New Deal

The New Deal was the name President Franklin D. Roosevelt gave to the series of programs between 1933–1938 with the goal of relief, recovery and reform of the United States economy during the Great Depression in the United States and was supported by the New Deal Coalition that made the Democrats the majority party during the Fifth Party System into the 1960s.

Historians distinguish between the "First New Deal" of 1933, which had something for almost every group, and the "Second New Deal" (1935–36), which introduced class conflict, especially between business and labor unions. The First New Deal (1933-34) included many "alphabet agencies", notably (AAA, CCC, FERA, CWA, FHA, FDIC, NRA, PWA, TVA, SEC.

The Second New Deal, started in 1934-35 included the WPA, a giant relief agency, and Social Security, as well as the NRLA or "Wagner Act" that promoted rapid growth of labor unions. The opponents of the New Deal, complaining of the cost and the shift of power to Washington, stopped its expansion by 1937, and abolished many of its programs by 1943. The Supreme Court ruled several programs unconstitutional (some parts of them were soon replaced, except for the NRA). The main New Deal programs still in existence today are Social Security the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) which regulates Wall Street..

Relief, Recovery, and Reform

The New Deal had three components: direct relief, economic recovery, and financial reform; these were also called the 'Three Rs'.

Relief was the immediate effort to help the one-third of the population that was hardest hit by the depression. Roosevelt expanded Hoover's Federal Emergency Relief Administration (FERA) work relief program, and added the Civilian Conservation Corps (CCC), Public Works Administration (PWA), and (starting in 1935) the Works Progress Administration (WPA). In 1935 the social security and unemployment insurance programs were added. Separate programs were set up for relief in rural America, such as the Resettlement Administration (RA) and Farm Security Administration (FSA). These work relief programs have been praised by most economists in retrospect.Milton Friedman who after taking a graduate degree in economics was employed by the WPA to analyze family budgets and studied the hardships of families said that, at the time, he and his wife "regarded [these job-creation progams] appropriate responses to the critical situation" but not "the price- and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration."

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 (NRA, 1933) (which ended in 1935), regulation of Wall Street (SEC, 1934), the Agricultural Adjustment Act (AAA) farm programs (1933 and 1938), 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 rejected the opporunity to take over banks and railroads. He did not support 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.

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. The programs were quickly fixed to pass muster, but in 1937 Roosevelt stunned the nation by a surpise proposal to pack the Supreme Court by adding five new justices. The proposal failed and Roosevelt permanently alienated many conservative Democrats; however the Supreme Court started upholding New Deal laws. Justices then started retiring, allowing Roosevelt to selected a majority of the Court. By 1942, the Supreme Court had almost completely abandoned its "judicial activism" of striking down congressional laws. 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".

The Origins of the New Deal

On the 29th of October, 1929, the crash of the U.S. stock market set off a worldwide downward spiral in every part of the globe known as the Great Depression. In 1929–1933, unemployment in the U.S. increased from the original 4% to 25%, manufacturing output plunged by approximately a third. Prices everywhere fell, making the burden of the repayments of debts much harder. Heavy industry, mining, lumbering and agriculture were hard hit. The impact was much less severe in white collar and service sectors, but every city and state was hit hard.

Upon accepting the 1932 Democratic nomination for president, Roosevelt promised "a new deal for the American people." 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. They sought to introduce extensive government intervention in the economy instead of allowing laisser-faire run its course. New Dealers such as Donald Richberg, as the replacment head of the NRA, said "A nationally planned economy is the only salvation of our present situation and the only hope for the future." 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.

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.

The First Hundred Days

Roosevelt's energetic public personality--"the only thing we have to fear is fear itself," and his "fireside chats" helped restore confidence.

Having won a decisive victory in 1932, 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 TVA 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.

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. All was normal by April. During all of 1933, 4,004 small local banks were permanently closed and were merged into larger banks. (Their depositors eventually received 85 cents on the dollar of their deposits.) Congress created the Federal Deposit Insurance Corporation in June, which insured deposits for up to $5,000, although Roosevelt opposed it support was overwhelming. The establishment of the FDIC virtually ended the era of "runs" on banks.

