Roosevelt’s New Deal and the Great Depression

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Prerequisites of the New Deal Implementation
The essence of the New Deal
New Deal Analysis
The New Deal in the context of the Great Depression
Conclusion
References

Introduction

After the inauguration in 1933, Franklin D. Roosevelt urgently took the course for the new deal, that was aimed to overcome the consequences of the Great Depression. It was the series of economic and social programs that were planned for the period 1933 to 1936. The First New Deal, which took place in 1933, included the banking reforms (including the reformation of the Banking Law), the emergency relief programs, work relief plans, agricultural reforms, and industrial reform. The plan also included the refuse from the gold standard.

A “Second New Deal”, that took place in 1935-1936 included labor union maintenance. The necessity to support the society, and expand the Security reasoned the issuing of the Social Security act, the promotion of the programs for farmers, including migrant workers. The New Deal ended with the beginning of World War Two when the other national priorities appeared.

It should be emphasized, that the New Deal provided the essential shift in external and internal politics in the US. The changes also touched upon the price regulation and the control of agricultural production. The New Deal is regarded to be the beginning of the further complex social programs and wider acceptance of trade unions.

Prerequisites of the New Deal Implementation

The crash of the stock market in 1929 first was regarded as the beginning of the end, as it provided complex problems in the economy of the United States but it is not considered as the only cause of the Great Depression. The stock market crash just made the holes in the superficial prosperity of the United States more obvious. As the causes of the downfall in the economy were complicated, the solution to the multifaceted scenario confronted by the Americans was also complex enough. (Barnanke 2004).

American people sought to search for the reasons and responsible elements for the economic collapse. While one part of the American citizens regarded President Hoover as the major player in economic downfall, others blamed bankers, businesspersons, and brokers- “the three B’s”- as responsible for the collapse. However, a group of people or a single individual cannot be accused of the reasons for the Great Depression. To understand the mechanism of the New Deal by President Roosevelt and its impact on the economy, it is pertinent to highlight the circumstances prevailing at that time as well as the economic conditions of that era.

A major phenomenon existing at that time was the unequal distribution of income. Despite the continuous rise in wages, there was an inequality in income. The incredible accumulation of wealth in the hands of just a few individuals eventually meant that sustained economic prosperity was much reliant upon lavish expenditures and the high investment of the wealthy group. As such, during economic downfall and the market crash resulted in a fall in investment and spending.

On average two banks closed every day during 1923 1929. Still, up to the crash of the stock market in 1929, the country’s inevitable affluence supported and covered the potentially destructive flaws in the banking system of the United States of America. (Barnanke 2004).

The nation was transformed into a creditor nation from a debtor nation as a consequence of World War I. The victorious Allies as well as the defeated Powers, in the outcomes of the war, owed more money to the United States as compared to foreign countries. The Republican government during the 1920s persisted on gold bullion payments but the supply of gold in the world was limited. Moreover, at the end of the 1920s, most of the gold supply in the world was controlled by the United States. However, high tariffs along with protectionism resulted in keeping foreign goods away from U.S.

The unemployment rate increased from 4% to 25% from 1929 – 1933. The manufacturing and production rates were reduced by approximately a third. The falling of the prices caused the deflation of the currency rates that complicated the repayments of debts. The crisis mainly touched the farming, agriculture, and industry, while the white-collar service sectors were not so severely touched.

The essence of the New Deal

The New Deal approach essentially increased the involvement of the government in economic affairs. The Depression aggravated during the months before Roosevelt’s inauguration. Farm foreclosures, bank failures, and factory closings increased. Moreover, the level of unemployment soared. As such President, Roosevelt confronted the greatest economic crisis in the history of the United States since the Civil War.

A ‘New Deal’, pledged by Franklin D. Roosevelt in his election campaign and the inaugural address, focused on alleviating emergencies and supporting the recovery of the economy. Roosevelt provided swift actions to implement his New Deal. He closed banks for some time to end panic in the depositors. He collaborated with a special Congress session in the phase of the first 100 days. The purpose was to pass recovery legislation for establishing alphabet agencies like ‘Agricultural Adjustment Administration (AAA) and ‘Civilian Conservation Corps (CCC). The main intention was to create employment opportunities, especially for the younger generation. Different other agencies supported labor and businesses. Moreover, they also provided security to depositors of banks, subsidized payments of a farm as well as home mortgages, and ensured regulation of the stock market. That was aimed to support and increase the overall employment level. The measures adopted and policies implemented under the New Deal approach revived the confidence in the nation’s economy. Direct relief saved people from starvation. However, the measures in New Deal involved government heavily in a direct way especially in the domain of economic and social life. The minimum working time standards were established, and the minimum wage was fixed. (Smilely, 2003).

Most of the significant institutions and laws that shape the basis of the U.S. contemporary financial system take their origin in the period of the New Deal. Legislation of the New Deal extended the authority of the Federal government in agriculture, public welfare, and banking.

During the 1930s, the American economy reached its bottom and experienced the stage of depression with unemployment soaring. A common fear existed that the economic and social basis of American society was facing a breakdown. Belief in the capitalist market was shattered as millions of unemployed people search for desperate ways to ensure their families’ subsistence.

