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New Deal

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"I pledge you, I pledge myself, to a new deal for the American people." In July 1932, Franklin Delano Roosevelt said these words to the delegates at the Democratic National Convention, who had just elected him the party's candidate for president of the United States.

Roosevelt's New Deal was a response to the tumultuous events of the years leading to his nomination. After World War I, the people of the United States experienced unprecedented prosperity. Consumers of all income levels were buying goods "on time" by putting a few dollars down and paying a few dollars a month. Record numbers of people were also using the installment-buying concept to purchase stocks. The number of stockbrokers grew from fewer than 30,000 in 1920 to more than 70,000 in 1929. Stockbrokers allowed their clients to "buy on margin," meaning that a customer only had to pay 10–15 percent down on a stock, with the broker lending the client the rest and being repaid when the stock went up in value. By 1929, the skyrocketing prices in the stock market indicated continued prosperity to some economists, but to others it signaled impending doom. So much investment had been done on margin that stockbrokers had borrowed money from banks that by then were also heavily in debt. Stock prices began rapidly dropping in September 1929, and on "Black Thursday," October 24, 1929, they plummeted beyond all belief, devastating thousands of brokerage houses. By the following Tuesday, October 29, virtually all stocks were worthless. Millionaires became paupers overnight. People who had invested their savings woke up to find themselves penniless. This was the start of the Great Depression.

Herbert Hoover was the president at the time of the great stock market crash. He initially refused to believe that there was a problem, and even in April 1930, when more than three million people had lost their jobs, he continued in vain to reassure people that everything was fine. Because people were afraid of losing their jobs and running out of money, they refused to engage in the free-spending ways of the past and chose to save rather than to spend their money. This behavior, in turn, created a new cycle of problems. Because many banks had failed during the crash, people no longer trusted them, and kept their money at home, which depleted the supply of capital that banks needed. People also refused to buy new products and instead repaired old ones. Because few people were buying new products, companies were forced to close and to lay off employees. Many people were evicted from their homes for failing to make payments, and often several members of extended families lived together. The number of homeless persons soared, as did cases of malnutrition. President Hoover still remained firm in his stance that government aid was not an option. He believed that private charity could take care of those individuals who could not take care of themselves and that the ingenuity of private business would cure the ills of the country, not government intrusion. The American people resented President Hoover's attitude. The camps of makeshift shacks in which many people lived after being evicted were called Hoovervilles, and slogans such as Hard Times Are Hoovering over Us were heard everywhere. By December 1931, the unemployment rate was more than 13.6 million, a third of the labor force. When President Hoover sent military troops with bayonets and tear gas to disband the Bonus Army—a group of World War I veterans who had come to Washington, D.C., to seek early payment of a promised bonus for fighting in the war—his approval among U.S. voters plunged irrevocably.

Although the Republicans knew that the Democratic presidential candidate would more than likely win, they nominated Hoover again in 1932. The Democratic nominee, Franklin D. Roosevelt, won all but six states and received 22 million votes, as compared to Hoover's 15 million Roosevelt came from a wealthy family, had served as assistant secretary of the navy and as governor of New York, and had battled polio courageously. His promised "new deal" was anxiously awaited.

The day after he was inaugurated, Roosevelt requested a special session of Congress to convene and declared a week-long bank holiday. He guaranteed that at the end of one week's time, banks that the government found to be sound and secure would reopen. Roosevelt also announced a moratorium on the export of gold. Because foreign investors required trading to be done in gold (paper money was believed to be too risky) the combination of the moratorium and the bank holiday effectively put the economy of the United States on hold. After the week had passed, Roosevelt held the first of his famous "fireside chats" via the radio to reassure the American people. As promised, the majority of the banks reopened. Many people followed Roosevelt's advice and again placed their money in the banks. During those same first weeks, Roosevelt and Congress worked together to repeal prohibition, allowing the sale and consumption of alcohol to resume.

