The Rise and Fall of the New Deal
Having called for ideas to fill out the three R’s of the New Deal, FDR received
plenty. His Brains Trust suggested new plans right and left, and Roosevelt’s theory of
government dictated that he try them all. If an idea didn’t work, FDR tanked it and tried
something else. Some of the steps taken in the New Deal addressed only one of the R’s,
others sought to bring about relief, recovery, and reform, or just two. Through trial and
error using borrowed money, the New Deal lurched forward. A careful analysis of the
results purchased with deficit spending reveals, however, that the New Deal did not end
the Great Depression. The attempt on the part of government to restore and preserve the
prosperity of the 1920s did not succeed in Franklin Roosevelt’s lifetime.
The Emergency Banking Relief Act followed closely on the heels of FDR’s Bank
Holiday. One billion dollars was distributed to provide recovery by bolstering banks. An
example of a “three-R” step was the Beer and Wine Revenue Act which laid the ground
work for the 21st Amendment of the Constitution which repealed Prohibition. An entire
industry had been squelched by Prohibition. FDR restored alcohol to the American
people (with their consent) to create jobs. People with jobs were given relief. When they
spent money the economy recovered. A permanent restoration of a huge industry ensured
reform. Try to imagine these implications with each of the New Deal measures.
The Civilian Conservation Corps was a two-R measure—which ones? Young
men from the ages of 18-25 were employed in a sort of army/summer-camp type
arrangement complete with uniforms. Eventually 2.5 million young men worked in
forestry and flood control all over the country. A small stipend was given to each CCC
worker for cigarettes, RC Colas, and Moon Pies while the rest of their paychecks were
sent home to their parents. They built trails and bath houses in parks and planted more
trees than had ever been planted by the human race before. They also kept out of trouble
and did not become gangsters or thugs or robbers. Did you know that most crime in
America is committed by boys ages 14 to 35?
FDR thought these beginning attempts did not provide enough relief. The Federal
Emergency Relief Act actually handed out 900 million dollars in direct payments to
citizens by May of 1933. To help farmers, the Agricultural Adjustment Act (AAA)
sought to achieve “parity.” The goal of the AAA was to raise prices for farm products to
their World War I levels, a high aim indeed. Incredibly, while hunger increased among
the jobless, the federal government paid farmers to reduce production by plowing under
crops, spilling milk, and slaughtering livestock without butchering them. Passed on the
same day as FERA, the federal government was in the position of borrowing money to
give to citizens to help them buy food for inflated prices that the federal government
itself had created! What hurt people who ate food but helped farmers get higher prices
the most, however, was the Dust Bowl drought of 1934. With the federal government
and nature against low food prices, farmers experienced a 50% increase in the price they
could charge. By the way, that still did not increase prices to anywhere near parity with
World War I prices.
The Tennessee Valley Authority is probably the New Deal agency with which
you are most familiar. The only natural lake in our state is Reelfoot Lake in West
Tennessee that was created by an earthquake. All other Tennessee lakes were created by
TVA. They obviously provided a recreation industry for us (even importing ocean-going
Striped Bass to create a sport-fishing craze), but their intention was to provide jobs and
electrical power to one of the poorest parts of America (ours). Many parts of Appalachia
did not have access to electricity until the Rural Electrification Project associated with
TVA. TVA was originally intended to drive down prices for electricity by competing
with private companies using sources of capital they could never access (deficit spending
and your tax dollars). The end result was not competition but monopoly, because no
private companies could stay “afloat.” This outcome is why TVA is considered the most
socialistic agency of the New Deal; it took over the means of production in our area.
Also, don’t be fooled by the dams; TVA produces most of our electricity by burning coal.
Do keep in mind, however, that access to what was then cheap energy was part of what
determined that the Manhattan Project would be located here in Oak Ridge.
The June 16, 1933 National Industrial Recovery Act created another controversial
New Deal agency, the National Recovery Administration (NRA). Symbolized by a rather
fascist-looking Blue Eagle, the NRA hosted parades and speeches designed to compel
private companies to regulate themselves. New codes of operation were set for over 700
major industries and prices were fixed downward while wages were raised upward. The
NRA encouraged cooperation with labor unions and ultimately set the first national
minimum wage and maximum work week, secured at first through voluntary compliance.
Businesses that complied were considered patriotic and could proudly display the Blue
Eagle in their shop windows. These successes definitely impacted all three R’s and whet
the appetite of the federal government to control these areas ultimately through
involuntary compliance.
