Presidents and Economics: FDR and the New Deal
When Franklin Delano Roosevelt was inaugurated as President on March 4, 1933, the U.S. was at the lowest point of the worst depression in its history. A quarter of the workforce was unemployed and prices for most farm commodities had fallen by around 60%. Industrial production had fallen by more than half since 1929 and two million people were homeless. 32 of the 48 states and the District of Columbia had closed their banks. The New York Federal Reserve Bank was unable to open on the March 5th because huge sums were being withdrawn by panicky customers.
Roosevelt blamed the economic crisis on greedy bankers and financiers. In his first inaugural address he told the nation:
"Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence... The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."
Roosevelt's first 100 days in office concentrated on implementing his strategy for fast relief from the depresion. From March 9 to June 16, 1933, he sent Congress a record number of bills directed at providing relief for struggling Americans. Congress passed all of them. His inauguration occurred in the middle of a bank panic. The next day he declared a "bank holiday" and called for a special session of Congress to start March 9, at which Congress passed the Emergency Banking Act. This was his first proposed step to recovery. To give Americans confidence in the banks, Roosevelt signed the Glass–Steagall Act that created the Federal Deposit Insurance Corporation (FDIC), in which the federal government guaranteed bank balances of up to $5000.
Roosevelt continued many of Hoover's major relief program for the unemployed, but he gave those programs a new name: Federal Emergency Relief Administration. He created the Civilian Conservation Corps (CCC), which hired 250,000 unemployed young men to work on rural local projects, continuing a strategy that Hoover had used. Congress also gave the Federal Trade Commission broad new regulatory powers and provided mortgage relief to millions of farmers and homeowners. Roosevelt expanded another of Hoover's programs, the Reconstruction Finance Corporation, making it a major source of financing for railroads and industry. Roosevelt set up the first Agricultural Adjustment Administration (AAA). The AAA tried to force higher prices for commodities by paying farmers to take land out of crops and to cut herds.
Reform of the economy was the goal of the National Industrial Recovery Act (NIRA) of 1933. It tried to end cutthroat competition by creating codes that established the rules of ethical operation for all firms within specific industries. Some of the new rules called for minimum prices, agreements not to compete, and production restrictions. Industry needed to raise wages as part of this scheme. The NIRA was found to be unconstitutional by unanimous decision of the US Supreme Court on May 27, 1935. Roosevelt opposed the decision, saying "The fundamental purposes and principles of the NIRA are sound. To abandon them is unthinkable." In 1933, major new banking regulations were passed. In 1934, the Securities and Exchange Commission was created to regulate Wall Street, and Joseph P. Kennedy (father of John F. Kennedy) was put in charge of it.
A major difference between Hoover and Roosevelt is that Roosevelt was not adverse to government budget deficits. Recovery was pursued through federal government spending. The NIRA included $3.3 billion of spending through the Public Works Administration to stimulate the economy. Roosevelt worked to create the largest government-owned industrial enterprise in American history: the Tennessee Valley Authority (TVA), which built dams and power stations, controlled floods, and modernized agriculture and home conditions in the poverty-stricken Tennessee Valley.
Roosevelt cut military spending from $752 million in 1932 to $531 million in 1934. He cut in spending on veterans' benefits by 40% by removing 500,000 veterans and widows from the pension rolls and reducing benefits for the remainder. This was soon seen to be a mistake and most benefits were restored or increased. In June 1933 Roosevelt restored $50 million in pension payments, and Congress added another $46 million more. Veterans groups like the American Legion and the Veterans of Foreign Wars won their campaign to transform their benefits from payments due in 1945 to immediate cash when Congress overrode the President's veto and passed the Bonus Act in January 1936.
Roosevelt also kept his promise to push for repeal of Prohibition. On March 23, 1933, he signed the Cullen–Harrison Act redefining 3.2% alcohol as the maximum allowed. That act was preceded by Congressional action in the drafting and passage of the 21st Amendment, which was ratified later that year. The repeal of prohibition also brought in new tax revenues.
The 1934 mid-term elections gave Roosevelt large majorities in both houses and there was a surge of New Deal legislation. These measures included the Works Progress Administration (WPA) which set up a national relief agency that employed two million people. At the height of WPA employment in 1938, unemployment was down from 20.6% in 1933 to 12.5%. The Social Security Act established Social Security. The National Labor Relations Act established the federal rights of workers to organize unions, to engage in collective bargaining, and to take part in strikes.
