Great Depression: 1929–1938

New Deal

Goals of the New Deal

Encompassed in Roosevelt's original New Deal (1933−34) were legislation and a series of programs geared toward providing aid, regulating the financial system, and facilitating economic recovery during the Great Depression.

In 1932 Franklin Roosevelt campaigned on the promise to give the American people a "new deal." The New Deal came to describe the economic programs, reforms, and regulations implemented during Roosevelt's first two terms in office.

In Roosevelt's inaugural address in March 1933, he assured Americans, "the only thing we have to fear is fear itself." He declared his intention to wage war on the Great Depression and to ask Congress for the power to do so.

Roosevelt's New Deal began in early 1933, during his first 100 days in office. The goals of the New Deal were simple: relief, recovery, and reform. These would be accomplished by

  • providing jobs and economic relief to unemployed Americans
  • reforming labor practices and reviving the agricultural sector
  • increasing government oversight of the financial sector

Early New Deal efforts were geared toward putting Americans back to work through programs like the Civilian Conservation Corps, the Public Works Administration, and the Tennessee Valley Authority. Meanwhile, the Federal Emergency Relief Act provided financial aid directly to civilians and nongovernment employees.

The New Deal included measures to reform labor practices in the United States, including fair labor practices. It also worked to stabilize the agricultural sector by implementing price controls and offering subsidies to farmers. In addition Roosevelt took measures to increase government regulation of the financial sector to prevent a future economic depression from occurring.

While the New Deal was embraced by many, it also had numerous critics. By 1935 Roosevelt's New Deal had not ended the Great Depression, prompting demands for more, less, and different interventions. Roosevelt responded with the Second New Deal, a second wave of programs intended to alleviate the symptoms of economic depression. Second New Deal programs included the Works Progress Administration, the Social Security Act, and the National Labor Relations Act, also known as the Wagner Act.

Compared to the First New Deal, the Second New Deal was more controversial. Many of the programs included in the Second New Deal, most notably the Agricultural Adjustment Act (AAA) and the National Industrial Recovery Act (NIRA), were overturned by the Supreme Court on the grounds that they were unconstitutional.

Alphabet Agencies

Referred to as the "alphabet agencies," the New Deal established numerous programs to put Americans back to work, including the Civilian Conservation Corps, the Tennessee Valley Authority, the Agricultural Adjustment Administration, and the Works Progress Administration.

Many of Roosevelt's New Deal Programs were geared toward putting Americans back to work. Four of the most prominent agencies include the Civilian Conservation Corps (CCC), the Tennessee Valley Authority (TVA), the Agricultural Adjustment Administration(AAA), and the Works Progress Administration (WPA). These and other agencies were referred to as "alphabet soup" or the "alphabet agencies" because they were popularly referenced by their initials, or acronyms.

On March 31, 1933, Congress established the Civilian Conservation Corps (CCC) to provide conservation jobs to unmarried men. Through the CCC, men built and maintained roads and trails in state and national parks across the country. They also worked on reforestation projects and battled forest fires. Men were paid $30 a month in addition to receiving food, basic medical care, and housing in government work camps. Between 1933 and its termination in 1942, the CCC provided jobs to some three million men, employing over half a million at its peak.
The Civilian Conservation Corps (CCC) employed unmarried men in natural conservation jobs. One of their primary responsibilities was building and maintaining roads in local, state, and national parks.
Credit: Courtesy National Archives, photo no. 195832 (Franklin D. Roosevelt Library Public Domain Photographs, 1882-1962)
The Tennessee Valley Authority (TVA) was created by an act of Congress on May 18, 1933. In addition to providing civilian jobs, the primary goal of the TVA was to increase the standard of living in the Tennessee River Valley through natural resource planning and flood control. Between 1933 and 1944, the TVA constructed 16 dams that made the Tennessee River more navigable and provided hydroelectric power to citizens across seven states. The TVA also created fishing and recreational areas. Between 1933 and the end of the century, the agency also increased traffic on the river from just 33 million ton-miles, or the number of tons of cargo carried a mile, to over a billion ton-miles. Within its first year of operation, the TVA employed over 9,000 people. It continues to employ thousands of Americans today.

Enacted on May 12, 1933, the Agricultural Adjustment Act (AAA) was a New Deal law creating the Agricultural Adjustment Administration and designed to restore agricultural prosperity by limiting the production of certain crops and reducing livestock populations. During World War I, American farmers had boosted production of farm goods to meet the market demands of war-torn Europe. In the Roaring Twenties, trade wars reduced that market, and farmers were left with a surplus of goods they could only sell to American markets. Market prices dropped, and prosperity vanished. Bankruptcy and loss of farms followed. To reverse this downward spiral, the AAA paid farmers to destroy their surplus, which meant plowing under some crops, leaving fields fallow, and slaughtering a portion of their livestock. The law of supply and demand dictated that prices for this reduced supply of goods would trend upward. In the short term, these drastic measures worked, and farming incomes rose. But the long-term effects were less beneficial. Though the AAA was dissolved in 1942, the foundation for federal involvement in farming policies had been laid. These later policies failed to protect small farms, tenant farms, and sharecropping from elimination by competitors. These smaller farming enterprises continued to disappear.

