Franklin D. Roosevelt and the New Deal Causes of the Great Depression Agricultural overproduction Industrial overproduction Unequal distribution of wealth Over extension of credit International economic situation President Hoover hoped to downplay the public s fear over the economy. He wanted to avoid more bank runs and layoffs by urging consumers and business leaders to become more rational in their decisionmaking. Critics of Hoover s approach believed the government should be more truthful with the public. On Friday, Oct. 25, the day after Black Thursday, Hoover issued a statement assuring the nation that industry was on a sound and prosperous basis. In March 1930 he told the public that the worst effects the crash will have passed during the next 60 days. Critics derided his optimism as conditions worsened. Despite his soothing words, Hoover was seriously worried about the economy. He organized a series of conferences, bringing together heads of banks, railroads and other big businesses, as well as labor and government officials. He won a pledge from industry to keep factories open and to stop slashing wages. By 1931, business leaders had abandoned those pledges. Hoover s next step was to increase public works government financed building projects. The resulting construction jobs could replace some of those lost in the private sector. He urged governors and mayors throughout the nation to increase public works spending. Hoovers actions did spur construction but this only accounted for a small portion of those that had lost their jobs in the private sector. The only way that the government could create enough new jobs was to increase government spending, which Hoover refused to do. The problem was that someone had to pay for these public works project. If the government raised taxes to pay for them, it would take money away from consumers and hurt businesses that were already struggling. It was decided to keep taxes low and run a budget deficit. It would borrow money from banks. If the government did this, less money would be available for businesses that wanted mortgages and other loans. Hoover feared that deficit spending would actually delay an economic recovery. 1
As the party in power, the Republicans were blamed for high unemployment and the stumbling economy. In the congressional election of 1930 the Republican Party lost 49 seats and the majority in the House or representatives; they held on to the Senate by a single vote. Hoover soon turned his attention to the problem of money. There was too little in the economy now that so many banks had collapsed. The government he believed, had to make sure that banks could make loans to corporations so they could expand production and rehire workers. The President asked the Federal Reserve Board to put more currency in circulation but they refused. So, Hoover set up the National Credit Corporation (NCC) in October 1931. The NCC created a pool of money in their communities. Hoover then persuaded a number of New York bankers to contribute to the NCC. These contributions never did meet the nations needs. By 1932 Hoover concluded that the only way to provide funding for borrowers was for the government to do the lending. He requested Congress to set up the Reconstruction Finance Corporation (RFC) to make loans to banks, railroads, and agriculture. By early 1932, the RFC had loaned about $238 million to approximately 160 banks, 60 railroads, and building andloan organizations. It failed to increase its loans in a sufficient amount to meet the needs, and the economy continued its decline. From the start, Hoover strongly opposed the federal government s participation in relief money that went directly to impoverished families. He believed that only state and city governments should dispense relief. By 1932, they were running out of money. In 1932 political support was building for a relief measure, and Congress passed the Emergency Relief and Construction Act. Reluctantly Hoover signed this into law. The new act called for $1.5 billion for public works and $300 million in loans to the states for direct relief. However, state governments did not qualify for the loans unless they were on the verge of bankruptcy. Also, by this time, the new program could not reverse the accelerating collapse Hunger Marches January 1931, around 500 men and women in Oklahoma City, shouting angrily about hunger and joblessness broke into a grocery stores and looted it. Crowds began showing up at rallies and hunger marches held by the American Communist Party. December 5, 1932, a freezing day in the nation s capital, around 1,200 hungry marchers assembled and chanted, Feed the hungry, tax the rich. Police herded them into a blocked off area where they had to spend the night sleeping on the sidewalks or in trucks. The police denied them food, water, and medical treatment until some members of Congress insisted on the marchers right to petition their government. They were then released and permitted to march to Capital Hill 2
