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Responses to the Great Depression by Hoover and FDR

 

I. Following the Stock Market Crash, the US and global economies began a rapid downward spiral. 

A. We have noted earlier that President Herbert Hoover resisted the use of government authority and money to arrest the situation--many believed that what we now know as the Great Depression was merely a temporary downturn in the economy similar to that experienced many times in the past. 

1. Hoover's response was quite vigorous, but it was narrow. His main goal was to restore confidence in the economy and the banking system. He did authorize loans to farmers with the Agricultural Marketing Act (1929) and businessmen to help prevent them from going bankrupt, but the loans were expected to be paid back. 

2. For the most part he advocated "rugged individualism," i.e., the idea that every man should fend for himself. He believed that government handouts to the poor and unemployed did great damage to the self-esteem of the recipients. 

3. He held that any governmental assistance to the poor should be temporary and should be provided by local and state government, not the federal government. 

4. One major Hoover initiative, the Smoot-Hawley Tariff of 1930, proved to be disastrous for both the US and world economies. The tariff of 1930 imposed the highest tariffs on imported goods in US history. It resulted in a general global trade war and a rapid decline in international trade--to about 20% of its earlier levels in just a couple of years. It was the beginning of a period in which the US and nations of Europe and Asia pursued "beggar thy neighbor" policies--countries came to believe that trade was a zero-sum game in which each country was in competition with all others for limited trade opportunities. 

5. As the situation in the US continued to deteriorate in 1931 and 1932, the US Congress passed the Emergency Relief and Reconstruction Act. Hoover disagreed with the philosophy behind this bill and used his powers as president to slow its implementation. 

6. He pushed a different bill with a slightly different orientation--he created the Reconstruction Finance Corporation, which minimized the amount of direct relief offered by the government and again, offered loans to help businesses avoid going bankrupt. 

7. Hoover's plan was too little, too late. He lost favor with the American people, especially after he ordered General Douglas Mac Arthur to forcibly break up the "Bonus Army" which was camped along the banks of the Potomac River in Washington, D.C. The Bonus Army was a group of 20,000 WWI veterans who went to Washington in an attempt to get money from Congress--money they had been promised but which was not to be paid until the early 1940s.

B. As a result of these policies, Hoover was soundly defeated in the presidential election of 1932 by Franklin Delano Roosevelt. Republicans also lost control of the US Congress and the Democrats enjoyed near total control over the executive and legislative branches of the government for the first time in many years. 

1. Roosevelt’s mandate for change was so sweeping that he immediately went to work to restore confidence in the US economic system. His program was called The New Deal.  

a. The New Deal was a truly multifaceted effort at relief, recovery, and reform. Roosevelt made social welfare a federal government priority, established new roles for the federal government, and in the process, reoriented national partisan politics.   

b. The New Deal proper occurred in two phases—what is called the First New Deal (which included the 1st 100 Days) and what has come to be called the Second New Deal. 

i. The First New Deal (1933-1935) was a broad “shotgun” approach to relief, recovery, and reform. Roosevelt was willing to try anything, and he was not too concerned about the ultimate legality of the experiments. 

2. A flurry of legislation was enacted in the first 100 days of his administration, and Congress passed virtually everything Roosevelt asked for. This period is known as “the First 100 Days.”  

a. Roosevelt’s overall strategy for combating the depression was two-pronged—first, provide relief to those who needed it most; and second, re-structure the US economy from the bottom up. Because of this strategy, most of the other reforms in the First 100 Days were focused on the first goal—to provide relief. 

b. The first thing Roosevelt did was to declare a “Bank Holiday.” All banks in the US were closed indefinitely, until the banks and the government could get control of the situation. 

c. Roosevelt asked for and quickly got Bank reform legislation from the Congress. The banking system was re-organized, strengthened, and support given by government guarantees (FDIC). In just over a week, Roosevelt re-opened the strongest banks and people responded—more money was deposited in these banks than withdrawn. 

d. This response should be contrasted to the way Hoover had dealt with earlier bank crises—Hoover simply let them follow their course, resulting in 10,000 bank failures and the loss of over $2 billion in deposits by bank customers. 

e. Roosevelt also took the US off the gold standard. 

f. Other changes Roosevelt made during his first 100 days in office were:

§       the Federal Emergency Relief Administration (to provide direct federal assistance to the hungry and unemployed in the form of housing support, food, medicines, and other basic necessities);

§       the Civilian Conservation Corps(1933) which was established through the Reforestation Relief Act. The CCC combined relief and conservation through employment in natural resources projects (to provide work to many unemployed in the American West and other rural areas);

§       the Tennessee Valley Authority (the first of many large scale public-works projects that provided employment (many short-term construction jobs along with quite a few long-term jobs) while adding to the nation’s power resource base (dam construction for electricity));

§       Congress also gave broad new powers to the Federal Trade Commission to regulate business; and

§       Farmers were granted mortgage relief  with the Agricultural Adjustment Act (1933), which provided for the establishment of “parity” prices, the payment of subsidies, and mortgage relief for farmers so that they would not lose their land in the face of poor crops. 

g. Other programs and reforms made by Roosevelt as part of the First New Deal were:

§       the National Industrial Recovery Act (1933) which established the Public Works Administration;

§       the National Recovery Administration, which implemented voluntary codes of fair competition (and was declared unconstitutional in 1935); and

§       the creation of the Securities and Exchange Commission (1934) to regulate securities markets and added important new powers to the repertoire of the federal government's regulatory powers.    

h. Even though many of the programs enacted in the first 100 days were later declared unconstitutional by the US Supreme Court, they did a lot to restore confidence among Americans, stopped the depression from getting any worse, and established the Federal Government as a legitimate source of social welfare.   