The Works Progress Administration (WPA), later renamed the Works Projects Administration, was established on April 18, 1935, as part of Roosevelt's Second New Deal. The WPA employed over 8.5 million Americans from a wide range of professions to an even wider range of projects. Between 1935 and 1943, the WPA was responsible for building over half a million miles of roads and over 100,000 public buildings. Its workers also constructed some 75,000 bridges and 8,000 parks. Beyond construction projects, the WPA also employed countless individuals through the Federal Art Project, the Federal Writers' Project, and the Federal Theatre projects. These artists, writers, actors, and other creative professionals worked in museums, taught classes, and created public works of art. Young Americans could seek part-time employment through the National Youth Administration, another program housed under the WPA umbrella.

Works Progress Administration Poster

The Works Progress Administration (WPA) Poster Division employed artists to create posters for the government advertising government programs, state and national parks, and local events.
Credit: Courtesy of the Library of Congress, LC-DIG-ds-08248

New Deal Banking Reforms

Franklin Delano Roosevelt and his administration introduced numerous banking and financial sector reform measures to help correct the Great Depression and prevent a similar depression from occurring.

Beyond putting Americans back to work, another goal of Roosevelt's New Deal was to reform the banking system to prevent a similar market crash and depression from happening in the future.

On March 6, 1933, the day after his inauguration, Roosevelt set about restoring confidence in the financial system by instating the bank holiday. During this bank holiday, all banks were forced to close so that the government could determine their solvency, or whether the bank had sufficient assets to operate successfully. Three days later, Roosevelt introduced the Emergency Banking Bill that would authorize the government to reorganize and reopen solvent banks. The bill experienced little resistance in Congress, receiving only 38 minutes of debate in the House and passing the Senate by a vote of 73 to 7. By March 12, banks across the country were permitted to reopen, and for the first time in months, the number of deposits exceeded the number of withdrawals made.

Roosevelt and Congress continued to pass measures to regulate the financial system, including the Glass-Steagall Act signed into law on June 16, 1933. Sponsored by Senator Carter Glass and Representative Henry Steagall, the Glass-Steagall Act was intended to protect bank customers' money. It separated commercial banks, which provide checking and savings accounts and make loans, from investment banks, which deal with securities as well as mergers and acquisitions. It also set up the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits and provided for oversight of national banks through the Federal Reserve. The act also limited the amount of income commercial banks could earn through securities.

Regulating Financial Industries

Agencies like the FDIC and SEC created a regulatory framework to protect investors, increase oversight on national banks, make credit more readily available, promote thrift, and improve the transparency of the stock market.

First and foremost, the Glass-Steagall Act structured a separation between commercial and investment banking institutions. Banks were allowed one year to determine if they would cater to commercial or investment interests. The law placed restrictions on the financial dealings and scope of each type of institution. The act also increased Federal Reserve System oversight on national banks and established the Federal Deposit Insurance Corporation (FDIC). The goal of the FDIC was to insure bank deposits in the event a bank should fail. The original limit was set at $2,500 in January 1934 and was increased in July of that year to $5,000. To receive insurance coverage, banks were required to become stockholders in the FDIC.

The Glass-Steagall Act was followed by the Federal Credit Union Act, enacted in 1934. This established a national system to oversee and authorize federal credit unions. As an alternative to big banks, credit unions are cooperatively owned by their depositors. They are nonprofit financial institutions, which means whatever profits they make are returned to the depositors through lower fees and better interest rates. Credit unions cater to low-income and small business depositors, providing them with small personal loans and savings accounts. Federally chartered credit unions flourished during the Great Depression as Americans sought an alternative to traditional banks that had failed or turned them away. In addition to making more credit available to Americans, credit unions promoted practical and thrifty financial habits.

Congress passed two other significant regulatory laws during this time: The Securities Act of 1933 and the Securities Exchange Act of 1934. Together, these laws established the Securities Exchange Commission (SEC) in 1934. The goal of the SEC was to improve the transparency of the stock market and increase investor trust in the institution. The SEC required businesses and securities exchange professionals to operate honestly, fairly, and in the best interest of the investor. The SEC also put an end to buying stocks on margin and restricted insider trading.

Other New Deal Acts

The National Labor Relations Act, the Fair Labor Standards Act, the Housing Act, and the Indian Reorganization Act were controversial policies under the Second New Deal (1935–38).

Roosevelt passed a number of controversial Second New Deal acts through Congress during the latter half of his first term and through his second term as president. These acts—including the Indian Reorganization Act, the National Housing Act, the National Labor Relations Act, and the Fair Labor Standards Act—were considered controversial by conservative Republicans, largely due to their expansion of federal authority and oversight.