Another role deficit spending played was to fund public works projects through a
number of agencies that expanded on the ideas of the CCC. The Public Works
Administration (PWA) distributed 3.3 billion dollars starting in 1933. The Civil Works
Administration also began that year and was the most egregious example of “make-work”
boondoggling, or providing “jobs” simply to help citizens avoid the embarrassment of
being on government relief (welfare). The CWA gave out $933 million that way. The
1935 Works Progress Administration (WPA) targeted particular skilled trades from
writers to the stonemasons that built the “Stone Castle” as the football stadium at
Tennessee High School in Bristol, TN, where I first taught. Five billion dollars was sent
out to “prime the pump” of the American economy through the jobs created by the WPA.
An important Reform measure was the Glass-Steagall Banking Reform Act of
June, 1933. This law created the Federal Deposit Insurance Corporation (FDIC) to insure
depositors’ money in member banks. The creation of this agency blamed the Depression
on bankers and forced them to separate their investment schemes from the use of regular
commercial banking practices with your money. Last I checked your accounts are
insured by FDIC banks up to $100,000. This level, of course, means I have to keep my
money in several different banks in order to keep it all safe from any one bank’s
collapse—HA! More Glass-Steagall reforms were put in place in 1934 when the
Securities and Exchange Commission was established to regulate the Stock Market. The
SEC requires corporations to publish their financial numbers and punishes officers of the
corporations if the numbers are “cooked.” The SEC is also the agency that puts the
brakes on the Stock Market in instances of large sell-offs in order to prevent another
complete crash.
Other agencies included the 1934 Federal Housing Administration (FHA) to make
loans easier for citizens to purchase homes, and the 1935 National Labor Relations Act
(the Wagner Act) to make sure labor unions were fair and independent and to compel
employers to respond to grievances. The most sweeping change of the later New Deal
was accomplished with the Social Security Act, also in 1935. This law established oldage insurance paid for by required withdrawals from the paychecks of workers and the
profits of businesses. These taxes launched the welfare state of modern America. Social
Security provides payments for retired people but also the unemployed, mothers with
dependent children, orphans, the blind, and the disabled. By the end of the New Deal, the
federal government passed the 1939 Fair Labor Standards Act which constituted the
involuntary minimum wage and maximum work week. Time worked beyond full-time
was paid as time-and-a-half, or 1.5 hours per hour. The most important things to
remember about these agencies and policies of the New Deal are that they are all still in
place in one form or another, and they are all funded the same way—with deficit
spending.
An analysis of the economy of the United States tracked along with the deficit
spending from 1932 when FDR was elected to the Election of 1936 when he was
reelected reveals some interesting phenomena. The economy in 1932 was at rock
bottom, and the first Hundred Days saw improvement in response to massive government
spending. The New Deal spent so much money that even FDR thought it went too far.
He cut back on the expenditures, and the economy nosedived in response. A low
occurred in 1934 right as the Dust Bowl set in. FDR then opened the floodgates and the
economy rebounded just in time for the Election of 1936.
The President and his advisers interpreted his landslide victory in 1936 as a
mandate to spend even more borrowed money which he promptly set about doing in his
second term. This time, however, the economy did not respond. While New Deal
spending went higher than ever before, the economy suffered a severe drop to a level not
seen since 1932. This divergence of the spending and growth curves is evidence that the
New Deal did not end the Great Depression. The economy did not turn around until after
World War II broke out and drug the United States into a crisis more severe than any
economic depression. It was the need to produce for the war that eventually created
sustained economic growth and built the foundation for long-term American economic
stability.
The Democratic Party and its role in American life were transformed by this
experience. FDR launched a new, tolerant image for the party of Jim Crow. As he
launched a revival of Progressive Reform, Democrats’ willingness to now include among
its constituents the poor, Roman Catholics, and Jews constituted the first political stand
that could be truly called “liberal” in the modern sense of the word. FDR placed
Catholics and Jews in positions of authority in the New Deal. That step begs the
question—what about blacks? The Democrats passed no civil rights laws under FDR, not
even anti-lynching laws. But FDR did appoint blacks to high government positions, and
that step was just enough support to break blacks’ traditional allegiance to the
Republicans, the party that freed them from slavery. Most American blacks have voted
for the Democratic Party ever since. In the end, W. E. B. Du Bois was right; the way to
sway blacks to one’s party, at least, was to embrace the Talented Tenth.
FDR seemed unstoppable after the Election of 1936 in which he carried all states
except Vermont and Maine. Furthermore, the Democratic Party seated 75 Senators and
333 Representatives in the House giving super-majorities to the New Deal. The United
States embraced a new version of Progressivism and has not let go since. FDR won two
other terms as president largely because World War II erupted in Europe and Asia and
the campaign slogan, “Don’t switch horses in midstream” seemed to make sense to an
American people who had said, “A OK” to FDR and his “alphabet soup” New Deal
agencies.