3. The Second New Deal was a program that was revised based on Supreme Court decisions holding several parts of the First New Deal unconstitutional and on changes in Roosevelt’s attitudes—especially toward big business which had not been as cooperative with his plans as he had liked. 

a. In the Second New Deal (1935-36) there was a greater focus on social justice and reform.

b. In the so-called "second hundred days"(27 May through 30 August 1935) Roosevelt created the Works Progress Administration (1935), which constituted the first effort at national unemployment policy by the federal government. The WPA sponsored a wide variety of socially-oriented projects and provided thousands of jobs for the unemployed in a wide variety of public works projects . 

c. Another aspect of the 2nd New Deal was a further elaboration of the role of the National Labor Relations Act, which had been passed in 1933. Roosevelt created the National Labor Relations Board in 1935  and in so doing formally established the role of the federal government as neutral arbiter in labor relations controversies. The NLRA endorsed workers' rights to organize and bargain collectively, and outlawed practices such as blacklisting.  

d. The Social Security Act (1935) was and remains one of the most popular pieces of New Deal Legislation. Social Security provided for entitlement payments to dependent minors, disabled people, and beginning in 1942, people retiring at 65.       

4. The Third phase of the New Deal (1937-38) was concerned with the situation facing the working classes in the US.                               

a. The National Housing Act (1937) was the first effort to create a federal government housing policy, providing limited funds for the clearance of  “slums” (rundown neighborhoods in which many blacks, other minorities, and poor whites lived) and replacing them with new low-cost housing.    

b. The Fair Labor Standards Act (1938) was established for workers in enterprises engaged in inter- state commerce. This act established the first minimum wage and also set 40 hours as the standard American work week. 

C. The New Deal was popular, but there was considerable opposition to it as well—both from the right (conservative, Republicans) and the left (socialists and ultra-liberals).            

1. The Liberty League was a large group of businessmen and Republicans opposed to the New Deal. They believed that the New Deal infringed on state rights, threatened to expand the power of unions, and was a fundamental assault on the capitalist system itself. The Liberty League believed that the New Deal was fundamentally a socialist program. It was particularly against the new government device advocated by British Economist John Maynard Keynes and put into practice by Roosevelt—deficit government spending. 

2. From the left, Roosevelt and the New Deal were criticized for not having done enough.   Huey Long, Governor of Louisiana, Father Charles Coughlin, a famous radio priest, and Dr. Frances Townsend, a California physician, criticized Roosevelt relentlessly for not doing enough to help the poor and stimulate the economy. They sponsored a third party, the Union Party, and ran a candidate against Roosevelt in the election of 1936. 

3. The most criticism Roosevelt got was the result of a horrible blunder he made in 1937 with his “court-packing” scheme. Despite a huge victory in the election of 1936, the US Supreme Court remained skeptical of the New Deal. The Supreme Court had ruled several important New Deal programs to be unconstitutional (the National Recovery Act, the Agricultural Adjustment Act, and the Guffey Coal Act of 1935). Because Supreme Court justices hold their positions for life, there was nothing Roosevelt could do about their opposition. So, in 1937, FDR proposed legislation to completely reorganize the federal judicial system in the US. He proposed a plan that would allow the president to appoint a new Supreme Court justice whenever an incumbent judge reached seventy and failed to retire; a maximum of six judges could be named in this manner. 

a. Nearly all Republicans and many Democrats opposed Roosevelt in this effort, thinking that he was power-hungry. The Supreme Court is a hallowed institution in the US and for a president to suggest that he should have the right to “pack” the Court with people who shared his ideas was sacrilege! The plan would have compromised the most fundamental strength of the US Constitution, the separation of powers. 

b. Needless to say, the court-packing plan was defeated, and Roosevelt lost a great deal of trust. 

D. Modern historians remain split on whether the New Deal compromised capitalism by introducing socialist elements or saved capitalism from itself (and society from capitalism). However, in my view the majority of historians today would argue that it was the latter—that the form of capitalism that was practiced in the US and around the world before the New Deal was unsustainable. Corporations had too much power relative to both the government and society. Before the New Deal, the trends toward concentration of wealth and a growing gap between rich and poor were very strong and the economy could not sustain itself because working people could not afford to buy the things they were making. In a sense, corporate greed was so powerful that the corporations were absorbing the capital available for consumption by the general public, and in the process, undermining their own ability to survive. 

E. Whatever your position on this issue, nearly every historian agrees that despite all the social, political, and economic changes the New Deal introduced, it did not solve the problem it hoped to solve—the Depression was nearly as bad in 1939 as it had been in 1933. The best that can be said about its impact on the economy was that it may have prevented the Depression from getting worse. 

II. It is impossible to know what the longer term impact of the New Deal might have been. In 1939, the world’s attention shifted from trying to solve economic problems to what was happening on the international scene. Beginning with the Japanese attack on China in 1937 (after having occupied Manchuria in 1931) events outside the country began to rise up in the American consciousness. When Germany invaded Poland in 1939, triggering a declaration of War by Britain and France, international affairs went to the forefront. Though Americans resisted the idea of joining the fight in either Europe or Asia, as they had in 1914, it was US involvement in the war that finally ended the Great Depression.