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." Economic indicators show the economy reached nadir in the first days of March, then began a steady, sharp upward recovery. 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. Recovery was steady and strong until 1937. Except for nagging unemployment, the economy by 1937 surpassed the levels of the late 1920s. The Recession of 1937, was a temporary downturn. Private sector emplyment especially in manufacturing, recovered to the level of the 1920s but failed to advance further until the war.

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 percent. It saved $500 million a year and reassured deficit hawks such as 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," which was needed to defeat the depression. It was imbalanced on a temporary basis.

Roosevelt was initially in favor of balancing the budget, but he soon found himself running spending deficits 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 of bonus welfare benefits to veterans just before the 1936 election.

At least until John F. 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 of the Treasury Department, rejected Keynesian solutions and favored balanced budgets.

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, consumers bore the brunt of higher food prices and were "horrified with its policy of enforced scarcity." A Gallup Poll printed in the Washington Post revealed that a majority of the American public opposed the AAA. 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 2007.

Great Infrastructure Projects

The best of big "hard" infrastructure projects being carried out under the New Deal examples are the results of the Public Works Administration (PWA) , a former U.S. government agency established by Congress as the Federal Administration of Public Works, pursuant to the National Industrial Recovery Act, and the almost legendary Tennessee Valley Authority (TVA) , both of which, President Roosevelt ran, more or less directly. The PWA became, with its "multiplier-effect" and first two-year budget of $3.3 billion (then an enormous sum), the driving force of America’s biggest construction effort up to that date. By June 1934 the agency had distributed its entire fund to 13,266 federal projects and 2,407 non-federal projects. For every worker on a PWA project, almost two additional workers were employed indirectly. The PWA accomplished the electrification of rural America, the building of canals, tunnels, bridges, highways, streets, sewage systems, and housing areas, as well as hospitals, schools, and universities; every year it used up roughly half of the concrete and one-third of the steel of the entire nation. The development of the huge Tennessee River basin in the South by the TVA was a model for what a modern nation could accomplish. By stopping the yearly floods of the Tennessee River and making it navigable, an entire area of almost the size of England could be opened up for development. Franklin Delano Roosevelt was the first President who attacked this problem from a higher level.

The projects to develop the "hard" infrastructure of the country were flanked by measures to improve its "soft" counterpart: important social measures, which for the first time in U.S. history, established the concept of a minimum wage, created insurance for the unemployed, sick and old, established decent health care, and abolished child labor. The Works Progress Administration (later Work Projects Administration, abbreviated WPA), was created on May 6, 1935 by Presidential order (Congress funded it annually but did not set it up). It was the largest and most comprehensive New Deal agency, employing millions of people and affecting every locality. The crowning achievement of these measures was the Social Security Act of 1935. This law was overturned by the Supreme Court, so that Roosevelt had to pass it in another form the Wagner Act of 1935, the "Bill of Rights" of American labor. Many of the New Deal regulations were abolished or scaled back in 1975-1985 in a bipartisan neoliberal wave of deregulation. However various of them, such as the Federal Housing Administration (FHA) , the Social Security Administration (SSA) , the Tennessee Valley Authority (TVA) , the Federal Deposit Insurance Corporation (FDIC) , the Securities and Exchange Commission (SEC) and the so called Glass-Steagall Act sections of the original Banking Act of June 1933, (sections 16, 20, 21 and 32), which regulates Wall Street, won widespread support and continue to this day.

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. 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. All these emergency programs were terminated in 1942-43, when unemployment had vanished due to World War II related employment offers.

WPA employed 2 to 3 million unemployed at unskilled labor

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.

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. 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 the 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.

Reform: (NIRA)

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. 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 2007, 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) which was passed by Congress in June 1933. The NIRA established the National Planning Board, also called the National Resources Planning Board (NRPB), to assist in planning the economy by providing recommendations and information. Fredric A. Delano was appointed head of the NRPB.

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. Historian Jim Power, in FDR's Folly says that the above-market wage 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 quite large.