As the spending and growth trends described above indicated, however, the New
Deal began to break down. It was plagued by a Supreme Court that took an increasingly
narrow interpretation of the federal government’s role in regulating interstate commerce.
The Court maintained that farming and mining, for example, were inherently local
industries. They deemed taxation for Social Security and the government regulation of
labor/management relations as nearly illegal. In the Schechter “Sick-Chicken” case of
1935, the Supreme Court dispatched an already weakening NRA by saying that even
though the compliance was voluntary, the President was legislating by issuing so many
codes and regulations, and thereby regulating intrastate commerce (the chickens never
left their state of origin). When the Court attacked the AAA, the Democratic Congress
disguised subsidies to farmers as “soil conservation measures.”
When FDR won the “mandate” in 1936 he moved to reform even the Supreme
Court! He suggested that the work load was oppressive and that Justices over 70 years
old should resign or that the Court could simply be enlarged from 9 to 15 to help with the
load. He claimed it was inefficient, but you should read “too conservative.” Even the
largely Democratic Congress balked at these suggestions, and enemies of FDR said he
was trying to “pack” the Court in his favor. Congress battled for 168 days over FDR’s
proposals. The Supreme Court even voluntarily accepted the Wagner Act and the Social
Security Act as valid, and in the end FDR’s scheme failed. He won at the end of the day,
however, and constitutionally. Because he was elected four times to the presidency, most
of the Judges he disliked died or retired anyway by 1941. FDR chose seven Justices
including a Chief Justice. The Pack-the-Court Scheme remains the one big blemish on
the presidency of FDR. He turned even some Democrats away and set in motion the
events that would lead to the 20th Amendment to the Constitution that enforced the twoterm precedent set by George Washington in the beginning.
The second big hurdle for FDR was labor relations. John L. Lewis, a man West
Virginia coal miners likened to Christ, led a split from the American Federation of Labor
(AFL) to start the Congress of Industrial Organizations (CIO). Lewis believed that
skilled and unskilled laborers in a given industry, like coal mining or automobile
manufacturing, had enough in common to break the AFL’s tradition of being a skilled
craft union. The United Auto Workers, a CIO affiliated union, won recognition from
General Motors despite slurs of “communist” using the new technique of the sit-down
strike. Workers ensured that no “scabs” would be hired to do their jobs while they were
out on strike by simply reclining physically in cars and preventing the assembly lines
from flowing. US Steel gave in to a CIO union, too.
Labor violence became so severe by 1937, however, that police shot into a mob of
workers just like back in the Gilded Age. FDR found himself in the uncomfortable
position of trying to browbeat business to accept the demands of violent workers.
Standing in between these enemies caused him to gain enemies on both sides. He went
so far as to quit supporting the formation of new unions like a proposed Tenant Farmers
Union and faced severe criticism by 1938. Remember, however, that there are always
more workers than managers. You can predict which side FDR eventually chose to
favor. The Fair Labor Standards Act (the Wagner Act) was another huge concession on
the part of the federal government to the demands of laborers. This law eradicated child
labor, by the way, but mainly to raise the wages of adult workers. The unions voted for
FDR, and they have largely voted for the Democratic Party ever since.
Now for a critique. Charges against, or a list of cons regarding the New Deal and
FDR include the fact that this new Progressivism bordered on actual socialism. The
federal government’s role in the economy and in individual lives was greater than ever
before. The United States has had a “Big Government” ever since regardless of a few
campaigns to reduce its size. Critics of the New Deal say FDR lacked a clear purpose,
and he was never able to integrate all the competing fragments of the economy and the
regulatory agencies. New Deal agencies often contradicted each other or canceled each
other out—on borrowed money. After all the deficit spending the goal of restoring the
economy proved unattainable by 1939 when the nation was back roughly to where it had
been ten years earlier after the Crash. Modern economists have suggested that the New
Deal actually prolonged the Great Depression rather than mitigated it. Free-market
economists believe the Depression would have ended on its own and sooner if the federal
government had done nothing.
No one can deny certain strengths of FDR’s presidency, however, and we haven’t
even begun to discuss the war years. FDR was talented at providing hope for Americans.
He obviously accomplished more than any other president before or since and thus ranks
as a Great President. He held onto the presidency and helped Americans hang onto
America until World War II changed everything. It must also be noted that, in a way,
FDR was a conservative. While nation after nation fell to dictatorships in the economic
crisis of a worldwide depression, FDR did not become a dictator even though the idea
was suggested by some. In this regard FDR ranks with George Washington as a selfdenying leader of a democratic republic who could have seized more power in a time of
crisis and did not. It does seem that America was radicalized only for a time.