Farmers Revolts In the summer of 1932, farmers also took matters into their own hands. During the boom days of WW1, many farmers had heavily mortgaged their land to pay for seed, feed, and equipment. After the war, prices sank so low that farmers could not even earn back their costs, let alone make a profit. Between 1930 and 1934 creditors foreclosed on nearly one million farmers. Some farmers began to destroy their crops in a desperate attempt to raise crop prices by reducing supply. In Nebraska grain growers burned corn to heat their homes in the winter. In Iowa food growers forcibly prevented the delivery of vegetables to distributers. Georgia dairy farmers blocked highways and stopped milk trucks, emptying the milk cans into ditches Reasons for Hoovers Ineffectiveness Hoover thought business should be self regulating. He had a mania for a balanced budget. He lacked political finesse. We did not dare to breathe a prayer, Or to give our anguish scope; Something was dead in each of us, And what was dead was Hope. Oscar Wilde, The Ballad of Reading Gaol Franklin D. Roosevelt s Appeal In 1932 presidential election, FDR was perceived as a man of action. Hoover was viewed as a do nothing President. Norman Thomas, the Socialist candidate, was viewed as a radical. Results: a landslide for Democrats and a mandate to use government as an agency for human welfare. 3
I promise a New Deal! Prosperity is just around the corner The Election of 1932 Situation When FDR Entered Office In March 1933, the country was virtually leaderless and the banking system had collapsed. FDR Restored Confidence In his inaugural address, he said The only thing we have to fear is fear itself. He promised vigorous leadership and bold action, called for discipline and cooperation, expressed his faith in democracy, and asked for divine protection and guidance. Franklin D. Roosevelt (FDR) Pampered youth with opportunities Dropped out of law school to enter politics Democratic Candidate in for VP in 1920 Stricken with polio in 1921 and was left paralyzed Used his disability as a chance to sit and think Elected governor of NY in 1928 Upon inauguration, states the only thing we have to fear is fear itself Believed America has survived through worse in the past He was a practical politician who practiced the art of the possible. He was a charismatic person who exhibited a warmth and understanding of people. He knew how to handle press by focusing attention on Washington. He provided dynamic leadership in a time of crisis. He was willing to experiment 4
Sources of New Deal Ideas First Woman Cabinet Member 1. Brains Trust: specialists and experts, mostly college professors, idea men. 2. New Economists: government spending, deficit spending and public works, government should prime economic pump 3. Roosevelt picked highly qualified experts to head the many departments of the Cabinet Sec. of State: Cordell Hull Sec. of Interior: Harold Ickes Sec. of Agriculture: Henry Wallace Postmaster Gen: James A. Farley Sec. of Labor FRANCES PERKINS (The first Woman Cabinet member) Roosevelt s Cabinet: included conservatives, liberals, Democrats, Republicans, inflationists, anti inflationists often conflicting, compromising, blending ideas Purposes of the New Deal Shortly after taking office, Roosevelt explained to the American people that his New Deal program would seek to deliver relief, recovery, and reform the so called 3 Rs Relief: to provide jobs for the unemployed and to protect farmers from foreclosure Recovery: to get the economy back into high gear, priming the pump Reform: To regulate banks, to abolish child labor, and to conserve farm lands Overall objective: to save capitalism The First 100 Days Roosevelt s overwhelming victory in the 1932 election (He won 57% of the popular vote which is compared to Hoovers less than 40% and carried all the electoral votes for all but 6 states), coupled with the urgency of the worst economic collapse in US History, opened the way for a flood of legislation. The Republican Party (GOP) also lost 12 Senate seats and 101 house seats, meaning that Roosevelt s entered office backed by a strongly Democratic Congress Immediately after taking office Roosevelt called on Congress to convene and begin responding to the economic crisis. Congress met for 100 days, granting every request Roosevelt asked, and even passed a few programs (Such as the FDIC to insure bank accounts) that he opposed. From March 4, 1933 to June 1933, 16 major pieces of legislation (the New Deal) were enacted to improve American life and the economy. Banks FDR's natural air of confidence and optimism did much to reassure the nation. His inauguration on March 4 occurred literally in the middle of a terrifying bank panic hence the backdrop for his famous words: "The only thing we have to fear is fear itself." The very next day, to prevent a run on banks, he declared a "bank holiday," closing all banks indefinitely until bankers and government could regain control of the situation. The term "holiday" was meant to give a festive air to what was actually a desperate situation, but such was FDR's desire to provide hope to the nation. On the very first day of the special session, Congress passed Roosevelt's bill to stabilize the country's failing banking system. (In his first days in office, FDR had had to declare a nationwide "bank holiday" closing down every bank in the country in order to stop a devastating run of bank failures.) The House passed Roosevelt's banking bill