The NRA "Blue Eagle" campaign

NRA "Blue Eagle" stamps

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 NRA won agreements from almost every major industry in the nation. Six months after the NRA went into effect industrial production dropped 25 percent. Donald Richberg, who soon replaced Johnson as the head of the NRA said:

There is no choice presented to American business between intelligently planned and uncontrolled industrial operations and a return to the gold-plated anarchy that masqueraded as "rugged individualism."...Unless industry is sufficiently socialized by its private owners and managers so that great essential industries are operated under public obligation appropriate to the public interest in them, the advance of political control over private industry is inevitable.

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.

Chart 3: employment in manufacturing 1920-1940, in millions

Employment in private sector factories recovered to the level of the late 1920s by 1937 (see chart 2), but did not grow much bigger until the war came; during the war manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.

Second New Deal

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 universal retirement pensions, unemployment insurance, and welfare benefits for poor families and the handicapped. It established the framework for the 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.

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, 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." Recent scholars have noted that since the vote in Parrish took place several months before the court-packing plan was announced, other factors, like evolving jurisprudence, must have contributed to the Court's swing. The opinions handed down in Spring 1937, favorable to the government, also contributed to the downfall of the plan. In any case, 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.

Attacks Right and Left

Historians on the left denounce Roosevelt for rescuing capitalism when the opportunity was at hand to nationalize banking, railroads and other industries.[Conkin] Liberal historians argue that Roosevelt restored hope and self-respect to tens of millions of desperate people, built labor unions, upgraded the national infrastructure and saved capitalism in his first term when he could have destroyed it and easily nationalized the banks and the railroads. [Sitkoff]

Historians on the right complain that he enlarged the powers of the federal government, built up labor unions, slowed long-term economic growth, and weakened the business community.

A 1936 cartoon shows the GOP building its platform from the conservative planks abandoned by the Democrats.

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 1966, criticized the New Deal for working actively to actually preserve the worst evils of capitalism.

Since the 1970s research on the New Deal has been less interested in the question of whether the New Deal was a "conservative," "liberal" 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.

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 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.

African Americans

The New Deal set up numerous agencies to help impoverished farmers, but in the long run they had to move to the cities to become better off. Many leading New Dealers, including Eleanor Roosevelt, Harold L. Ickes, Aubrey Williams and Harry Hopkins worked hard to ensure Blacks received at least 10% of welfare assistance payments. Economic uplift was one thing but political revolution was another: 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 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 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.

Some liberal historians argue the New Deal laid the ground work for black breakthroughs during World War II, the civil rights movement and the Great Society of the 1960s. Militaant African Americans 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.

The recession of 1937 and recovery

File:Newdealcartoon.GIF

Some conservatives, like this cartoonist, argued that the New Deal was all package and little content. Others charged it went much too far.

World War II and the end of the New Deal

Prosperity had returned by 1938 for most people--but not for the bottom third, who remained plagued by structural unemployment. The impact of war mobilization and 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. Rather, 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.

Conflicting interpretation of the New Deal economic policies

Depression Statistics

"Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." 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). In Roosevelt's twelve years in office the economy had an 8.5% compound annual growth of GDP, the highest growth rate in the history of any industrial country, however, recovery was slow --by 1939 GDP per adult was still 27% below trend. And, throughout the New Deal the median joblessness rate was 17.2 percent and never went below 14 percent.

Relief Statistics

Table 3: Families on Relief 1936-41:

Prolonged/Worsened the Depression

A 1995 survey of economic historians and economists asked "Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression." Of the economists 27% agreed and 51% disagreed. Of the economic historians, only 6% agreed and 74% disagreed. (the rest were in the partly agree/disagree group).

The minority view is represented by Harold L. Cole and Lee E. Ohanian who conclude that the "New Deal labor and industrial policies did not lift the economy out of the Depression as President Roosevelt and his economic planners had hoped," but that the "New Deal policies are an important contributing factor to the persistence of the Great Depression." They conclude that the New Deal "cartelization policies are a key factor behind the weak recovery." They say that the "abandonment of these policies coincided with the strong economic recovery of the 1940s." Lowell E. Gallaway and Richard K. Vedder conclude that the "Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs." They argue that without Social Security, work relief, unemployment insurance, and especially without the labor unions, business would have hired more workers and the unemployment rate would have been lower. Few economists or economic historians have agreed with these speculations. The New Deal years 1933-36 (or indeed the FDR years 1933-45) showed the highest growth rates in the history of the American economy.