New Deal legislation had its share of critics including some conservative Democrats, like former Democratic presidential candidate Al Smith, who compared Roosevelt to Karl Marx and Vladimir Lenin. Roosevelt countered by lumping his opponents in with the wealthy vested interests that opposed the New Deal, and it resulted in Roosevelt's re-election in 1936 by a landslide. Labor unions, who loved the National Labor Relations Act, signed up millions of new members and became a major backer of Roosevelt's reelections in 1936, 1940 and 1944.
Roosevelt blamed the economic crisis on greedy bankers and financiers. In his first inaugural address he told the nation:
"Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence... The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."
Roosevelt's first 100 days in office concentrated on implementing his strategy for fast relief from the depresion. From March 9 to June 16, 1933, he sent Congress a record number of bills directed at providing relief for struggling Americans. Congress passed all of them. His inauguration occurred in the middle of a bank panic. The next day he declared a "bank holiday" and called for a special session of Congress to start March 9, at which Congress passed the Emergency Banking Act. This was his first proposed step to recovery. To give Americans confidence in the banks, Roosevelt signed the Glass–Steagall Act that created the Federal Deposit Insurance Corporation (FDIC), in which the federal government guaranteed bank balances of up to $5000.
Roosevelt continued many of Hoover's major relief program for the unemployed, but he gave those programs a new name: Federal Emergency Relief Administration. He created the Civilian Conservation Corps (CCC), which hired 250,000 unemployed young men to work on rural local projects, continuing a strategy that Hoover had used. Congress also gave the Federal Trade Commission broad new regulatory powers and provided mortgage relief to millions of farmers and homeowners. Roosevelt expanded another of Hoover's programs, the Reconstruction Finance Corporation, making it a major source of financing for railroads and industry. Roosevelt set up the first Agricultural Adjustment Administration (AAA). The AAA tried to force higher prices for commodities by paying farmers to take land out of crops and to cut herds.
Reform of the economy was the goal of the National Industrial Recovery Act (NIRA) of 1933. It tried to end cutthroat competition by creating codes that established the rules of ethical operation for all firms within specific industries. Some of the new rules called for minimum prices, agreements not to compete, and production restrictions. Industry needed to raise wages as part of this scheme. The NIRA was found to be unconstitutional by unanimous decision of the US Supreme Court on May 27, 1935. Roosevelt opposed the decision, saying "The fundamental purposes and principles of the NIRA are sound. To abandon them is unthinkable." In 1933, major new banking regulations were passed. In 1934, the Securities and Exchange Commission was created to regulate Wall Street, and Joseph P. Kennedy (father of John F. Kennedy) was put in charge of it.
A major difference between Hoover and Roosevelt is that Roosevelt was not adverse to government budget deficits. Recovery was pursued through federal government spending. The NIRA included $3.3 billion of spending through the Public Works Administration to stimulate the economy. Roosevelt worked to create the largest government-owned industrial enterprise in American history: the Tennessee Valley Authority (TVA), which built dams and power stations, controlled floods, and modernized agriculture and home conditions in the poverty-stricken Tennessee Valley.
Roosevelt cut military spending from $752 million in 1932 to $531 million in 1934. He cut in spending on veterans' benefits by 40% by removing 500,000 veterans and widows from the pension rolls and reducing benefits for the remainder. This was soon seen to be a mistake and most benefits were restored or increased. In June 1933 Roosevelt restored $50 million in pension payments, and Congress added another $46 million more. Veterans groups like the American Legion and the Veterans of Foreign Wars won their campaign to transform their benefits from payments due in 1945 to immediate cash when Congress overrode the President's veto and passed the Bonus Act in January 1936.
Roosevelt also kept his promise to push for repeal of Prohibition. On March 23, 1933, he signed the Cullen–Harrison Act redefining 3.2% alcohol as the maximum allowed. That act was preceded by Congressional action in the drafting and passage of the 21st Amendment, which was ratified later that year. The repeal of prohibition also brought in new tax revenues.
The 1934 mid-term elections gave Roosevelt large majorities in both houses and there was a surge of New Deal legislation. These measures included the Works Progress Administration (WPA) which set up a national relief agency that employed two million people. At the height of WPA employment in 1938, unemployment was down from 20.6% in 1933 to 12.5%. The Social Security Act established Social Security. The National Labor Relations Act established the federal rights of workers to organize unions, to engage in collective bargaining, and to take part in strikes.
New Deal legislation had its share of critics including some conservative Democrats, like former Democratic presidential candidate Al Smith, who compared Roosevelt to Karl Marx and Vladimir Lenin. Roosevelt countered by lumping his opponents in with the wealthy vested interests that opposed the New Deal, and it resulted in Roosevelt's re-election in 1936 by a landslide. Labor unions, who loved the National Labor Relations Act, signed up millions of new members and became a major backer of Roosevelt's reelections in 1936, 1940 and 1944.