These moves were only the beginning of what is referred to as the Hundred Days. More legislation was passed during the first hundred days of Roosevelt's presidency than had been passed in any similar period of any previous presidency. Roosevelt worked with young lawyers, professors, and social workers to create legislation that was meant to get people working and spending once again. To relieve the immediate need for food and shelter, Roosevelt ushered through Congress the Federal Emergency Relief Administration, which granted $500 million in aid to the states for distribution to people in need.

Next came congressional approval of Roosevelt's Civilian Conservation Corps Act (ch. 383, 50 Stat. 319). The government paid young men between the ages of 18 and 25 for six months to one year to do construction or conservation work. The men built bridges, dams, and roads and planted more than 17 million acres of new forests. They were paid $30 per month and were required to send most of their money home to their families.

The Agricultural Adjustment Act of 1933 (AAA), 7 U.S.C.A. §§ 601 et seq., also was passed during these first hundred days. Farmers were growing large surpluses of crops such as wheat and corn, and these surpluses drove prices down


even though the farmers' expenses were rising. The AAA sought to reduce the surplus of crops by paying farmers not to grow them. Although some Americans questioned this practice because so many people were starving, the theory of the plan bore out, and by 1936 farmers were receiving $1.02 per bushel of wheat, as compared to the 38 cents per bushel that they had received in 1932.

Toward the end of the hundred days, Congress enacted the National Industrial Recovery Act of 1933 (NIRA), (ch. 90, 48 Stat. 195) and created the National Industrial Recovery Administration to implement the act's goals. The legislation's main goal was to stimulate dormant factories and industries and to get people back to work. The National Industrial Recovery Administration believed that the best way to do this was to create a series of codes (746 in all) that companies had to follow in the marketplace. These codes regulated everything from a minimum hourly wage to the maximum number of hours per week that an employee could work. They controlled advertising and business production and output. Fearing a return of the high unemployment rate, one code forbade industry from developing technological advances that would lead to employee layoffs.

NIRA represents the first direct government involvement in business operations. It allowed industries and business to engage in previously prohibited monopolistic price-fixing so that one manufacturer could not under price its goods to drive a competitor out of business. The legislation allowed workers to unionize and to bargain


collectively for better pay and working conditions. This was all done with the goal of increasing business profits, which, in turn, would create more jobs and more spending. However, NIRA posed difficulties for many business owners, who were forced to restructure their business operations.

One of the most popular programs of the New Deal was the Works Progress Administration (WPA), which created more than 250,000 projects, putting millions of people to work. Most of the money and effort went to public construction of bridges, roads, and government buildings such as post offices. Writers were employed to interview town residents and to compile local histories. Actors and musicians were hired to bring theater and live music to residents of rural towns, who otherwise had little opportunity to see live performances.

After the first 18 months of the New Deal, five million previously unemployed people had found work. However, Roosevelt and his New Deal were not without their critics. When wealthy people realized that Roosevelt was intending not to return the country to the pre-crash status quo but rather to reform the entire national economic structure, they soon turned on him, calling him a traitor to his class. They disliked Roosevelt for the new taxes imposed on them, and some believed rumors that Roosevelt wanted to make the United States a socialist state under his dictatorship. The leaders of big business, once beholden to Roosevelt for getting their businesses back on track, were now among his most forceful critics.

Wealthy people were not Roosevelt's only critics. People to the political left of Roosevelt thought that he had let the common man down. Socialists such as Upton Sinclair and some Democrats such as Huey Long, the senator from Louisiana, complained that Roosevelt and his New Deal did not do enough for the lower and middle classes of society. Despite criticism from many angles, the majority of U.S. citizens loved Roosevelt, re-electing him by a landslide in 1936 over the Republican nominee, Alfred M. Landon.

One significant reason for Roosevelt's considerable popularity was the passage of the Social Security Act of 1935 (42 U.S.C.A. § 301 et seq.)—the first piece of legislation in the history of the United States to address social welfare. The legislation provided people over the age of 65 with a monthly pension from the federal government. It also contained provisions for unemployment insurance and for aid to children. Although this form of government charity also had its critics, Roosevelt was pleased with it because it was proof that he had not forgotten the common man.