National Debt

national debt/ GNP climbs from 20% to 40% under Hoover; levels off under FDR; soars during WW2 from Historical Statistics US (1976)

The New Deal tried public works, farm subsidies and other devices to reduce unemployment, but FDR never completely gave up trying to balance the budget. Unemployment remained high throughout the New Deal years; business simply would not hire more people, especially the low skilled and supposedly "untrainable" men who had been unemployed for years and lost any job skill they once had. Keynesians later argued that by spending vastly more money--using fiscal policy--the government could provide the needed stimulus through the "multiplier" effect. Critics of Keynesianism said that would just take money out of the private sector, causing a negative multiplier effect there. However, no economist has written a full-scale Keynesian analysis of the depression, so it is difficult to evaluate how that model would work.

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Although Hopkins denied saying "Spend-Spend-Spend; Tax-Tax-Tax; Elect-Elect-Elect," conservative critics thought it fit the New Deal very well

In recent years more influential among economists has been the monetarist interpretation of Milton Friedman, which did include a full-scale monetary history of what he calls the "Great Contraction." Friedman concentrated on the failures before 1933, and in his memoirs said the relief programs were an appropriate response. From 1935 to 1943, Friedman was himself a Keynesian who was (1941-43) an official spokesman for the New Deal before Congress; he did not at that time criticize any New Deal or Federal Reserve policies.

Apart from building up labor unions, the New Deal did not substantially alter the distribution of power within American capitalism.

Keynes visited to the White House in 1934 to urge President Roosevelt to do more deficit spending. Roosevelt complained to Labor Secretary Frances Perkins, "He left a whole rigmarole of figures--he must be a mathematician rather than a political economist." That is, Keynes had an abstract theory but no useful suggestions about what to do.

Fiscal Conservatism

Fiscal conservatism was a key component of the New Deal, as Zelizer (2000) demonstrates. It was supported by Wall Street and local investors and most of the business community; mainstream academic economists believed in it, as apparently did the majority of the public. Conservative southern Democrats, who favored balanced budgets and opposed new taxes, controlled Congress and its major committees. Even liberal Democrats at the time regarded balanced budgets as essential to economic stability in the long run, although they were more willing to accept short-term deficits. Public opinion polls consistently showed public opposition to deficits and debt. Throughout his terms, Roosevelt recruited fiscal conservatives to serve in his administration, most notably Lewis Douglas the Director of Budget from 1933 to 1934, and Henry Morgenthau Jr., Secretary of the Treasury from 1934 to 1945. They defined policy in terms of budgetary cost and tax burdens rather than needs, rights, obligations, or political benefits. Personally the president embraced their fiscal conservatism. Politically, he realized that fiscal conservatism enjoyed a strong wide base of support among voters, leading Democrats, and businessmen. On the other hand there was enormous pressure to act–and spending money on high visibility programs attracted Roosevelt, especially if it tied millions of voters to him, as did the WPA.

Douglas proved too inflexible, and quit in 1934. Morgenthau made it his highest priority to stay close to Roosevelt, no matter what. Douglas' position, like many of the Old Right was grounded in a basic distrust of politicians and the deeply ingrained fear that government spending always involved a degree of patronage and corruption that offended his Progressive sense of efficiency. The Economy Act of 1933, passed early in the Hundred Days, was Douglas' great achievement. It reduced federal expenditures by $500 million, to be achieved by reducing veterans’ payments and federal salaries. Douglas cut government spending through executive orders that cut the military budget by $125 million, $75 million from the Post Office, $12 million from Commerce, $75 million from government salaries, and $100 million from staff layoffs. As Freidel concludes, "The economy program was not a minor aberration of the spring of 1933, or a hypocritical concession to delighted conservatives. Rather it was an integral part of Roosevelt's overall New Deal." Revenues were so low that borrowing was necessary (only the richest 3% paid any income tax before 1942.) Douglas therefore hated the relief programs, which he said reduced business confidence, threatened the government’s future credit, and had the "destructive psychological effects of making mendicants of self-respecting American citizens." Roosevelt was pulled toward greater spending by Hopkins and Ickes, and as the 1936 election approached he decided to gain votes by attacking big business.

