The New Deal was the name that United States President Franklin D. Roosevelt gave to his complex package of economic programs 1933-36 with the goals of what historians call the 3 Rs, of giving Relief to the unemployed and badly hurt farmers, Reform of business and financial practices, and promoting Recovery of the economy during the Great Depression.
The Great Depression had devastated the nation by the time Roosevelt took office in 1933. Every bank in the nation had closed its doors and no one could cash a check or get at their savings. The unemployment rate was 25% and higher in major industrial and mining centers. Farm prices had fallen by 50%. Thousands of mortgages closed down.
Historians distinguish a "First New Deal" (1933) and a "Second New Deal" (1934-36). Some programs were declared unconstitutional, and others were repealed during World War II; in early 1937 almost no new programs were initiated because of the opposition of the new Conservative Coalition.
The "First New Deal" (March 4, 1933) dealt with groups; from banking and railroads to industry and farming.
A "Second New Deal" in 1934-35 included the Wagner Act to promote labor unions, the Works Progress Administration (WPA) relief program, the Social Security Act, and new programs to aid tenant farmers and migrant workers. The Supreme Court ruled several programs unconstitutional; however, most were soon replaced, with the exception of the NRA. After 1936, the Fair Labor Standards Act of 1938 was the only major legislation; it set maximum hours and minimum wages for most categories of workers.
The WPA, CCC and other relief programs were shut down during World War II by the Conservative Coalition (i.e., the opponents of the New Deal in Congress); they argued the return of full employment made them superfluous. Many regulations were ended during the wave of deregulation from 1975 to 1989. Several New Deal programs remain active, with some still operating under the original names, including the Federal Deposit Insurance Corporation (FDIC), the Federal Crop Insurance Corporation (FCIC), the Federal Housing Administration (FHA), and the Tennessee Valley Authority (TVA). The largest programs still in existence today are the Social Security System, Securities and Exchange Commission (SEC), and Fannie Mae.
Origins
The New Deal represented a significant shift in political and domestic policy in the U.S., its more lasting changes being increased federal government control over the economy and money supply, intervention to control prices and agricultural production. It also marked the beginning of complex social programs and growing power of labor unions. The effects of the New Deal still remain a source of controversy and debate amongst economists and historians.
The crash of the U.S. stock market occurred on Thursday October 24, 1929; then, on "Black Tuesday" October 29, the stock market fell even more than it had the week before. These events were a harbinger of a worldwide economic depression that was to come.
Economists debate the causes of the depression and the effect of the equity market crash is seen as a signal of the underlying economic issues, as opposed to a trigger for the crisis. Federal Reserve interest rate policy, the monetary rigidity of the gold standard, and overproduction are seen as key contributing ingredients in actually causing the depression.
From 1929 to 1933, unemployment in the U.S. increased from 4% to 25%, manufacturing output decreased by approximately a third. Prices fell causing a deflation of currency values, which made the repayments of debts much harder. The mining, lumber, and agriculture industries were hit especially hard by the drop in values. The impact was much less severe in white collar and service sectors.
Upon accepting the 1932 Democratic nomination for president, Franklin Roosevelt promised "a new deal for the American people.":
Roosevelt entered office without a specific set of plans for dealing with the Great Depression; so he improvised as Congress to a very wide variety of voices. The "First New Deal" (1933-34) encompassed the proposals offered by a wide spectrum of groups. (Not included was the Socialist Party, whose influence was all but destroyed.) This first phase of the New Deal was also characterized by fiscal conservatism (see Economy Act, below) and experimentation with several different, sometimes contradictory, cures for economic ills. The consequences were uneven. Some programs, especially the NRA and the silver program, have been widely seen as failures. Other programs lasted about a decade; some became permanent. The economy shot upward, with FDR's first term marking one of the fastest periods of GDP growth in history. However another downturn came in 1937-38, so whether the New Deal can be credited with the economy's recovery, or blamed for impeding it, thus remains a complicated, and highly controversial, question.
The New Deal policies drew from many different ideas proposed earlier in the 20th century. Some opponents of bigness, led by assistant Attorney General Thurman Arnold, went back to the anti-monopoly tradition that stretched back to Andrew Jackson and Thomas Jefferson. Supreme Court Justice Louis Brandeis, an influential adviser to many New Dealers, argued that bigness was a negative economic force, producing waste and inefficiency. However, the anti-monopoly group never had a major impact on New Deal policy. Other leaders such as Hugh Johnson of the NRA took ideas from the Wilson Administration, advocating techniques used to mobilize the economy for World War I. They brought ideas and experience from the government controls and spending of 1917-18. Other New Deal planners revived experiments suggested in the 1920s, such as the TVA.
Roosevelt listened to an informal "Brain Trust," which advocated more government regulation. Donald Richberg, the second head of the NRA, said "A nationally planned economy is the only salvation of our present situation and the only hope for the future."
The New Deal faced some vocal conservative opposition. The first organized opposition in 1934 came from the American Liberty League led by conservative Democrats such as 1924 and 1928 presidential candidates John W. Davis and Al Smith. There was also a large but loosely affiliated group of New Deal opponents, who are commonly called the Old Right. This group included politicians, intellectuals, writers, and newspaper editors of various philosophical persuasions including classical liberals, and conservatives, both Democrats and Republicans.
World comparisons
Europe
- Britain was unable to agree on major programs to stop its depression. This led to the collapse of the Labour Party government and replacement in 1931 by a National Coalition dominated by Conservatives. However, the Depression affected Britain less than most countries due to Britain's exit from the gold standard in 1931 (which devalued sterling) and the policy of 'cheap money' which supported the money supply. Britain did not suffer from many of the structural weaknesses of the US and so as a result there was no equivalent of the "New Deal" in Britain.
- France was in political crisis and its Third Republic very much contested. The "Front Populaire" government, led by Léon Blum, in power 1936–1938, instigated hefty social reforms. As the coalition united representatives from the center-left to the communist party, right-wing opposition was very strong and social turmoil marred the Front Populaire term. This division left the country bitterly divided in 1938–1939.
- In Germany during the Weimar Republic, the economy spiraled down, leading to a political crisis and the rise to power of the Nazis in January 1933. Economic recovery was pursued through autarchy, wage controls, price controls, and spending programs such as public works and, especially, military spending.
- Spain endured mounting political crises that led in 1936 to civil war.
- In Benito Mussolini's Italy, the economic controls of his corporate state were tightened; economic growth ended.
- The USSR was mostly isolated from the world trading system during the 1930s.
Canada & the Caribbean
- In Canada, the Conservative Prime Minister R. B. Bennett raised tariffs against the U.S. but lowered them on British Empire goods. This exacerbated the Depression and contributed to the growth of Hooverville-like camps of the unemployed in Canada. Belatedly, in 1935, Bennett proposed a series of programs that resembled the New Deal; they met with disfavor from both the courts and the populace, and led to his defeat in the elections of 1935.
- The Caribbean saw its greatest unemployment during the 1930s because of a decline in exports to the U.S., and a fall in export prices.
Asia
- China was at war with Japan during most of the 1930s, in addition to internal struggles between Chiang Kai Shek's nationalists and Mao Zedong's communists.
- Japan's economy expanded at the rate of 5% of GDP per year after the years of modernization. Manufacturing and mining came to account for more than 30% of GDP, more than twice the value for the agricultural sector. Most industrial growth, however, was geared toward expanding the nation's military power. Beginning in 1937 with significant land seizures in China, and then to a much greater
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