The early successes of the New Deal created a boldness that eventually led to its demise. By the mid 1930s, the U.S. Supreme Court began to strike down New Deal legislation as unconstitutional exercises of congressional power. In Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S. Ct. 837, 79 L. Ed. 1570 (1935), for example, the Court struck down the heart of Roosevelt's New Deal legislation, the NIRA. The Schechter brothers were wholesale kosher poultry distributors who did business within the state of New York. They were convicted of violating the Live Poultry Code, including wage-and-hour violations. The Court unanimously held that the federal government could only control trade between states, not trade within one state. Even liberal justices on the Court who had supported previous New Deal legislation found the challenged provisions unconstitutional. The following year, the Court struck down the Bituminous Coal Conservation Act of 1935, ch. 824, 49 Stat. 991, because its enactment was not based upon a power that Congress possessed under the Constitution. Carter v. Carter Coal Co., 298 U.S. 238, 56 S. Ct. 855, 80 L. Ed. 1160 (1936).

Many legal actions against other New Deal legislation were piling up, and in a fast and furious move in 1937, Roosevelt proposed a restructuring of the high court through the addition of a new justice to the Court for each justice over the age of 70. At the time of this proposal, six of the nine justices were over the age of 70, including Chief Justice Charles Evans Hughes and associate justices Willis Van Devanter, James McReynolds, Louis Brandeis, George Sutherland, and Pierce Butler. Roosevelt tried to place a nonpolitical spin on his proposal, citing instances where changes to the composition of the Court had been made before, as well as the heavy workload for nine justices, but he could not disguise his blatant attempt to pack the Court with liberal justices who saw things his way. Roosevelt refused to concede, which resulted in months of Senate debates that cost him many supporters.

Rather than exploding, the controversy retreated as the Court began supporting many pieces of New Deal legislation. In nlrb v. jones & laughlin steel corp., 301 U.S. 1, 57 S. Ct. 615, 81 L. Ed. 893 (1937), the Court upheld the constitutionality of the National Labor Relations Act, which was purportedly based upon the Commerce Clause of the Constitution. Prior to Jones & Laughlin Steel Corp., Van Devanter resigned from the Court and was replaced by Hugo Black. The Court's structure changed dramatically over the eight years following the decision, as the majority of justices retired or resigned from the court, including the following: Sutherland (1938); Benjamin Cardozo (1938); Brandeis (1939); Butler (1939); Hughes (1941); McReynolds (1941); Harlan Stone (1941); and Roberts (1945).

Although, in the end, the makeup of the Court was just as Roosevelt wanted, he suffered losses in support and confidence that he never regained. Many people felt that the New Deal legislation had granted labor too much power, and they were resentful of the unionization efforts, which led to strikes that were often violent. Finally, the unemployment rate in late 1937 to mid 1938 soared from five million to eleven million. Roosevelt and his vision for a New Deal lost congressional support. No further reform legislation was passed during Roosevelt's time in the White House. Although the country was much better off than it had been when he took office in 1932, the Great Depression continued. It ended not by legislation, but by the coming of World War II.

The political machine of the New Deal and its dominant social policy continued for decades after the last piece of its legislation was passed. Although its demise can not be traced to one single event, by the time Ronald Reagan was elected president in 1980, the era of the New Deal was effectively over.

Further Readings

Fraser, Steve, and Gary Gerstle. 1989. The Rise and Fall of the New Deal Order. Princeton, N.J.: Princeton Univ. Press.

Freedman, Russell. 1990. Franklin Delano Roosevelt. New York: Clarion Books.

Schraff, Anne E. 1990. The Great Depression and the New Deal. New York: Watts.

Stewart, Gail B. 1993. The New Deal. New York: New Discovery Books.

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