Morgenthau shifted with FDR, but at all times tried to inject fiscal responsibility; he deeply believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment . The Wagner Act met Morgenthau’s requirement because it strengthened the party’s political base and involved no new spending. In contrast to Douglas, Morgenthau accepted Roosevelt’s double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the WPA, PWA and CCC, that would be temporary until full recovery was at hand. He fought against the veterans’ bonus until Congress finally overrode Roosevelt’s veto and gave out $2.2 billion in 1936. His biggest success was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees. It was Morgenthau who insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.

Claims the New Deal adopted or resembled Fascist economic models

The term "fascism" in the 21st century has very strong connotations of mass murder and death camps, however, in the 1930s it meant the planned economy and corporativism exemplified by the economic plans of Benito Mussolini in Italy. And, comparisons have been made between the economic systems of Fascist Italy and the New Deal programs. Communists, classical liberals, conservatives, and Herbert Hoover used the term fascism in that manner at that time. Likewise, modern-day paleoconservatives argue that the New Deal was a major milestone in the rise of America's managerial state.

Journalist John T. Flynn, a former socialist, in his 1944 book As We Go Marching, said that "the New Dealers...began to flirt with the alluring pastime of reconstructing the capitalist system...and in the process of this new career they began to fashion doctrines that turned out to be the principles of fascism." Former President Herbert Hoover argued that some (but not all) New Deal programs were "fascist," and that there was a presidential dictatorship. [Memoirs 3:420]

"Among the early Roosevelt fascist measures was the National Industry Recovery Act (NRA) of June 16, 1933 .... These ideas were first suggested by Gerald Swope (of the General Electric Company)....[and] the United States Chamber of Commerce. During the campaign of 1932, Henry I. Harriman, president of that body, urged that I agree to support these proposals, informing me that Mr. Roosevelt had agreed to do so. I tried to show him that this stuff was pure fascism; that it was a remaking of Mussolini's "corporate state" and refused to agree to any of it. He informed me that in view of my attitude, the business world would support Roosevelt with money and influence. That for the most part proved true."

Whatever Hoover was told, Roosevelt had not agreed to any such plan. In 1934, Roosevelt himself warned his "fireside chat" radio audiences against linguistic confusion. Some people, he said:

will try to give you new and strange names for what we are doing. Sometimes they will call it 'Fascism,' sometimes 'Communism,' sometimes 'Regimentation,' sometimes 'Socialism.' But, in so doing, they are trying to make very complex and theoretical something that is really very simple and very practical. . . . Plausible self-seekers and theoretical die-hards will tell you of the loss of individual liberty. Answer this question out of the facts of your own life. Have you lost any of your rights or liberty or constitutional freedom of action and choice?

In September 1934 Roosevelt defended a more powerful national government as he believed was necessary to control the economy, by quoting conservative Republican Elihu Root:

The tremendous power of organization [Root had said] has combined great aggregations of capital in enormous industrial establishments . . . so great in the mass that each individual concerned in them is quite helpless by himself. . . . The old reliance upon the free action of individual wills appears quite inadequate. . . . The intervention of that organized control we call government seems necessary. . . . Men may differ as to the particular form of governmental activity with respect to industry or business, but nearly all are agreed that private enterprise in times such as these cannot be left without assistance and without reasonable safeguards lest it destroy not only itself but also our process of civilization.

Other scholars reject linking the New Deal to Fascism as overly simplistic. As a leading historian of fascism explains, "What Fascist corporatism and the New Deal had in common was a certain amount of state intervention in the economy. Beyond that, the only figure who seemed to look on Fascist corporatism as a kind of model was Hugh Johnson, head of the National Recovery Administration." Johnson strenuously denied any association with Mussolini, saying the NRA "is being organized almost as you would organize a business. I want to avoid any Mussolini appearance -- the President calls this Act industrial self-government." Donald Richberg eventually replaced General Hugh Johnson as head of NRA and speaking before a Senate committee said "A nationally planned economy is the only salvation of our present situation and the only hope for the future." Historians such as Hawley (1966) have examined the origins of the NRA in detail, showing the main inspiration came from Senators Hugo Black and Robert F. Wagner and from American business leaders such as the Chamber of Commerce. The main model was Woodrow Wilson's War Industries Board, in which Johnson had been involved.

