Lower unemployment

  • More government spending on welfare

  • Relative stimulation of the economy

Benefits of the New Deal

FDR had significant achievements in a short space of time, introducing principles of federal regulation in banking, industry and farming. In the wake of the federal government's initiative to provide jobs and welfare, some optimism and confidence in the economy were restored.

Between 1933 and 1937, unemployment fell from around 25% to around 14%, and around 8.5 million Americans found work.

After the New Deal, the economy grew by:

  • 10.8% in 1934

  • 8.9% in 1935

  • 12.9% in 1936

Despite the success, there were some limitations. The unemployment rate rose again to 19% in 1937, and it did not improve much until World War II. It is often debated by historians whether Roosevelt’s New Deal would’ve been able to end the economic depression without the War.

Do you still think Roosevelt should get credit for the drop in unemployment brought about by World War II? Would the US have been in an economic position to intervene in the war had it not been for Roosevelt's drastic recovery actions to address the Depression when he was elected?

New Deal Criticisms

Some elements of Roosevelt’s New Deal did receive some backlash at the time, and much of the legislation was subject to challenges in the Supreme Court - some of which were successful. The Glass Steagall Act was largely seen as too progressive and too involved within the American economy. It was eventually repealed in 1999.

Roosevelt’s Social Security Act, Wagner Act, and Fair Labour Standards Acts also received backlash due to the unprecedented government involvement in commerce. However, these policies have had a long-lasting and positive effect on working and vulnerable Americans, which can still be seen today.

Lasting Impacts of the New Deal

The New Deal provided the foundations for America's recovery from the Depression, but also for a strong, stable economy which would go on to attract investment and trade from all over the world. FDR's social security programme is still the basis of America's welfare system today, and much of the New Deal legislation is either still in force or has been the basis for new and improved legislation. Until 2008, the US never saw a crash as severe as in 1929, and it was accepted by most that at least some regulation was needed - a view which prevails today.

The New Deal - Key takeaways

  • The New Deal was the collective name for domestic policies introduced by Franklin D Roosevelt in 1933 in response to the Great Depression. The program lasted until the onset of the Second World War.
  • The programme oversaw the introduction of public works programs, stimulated jobs, and helped around 8.5 million Americans find work.
  • The New Deal can be split into two parts. The first part stimulated employment, fixed the banking crisis, and attempted to stabilise the American currency.
  • The second part sought to continue increasing employment through public works programmes, but also to improve working rights for Americans and establish a federal welfare programme.
  • The New Deal improved the lives of millions of Americans, as well as providing the basis of social welfare in America.

References

  1. Roosevelt, F. D., Democratic Nomination Acceptance Speech, Chicago (2 July 1932).

Final The New Deal Quiz

Question

Who created the New Deal?

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Answer

Franklin Delano Roosevelt (FDR)

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Question

Was the New Deal successful?

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Answer

Though its sucess is debated, the New Deal was largely successful in strengthening the economy, stabilising the banking system, creating employment, and securing sustained economic growth.

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Question

 Why did Roosevelt repeal the Gold Standard?


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Answer

To stabilise the American dollar, increase the price of goods, prevent gold hoarding, and improve the American economy.

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Question

What role did the Work Progress Administration play?


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Answer

The Work Progress Administration provided jobs in construction. This programme oversaw the building of 125,000 public buildings, 8000 parks, 650,000 miles of road, and 75,000 bridges. This initiative provided around 8.5 million jobs.  

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Question

When was the Social Security Act established?


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Answer

14 August 1935

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Question

What was the Glass Steagall Act?


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Answer

This act was put into as a way to stop banks from very dangerous and risky practices and acted as a regulatory way of preventing any banks from using their customers' money to invest in unstable investments. Investment banks were made separate from commercial banks.

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Question

What did the second part of the New Deal focus on?


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Answer

Securing workers' rights and legislation, creating federal welfare, and reforming the economy.

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Question

 What did Roosevelt do to the banks on 4 March 1933?


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Answer

He shut all banks and declared a four-day moratorium. Banks were not allowed to open until they were inspected and found to be stable.

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Question

How many Americans were employed by the WPA?


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Answer

8.5 million

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Question

What was the CCC?


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Answer

Civilian Conservation Corps. This agency employed single young men to engage in federally funded conservationist jobs on government land.

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