unanimously, after just 38 minutes of debate, without even seeing the text of the legislation. Representative Robert Luce captured the mood, saying "this is a case where judgment must be waived, where argument must be silenced, where we should take matters without criticism lest we may do harm by delay. "The Senate the self proclaimed "world's greatest deliberative body" took a few hours longer, but still passed the bill by a vote of 73 7 later that evening. Roosevelt signed the Emergency Banking Act into law less than eight hours after he sent it up to Capitol Hill. Congress was almost entirely compliant and gave the President everything he wanted. The Emergency Banking Bill, which strengthened, reorganized and reopened the most solvent banks, was passed overwhelmingly by Congress with little debate. On March 12, Roosevelt announced that the soundest banks would reopen. Secretary of Treasury was given the power to investigate banks 4/5 turn out to be in good working order. by June, ¾ were back in business 5
The bank holiday was a vivid example of the effectiveness of government intervention in an economic crisis. Hoover had allowed two previous bank panics to run their course, which contributed to over 10,000 bank failures and $2 billion in lost deposits. The bank holiday secured Roosevelt's political reputation, and convinced both Congress and the public that the New Deal was the right road to follow. The banking bill worked. On 12 March, Roosevelt went on the radio for the first of his "Fireside Chats," in which he confidently reassured the American people that their banks were once again safe; when the bank holiday ended the next morning, customers across the country deposited more money than they withdrew, and the banking crisis ended. Congress saw the need for substantial reform of the banking system, which eventually came in the Banking Act of 1933, or the Glass Steagall Act. The bill was designed to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes. It imposed tighter controls on banks. It also had a provision that set up the Federal Deposit Insurance Corporation FDIC that insures deposit in banks with a pool of money collected from banks. This was controversial at the time and almost was vetoed by the President First New Deal (1933 1934) Emphasis: reform Political Position: conservative Primary aim: economic recovery Philosophy: economic nationalism and economic scarcity (i.e., raise prices by creating the illusion of scarcity) Objectives: higher prices for agriculture and business Beneficiaries: big business and agricultural business National Recovery Act (NRA) Purpose: recovery of industry Created a partnership of business, labor, and government to attack the depression with such measures as price controls, high wages, and codes of fair competition 6
First Agricultural Adjustment Act (AAA) Purpose: the recovery of agriculture Paid farmers who agreed to reduce production of basic crops such as cotton, wheat, tobacco, hogs, and corn Money came from a tax on processors such as flour millers and meat packers who passed the cost on to the consumer Federal Emergency Relief Admin (FERA) Purpose: relief Gave money to states and municipalities so they could distribute money, clothing, and food to the unemployed Civilian Conservation Corp (CCC) Purpose: relief Gave outdoor work to unemployed men between the ages of 17 and 29 They received $30 per month, but $22 went back to the family Second New Deal (1934 1941) Emphasis: reform Political Position: liberal Primary aim: permanent reform Philosophy: international economic cooperation and economic abundance Objectives: increased purchasing power and social security for public Beneficiaries: small farmers and labor 7
Social Security Act Purpose: reform Gave money to states for aid to dependent children, established unemployment insurance through payroll deduction, set up old age pensions for retirees. National Labor Relations Act Purpose: reform This was also known as the Wagner Act. It put restraints on employers and set up a National Labor Relations Board to protect the rights of organized labor to bargain collectively with employers. Second Agricultural Adjustment Act Purpose: recovery for agriculture Paid farmers for conservation practices, but only if they restricted production of staple crops. 8
U.S. Housing Authority The New Deal on Trial Purpose: recovery and reform Used federal funds to tear down slums and construct better housing. By 1935, political disunity was evident. There were critics on the right and the left. NEW DEAL Criticisms of Conservative Opponents Conservative opponents said the New Deal went too far: It was socialism (killed individualism) It added to the national debt ($35 billion) It wasted money on relief and encouraged idleness It violated the constitution & states rights It increased the power of the Presidency (FDR was reaching toward dictatorship, Congress a rubber stamp, independence of judiciary threatened, separation of powers shattered) Anti New Deal Organization Conservative opponents to the New Deal had an organization called the American Liberty League. They had money but were small in numbers, so FDR was not worried. Criticisms of Radical Opponents Radical opponents said the New Deal did not go far enough. They were demagogues (rabblerousers) and had popular followings, so FDR was concerned. 9