Art and music

The Works Progress Administration subsidized artists, musicians, painters and writers on relief with a group of projects called Federal One. While the WPA program was by the most widespread, it was preceded by three programs administered by the US Treasury which hired commercial artists at usual commissions to add murals and sculptures to federal buildings. The first of these efforts was the Public Works of Art Project, organized by Edward Bruce, an American businessman and artist. The Resettlement Administration (RA) and Farm Security Administration (FSA) had major photography programs. The New Deal arts programs emphasized regionalism, socialist realism, class conflict, proletarian interpretations, and audience participation. The unstoppable collective powers of common man, contrasted to the failure of individualism], was a favorite theme.

The FSA photography project is most responsible for creating the image of the Depression in the USA. Many of the images appeared in popular magazines. The photographers were under instruction from Washington as to what overall impression the New Deal wanted to give out. Director Roy Stryker's agenda focused on his faith in social engineering, the poor conditions among cotton tenant farmers, and the very poor conditions among migrant farm workers; above all he was committed to social reform through New Deal intervention in people's lives. Stryker demanded photographs that "related people to the land and vice versa" because these photographs reinforced the RA's position that poverty could be controlled by "changing land practices." Though Stryker did not dictate to his photographers how they should compose the shots, he did send them lists of desirable themes, e.g., "church", "court day", "barns". New Deal era films such as Citizen Kane ridiculed so-called "great men", while class warfare appeared in numerous movies, such as Meet John Doe and The Grapes of Wrath.

By contrast there was also a smaller but influential stream of anti-New Deal art. Thus Gutzon Borglum's sculptures on Mount Rushmore emphasized great men in history (his designs had the approval of Calvin Coolidge). Gertrude Stein and Ernest Hemingway disliked the New Deal and celebrated the organic autonomy of perfected written work in opposition to the New Deal trope of writing as performative labor. The Southern Agrarians celebrated a premodern regionalism and opposed the TVA as a modernizing, disruptive force. Under Chief Justice Charles Evans Hughes, the Supreme Court built one of the most architecturally striking buildings; its classical lines and small size contrasted sharply with the gargantuan modernistic federal buildings in Washington. Hollywood managed to synthesize both streams, as in Busby Berkeley's Gold Digger musicals, where the storylines exalt individual autonomy while the spectacular musical numbers show abstract populations of interchangeable dancers securely contained within patterns beyond their control.

Although Hopkins denied saying "Spend-Spend-Spend; Tax-Tax-Tax; Elect-Elect-Elect," conservative critics thought the slogan fit the New Deal very well; recently historians concluded Hopkins did speak the line

The legacies of the New Deal

The New Deal was the inspiration for Lyndon B. Johnson's Great Society in 1960s. Johnson (on right) headed the Texas NYA and was elected to Congress in 1938.

Some economists argue that although the New Deal did not end the depression, all in all it helped to prevent the economy from decaying further by increasing the regulatory functions of the federal government in ways that helped stabilize previous trouble areas of the economy: the stock market, the banking system, and others. Others argue that it worsened the depression. All analysts agree the New Deal produced a new political coalition that sustained the Democratic Party as the majority party in national politics for more than a generation after its own end.

Roosevelt's 12 years in office saw a dramatic increase in the power of the federal government as a whole. Roosevelt also established the presidency as the preeminent center of authority within the federal government. By creating a large array of agencies protecting various groups of citizens—workers, farmers, and others—who suffered from the crisis, enabling them to challenge the powers of the corporations, the Roosevelt administration generated a set of political ideas—known to later generations as New Deal liberalism—that remained a source of inspiration and controversy for decades and that helped shape the next great experiment in liberal reform, the Great Society of the 1960s. The wartime FEPC executive orders that forbade job discrimination against African Americans, women and ethnic groups was a major breakthrough that brought better jobs and pay to millions of minority Americans. Historians usually treat FEPC as part of the war effort and not part of the New Deal itself.

External links

• New Deal Network massive collection of photos and primary sources
• FDR cartoon archive hundreds of editorial cartoons (copyright has expired)
• online full-text primary sources

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