A New Deal

When Franklin Delano Roosevelt took the oath of office on March 4, 1933, the Great Depression had spawned a series of crises that threatened the viability of the republic. There was a "run" on the banks, as panicked savers attempted to close out their accounts before their banks closed. This had forced several state governments, beginning in Michigan, to close all of their banks. This temporarily protected the banks, but not the depositors, in those states. It also heightened the fears of account holders elsewhere. Crowds thronged the banks still open, desparate to get their money.

Even the soundest bank would crash, if all of its depositors demanded all of their money at the same time. But how could people know which banks were safe? And even if an account holder somehow knew a given bank was sound, the fact that others were making a "run" on it meant she or he had better do the same before all of its reserves were exhausted.

The Stock Market crash had been bad enough. This threatened to be far worse. The Stock Market disaster wiped out speculators and the investment firms that had made unwise loans to them. Bank failures had already wiped out the life savings of uncounted thousands of ordinary folk who had put money aside to educate their children or buy a house or build a nest egg for their old age. If the "run" continued, millions of those still employed would be ruined.

State and municipal governments were no more financially sound than the banks. They had responded to the Depression with public works programs for the unemployed. But, as property values sank, so did tax revenues and, inexorably, their ability to borrow money. By Inauguration Day many cities and states were contemplating declaring bankruptcy. If they were to do so, their bonds would become worthless. This would not only wreak havoc on investors, it would make the ordinary business of governing impossible. Teachers, police and fire, and other public servants would no longer be paid. Few cared to contemplate the full list of horrors state and municipal bankruptcy would entail.

Unemployment was bad and getting worse. The Bureau of Labor Statistics did not yet count the unemployed. But at least a quarter and perhaps a third of the labor force was out of work. Many of those who still had jobs worked only a few days a week. Families had used up their savings, had pawned their valuables, and had run out of hope. Photographs show long lines of men, waiting for jobs, waiting for bread, but always waiting. They stand alone, each lost in his own thoughts, almost all staring down. The image to the left suggests the mood of the country as FDR took over from Herbert Hoover.

Roosevelt devoted his inaugural address to reassuring the country that the federal government would act quickly and decisively. The next day, March 5, FDR ordered a national bank "holiday" that closed every bank in the nation. New banking legislation, passed in record time, stipulated that federal regulators would certify the soundness of individual banks before they reopened. Further, the government would guarantee individual savings accounts up to $5,000. The following Sunday Roosevelt gave a radio address, the first of his "fireside chats" to explain what his administration was doing about the banks and why.

Over the next three months, a period known as the "Hundred Days," the administration proposed and Congress passed a long list of new laws. Most became known by their initials. One was FERA, the Federal Emergency Relief Administration. It not only provided cash payments to the destititute, it funneled them through state agencies thereby relieving them of a burden they could no longer carry. Another measure was the Emergency Conservation Work Act, which created the Civilian Conservation Corps (CCC). This addressed two crying needs. One was the soil erosion and other environmental problems epitomized by the Dust Bowl. The other was the army of unemployed young men, so many of whom were riding the rails. Within four months 250,000 young men were living in newly constructed camps on federal property working on hundreds of projects in all forty-eight states. Each received clothing, room and board, and $30 per month, $25 of which was sent to the young man's family. Over the years, millions participated. They planted trees, one million in the first year alone; they built roads and bridges. They dredged streams and repaired dams. They could also study, in their free time, and tens of thousands learned to read and write while others sought to earn high school diplomas.

The most sweeping measure of the "Hundred Days" was the Tennessee Valley Authority Act. It affected a large and improverished region along the path of the Tennessee River from North Carolina through Tennessee and into Mississippi. The object was to harness the water power of the region through the construction of a series of hydro-electric power plants and dams. But that was merely to be the start. The legislation looked to the transformation of the region.


The nine dams on the Tennessee River

Sec. 23. The President shall, from time to time, as the work provided for in the preceding section progresses, recommend to Congress such legislation as he deems proper to carry out the general purposes stated in said section, and for the especial purpose of bringing about in said Tennessee drainage basin and adjoining territory in conformity with said general purposes (1) the maximum amount of flood control; (2) the maximum development of said Tennessee River for navigation purposes; (3) the maximum generation of electric power consistent with flood control and navigation; (4) the proper use of marginal lands; (5) the proper method of reforestation of all lands in said drainage basin suitable for reforestation; and (6) the economic and social well-being of the people living in said river basin. [48 Stat. 69, 16 U.S.C. sec. 831v]

With TVA the federal government stepped into the business of planning national development. It would produce electricity and sell it at bargain rates. This would provide jobs and bring an entire region into the twentieth century. Private power companies had made it clear they considered the Tennessee Valley too poor to justify building power plants in the region. So the federal government did so in their place. In 1935 the New Deal extended its efforts with the Rural Electrification Act. Again the notion was to provide affordable electric power to regions that otherwise would remain in the era of the kerosene lantern and the coal burning stove.

The New Deal did not end the Great Depression. That only came with the massive deficit spending required by World War II. It did mitigate the worst effects of the Depression with relief and public works measures. As a result, some historians downplay its importance. This is a serious misjudgement. The New Deal transformed the role of the federal government in the economy, in the environment, and in the lives of its citizens. TVA is one example. Another is the Security and Exchange Commission (SEC) created by the Securities Act of 1933. It required every corporation that traded its shares publically to file annual statements concerning basic facts about its profitability. The Act gave the federal government broad police powers and regulatory authority. The Federal Deposit Insurance Corporation, set up to protect savings account holders, is still a third example. The New Deal, in sum, launched the era of big government.

It also sought to redistribute wealth so that the bottom three fifths of the population would gain a greater share of the nation's wealth. This took several forms. The most straightforward was the progressive income tax. The New Deal raised tax rates so that anyone earning large sums would see most of the money go in taxes. A second tactic was the administration's decision to favor labor unions. Although FDR did not originally favor the Wagner Act of 1935, which came to be called labor's Magna Carta, the New Deal did finally endorse it. The law enabled the newly created Committee (later Congress) of Industrial Organizations (CIO) to organize basic industries such as steel, automobiles, and rubber. The unions then negotiated much higher wages for their members. The G.I. Bill, proposed in 1943 and enacted the following year, was the last great New Deal measure: Out of a veteran population of 15,440,000, some 7.8 million were trained, including: 2,230,000 in college, 3,480,000 in other schools, 1,400,000 in on-job training, and 690,000 in farm training. The act also subsidized home mortgages, underwriting the vast postwar housing boom, and small business loans. The total cost of the World War II education programs alone was $14.5 billion. The money came from income taxes, and therefore disproportionately from the richest Americans, and went to millions of veterans, the great majority of whom could never otherwise have financed their educations, homes, and new businesses.

"The Hundred Days"

Wagner Act and the CIO

The G.I. Bill