The Indian Reorganization Act, also called the Wheeler-Howard Act, was signed into law on June 18, 1934. The act gave greater autonomy to Native American tribes across the country and allowed for tribal self-government. Tribes were encouraged to draft their own charters and constitutions. The act also facilitated the return of tribal lands and extended lines of credit so that tribes could purchase additional lands. The Indian Reorganization Act led to improved health care and education on reservations.

The National Housing Act became law on June 27, 1934, with the primary goals of improving housing standards and making financing more attainable for homebuyers. The Federal Housing Administration (FHA) was established through the act. The FHA functioned in a number of capacities. It insured home mortgages to encourage more lending from banks and other financial institutions. It also established lower down payments and longer loan repayment terms. Despite making homeownership a reality for many Americans, the National Housing Act and FHA also had many drawbacks. Most government-backed mortgages went to newly built, single-family homes, and mortgages were not extended to low-income, minority, or nonearning older people. The FHA also enforced racial segregation in neighborhoods across the country.

The National Labor Relations Act, also called the Wagner Act after its main advocate, Senator Robert Wagner, became law in July 1935. The purpose of the law was to guarantee the right of workers to "form, join, or assist labor organizations, to bargain collectively … and to engage in concerted activities for the purpose of collective bargaining or other mutual aid and protection." The law applied to employees in most industries. The only exceptions were airlines, agriculture, government, and railroads. It also launched the National Labor Relations Board (NLRB) to mediate disputes between employers and employees, enforce fair business practices, and guarantee democratic union elections. In 1937 the constitutionality of the law was challenged in the case National Labor Review Board v. Jones & Laughlin Steel Corp. The Supreme Court ruled in favor of the NLRA. The law resulted in a massive swell in union membership, including the addition of nearly one million women.

Social Security and the Minimum Wage

The Social Security Act (1935) and Fair Labor Standards Act (1938) created a social welfare system that greatly expanded the roles of government and the presidency yet failed to end the Great Depression.
The Social Security Act was passed in on August 14, 1935. This act established a pension system for elderly Americans. The law stemmed from the popularity of Townsend clubs created by Francis Townsend that advocated for a monthly pension for the elderly. The Social Security Act was later expanded to include additional groups, namely an individual's dependents, such as children, and the disabled. The system was funded, and continues to be funded, through payroll taxes jointly paid by employers and employees. The Social Security Act established an unprecedented social welfare system in the United States.
Posters were among the methods used to explain and publicize Social Security benefits.
Credit: Courtesy of the Library of Congress, LC-DIG-ppmsca-07216
Senator Wagner, who had championed the National Labor Relations Act, sponsored additional legislation in 1938. The Fair Labor Standards Act, or the Wages and Hours Act, established a minimum wage across all industries that participated in interstate commerce. The minimum wage was set at 25 cents an hour and would increase to 40 cents an hour over a period of seven years. The act also required employers to pay overtime to their employees. In the first year, overtime was required for a workweek longer than 44 hours. That number dropped to 42 hours in the second year of enforcement before becoming 40 hours in subsequent years.

By establishing a social welfare system, the New Deal acts expanded the role of the federal government and reflected some people's expectations that government would resolve the economic crisis. They also expanded the role of the presidency. While the various programs helped individuals, they did not succeed in ending the Depression. The Great Depression did not definitively end until World War II.

Opposition to the New Deal

As the Depression lingered, opponents of the New Deal proposed alternate plans, and some New Deal programs were found unconstitutional.

The New Deal's failure to end the Depression led to a number of alternate proposals, most of which focused on the redistribution of wealth and the plight of the elderly. A California physician, Dr. Francis Townsend, drew upward of three million followers with his proposal that the government pay a monthly pension of $200 to any worker over the age of 60 who agreed to retire. This, Townsend reasoned, would free up jobs for younger, unemployed workers. Under the Townsend Plan, beneficiaries would be required to spend the entire pension within 30 days in order to stimulate the economy.

An even more radical plan was proposed by Louisiana senator Huey Long. Dubbed "Share the Wealth," Long's program promised every American family an annual income of $2,500, old-age pensions for all citizens aged 60 or older, and a 30-hour workweek. This largesse would be funded by government seizure of the personal assets of wealthy Americans, who would be prohibited from amassing fortunes in excess of $50 million. Long promised his program would make "every man a king." By 1935 over seven million followers had joined one of the thousands of Share Our Wealth clubs scattered across the country. Naysayers across the political spectrum branded Long a socialist.

Meanwhile, several New Deal programs were running into trouble with the Supreme Court. In Schechter Poultry Corp. v. United States (1935), the court found that the National Industrial Recovery Act (NIRA) illegally gave the federal government power over businesses that did not engage in interstate commerce. Similarly, in January 1936 the court declared several major provisions of the Agricultural Adjustment Act unconstitutional, stating that food processors could not be taxed to pay farmers. The court further ruled that the federal government had no authority to regulate agriculture as this was considered a state power. The court's decisions in these cases troubled Roosevelt, who feared that other New Deal programs might also be struck down.