Senator Huey Long (LA) Senator Huey Long said New Deal relief measures were mere crumbs and advocated a share the wealth plan (i.e., a guaranteed annual income of at least $5,000 for every American, financed by confiscating wealth of people who made over $5 million per year). Father Charles E. Coughlin Father Charles Coughlin was a rabble rousing radio priest from Detroit. His broadcasts were called the Golden Hour of the Little Flower. He claimed there was an international bankers conspiracy and Jews were responsible. He advocated nationalization of banking and currency and national resources and demanded a living wage. Dr. Francis E. Townsend Dr. Francis E. Townsend was an elderly physician from CA. He had a plan for the federal government to pay $200 per month to unemployed people over 60. The program would be financed by a 2% national sales tax and each pensioner would be required to spend the money in 30 days. This would stimulate the economy. Moderate Legislation FDR sponsored moderate legislation to silence radical opposition: Revenue Act of 1935 Response to Huey Long. Increased taxes on large incomes and corporations. Banking Act of 1935 Response to Coughlin. Extended federal control over private banking practices. Social Security Act of 1935 Response to Townsend. Included provisions for unemployables (dependent children, the disabled, blind), unemployment insurance, and old age pensions. 10
The Election of 1936 The Election of 1936: Made the Democratic party the majority party Created a new Democratic coalition composed of both traditional elements and new elements Showed that the American people rejected radical solutions to depression The Election of 1936 Candidate Party % Popular Vote Electoral Votes FDR Democratic 60.3% 523 Alfred E. Landon Republican 36.56% 8 William Lemke Radical 1.93% Norman Thomas Earl Browder Socialist Communist 0.41% (2.21 in 1932) 0.17 (0.25 in 1932) The Roosevelt Coalition While Republicans were still relying on their traditional base of political support (big business, big farmers, and conservatives), Democrats broadened their constituency by appealing to small farmers in the Midwest, urban political bosses, ethnic blue collar workers, Jews, intellectuals, and African Americans. Protection of New Deal Accomplishments Steps FDR took to protect New Deal accomplishments (both failed): Court Packing Plan (proposed increasing Supreme Court from 9 to 15 members, caused in revolt in Dem. Party) Purge of the Democratic Party in the Election of 1938 (came out strongly in favor of liberal Dem. Candidates, evidence that he interfered in a state campaign, Republicans gained strength in both houses of Congress) Decline of New Deal Reform after 1937 Reasons for decline of New Deal reform after 1937: Court packing plan made Congress irritable. Recession of 1937 38 weakened confidence in New Deal measures. Republicans gained strength in both houses. Attempted purge of Democratic party failed. Conservative Democrats were elected to office. Resentful of attempted party purge, they joined ranks with Republicans to block New Deal legislation. Increasing focus on foreign affairs. 11
Physical Rehabilitation of Country The Significance of the New Deal Attacked soil erosion Built dams and planted trees to prevent floods Reclaimed the grasslands of the Great Plains Developed water power resources Encouraged regional reconstruction projects like the TVA and Columbia River project Human Rehabilitation Established the principle that government has responsibility for the health, welfare, and security, as well as the protection and education of its citizens Embraced social security, public health, housing Entered the domain of agriculture and labor Revitalization of Politics Strengthened executive branch Reasserted presidential leadership Revitalized political party as a vehicle for the popular will and as an instrument for effective action. Extension of Democracy Redefined the concept of democracy so that it included not only political rights but economic security and social justice as well. Maintenance of a Democratic System The New Deal maintained a democratic system of government and society in a world threatened by totalitarianism. Increased size and scope of government to meet needs of the depression Provided the leadership that enabled Congress to put through the necessary relief, recovery, and reform measures. Sponsored moderate legislation to neutralize the popularity of radical opponents 12
Government Expenditures The total cost of the current bailout now exceeds $4.6 trillion dollars. It has cost more than all of these government expenditures combined. Figures in parentheses have been adjusted for inflation: Marshall Plan: Cost: $12.7 billion ($115.3 billion) Louisiana Purchase: Cost: $15 million ($217 billion) Race to the Moon: Cost: $36.4 billion ($237 billion) S&L Crisis: Cost: $153 billion ($256 billion) Korean War: Cost: $54 billion ($454 billion) The New Deal: Cost: $32 billion est.($500 billion est.) Invasion of Iraq: Cost: $551billion ($597 billion) Vietnam War: Cost: $111 billion ($698 billion) NASA: Cost: $416.7 billion ($851.2 billion) TOTAL: $3.92 trillion 13