President Roosevelt, as per his pledge to restore economic activities and transform the economy from Depression to prosperity embarked on a variety of exceptional experiments in the year 1933. These exclusive experiments in the cover of the ‘New Deal’ altered the relationships between the economy, businesses, banks, and the government. It also changed the nature of coordination among local, state, and federal governments.

The focus of the New Deal was the payment of billions of dollars for the funds for supporting work relief jobs. Moreover, it is also intended to provide relief to American citizens throughout the nation without any discrimination. For the first time in the history of the United States, the Federal government intervened in the economic activities by assuming the responsibilities of supporting the poor and unemployed. The New Deal by President Roosevelt revolutionized the economy. It also supported welfare spending in the short term as well as long term. At the most fundamental level, the relief programs of the New Deal accomplished the basic aim of providing seriously-needed income to individuals with no apparent prospects and opportunities for private employment.

As it was emphasized, Roosevelt’s New Deal may be segregated into two parts; the ‘First’ New Deal; and the ‘Second’ New Deal. The key aim of the ‘First’ New Deal was restoring the economy from the top. In 1933 ‘The Agricultural Adjustment Act’ entered its first phase, which acknowledged the long-sustained principle that low level of prices in the farm was the consequence of overproduction. Therefore, the government searched for ways to stimulate high prices by making payments to produce at low level.

The period of the Second New Deal ranges from 1935 to 1940 and focused to restore the economy at the bottom line. It endeavored to end the Depression through distinctive ways including spending at the base of the economy where funding by the government attempts for transforming non-consumers to become consumers again. ‘The Works Progress Administration’ was an enormous program of federal jobs aimed to employ unemployed breadwinners to strengthen the comfort and welfare of their families along with stimulating consumer demand. (Powell, 2004).

The Social Security Act in 1935 established and ensured a moderate worker-funded pension system guaranteed by the Federal government. Social Security proved to be successful in performing as a safety net for elderly workers and stimulating consumer demand. The impact of the National Labor Relations Act in the year 1935 was massive as it guaranteed the collective negotiation rights for American workers. A significant instance of the ‘Second’ New Deal was its endeavor to restore and reinstate the economy of the United States from the bottom up.

New Deal Analysis

Roosevelt is regarded by most historians and experts as a pragmatic politician but not as an idealist or intellectual. New Deal served as a precedent for the Federal government to assume a primary role in the social and economic affairs of the nation. (Sowell, 2007) The New Deal catalyzed the extension of activities by trade unions in different industries including rubber, automobiles, and steel. Comprehensive programs and institutions that seem indispensable in the modern economy were established.

The Agriculture Adjustment Act was created to support American farmers by sustaining prices and restricting overproduction. ‘Civilian Conservation Corps’ was designed and operated under the supervision and control of the army. The Securities and Exchange Commission was aimed to supervise the affairs related to the stock market. The Federal Deposit Insurance Corporation’s major objective was to guarantee to pay out the deposits at banks. The Social Security System was established to provide pensions to old-age citizens based on their prior contributions.

FDR’s New Deal had practically supported improving the general standards of lives suffered from the disastrous effects of the Great Depression. Further the programs of the New Deal served as a precedent, particularly for the federal government to assume a primary role in the social and economic affairs of the nation.

The New Deal regulations and principles took their origin from the ideas, offered only in the 20th century. All these ideas and the entire program were innovative. However, some historians consider6, that some principles (like Antimonopoly traditions) were innovated by Thomas Jefferson and Andrew Jackson. It is argued, that monopolies were a negative financial impact, as they produced waste and undermined competence. However, the anti-monopoly commission never had essential power during the implementation of the New Deal course. The National Recovery administration took the ideas from Woodrow Wilson’s administration policies. This agency advocated the techniques, that were used during World War I. Nevertheless, the rest (and the most) of the ideas were first originated in the 1920s: these are the efforts to harmonize the financial system by creating cooperative relations, and the principles of banking system regulation.

Roosevelt created the system that is currently called the Brain Trust: it is a group of advisers that are claimed to assist in the recovery efforts. The solutions, taken by these advisers are generally more extensive for the economic regulation.

It is necessary to emphasize, that the New Deal also faced some conservative opposition. The opposition groups were predominantly formed by the democrats and called the Old Right. Though, there were also the Republicans.

The New Deal in the context of the Great Depression

As it has been emphasized, the starting point of the Great Depression was the Stock Market crash, which led to the financial crisis, the increase of the unemployment rates, and, consequently to the bankruptcy of farmers and industrialists. Soon, after the inauguration, Franklin Roosevelt proclaimed the implementation of the New Deal and started regulating the consequences of the crisis. The fact is that he killed two birds with a single stone: to restore and expand the infrastructure on the continent he claimed, that all unemployed agreed to work on the buildings of roads, connecting Eastern and Western parts of the USA. This decision was backed by the setting of the standards of minimal working days and minimal salary. Originally, the necessity to restore the infrastructure was not the highest, however, this decision may be regarded as rather rational, taking into account the increasing bankruptcy rates.

The farmers were granted the receiving of long-term credits in the order they could restore their farms and buy the necessary equipment. The fact is that the restoration of the banking system did not take much time, as only the hugest and the most stable banks left working after Roosevelt decided to close all the banks for some time: this looked like the natural selection, as most banks could not bear the inactivity period. The farmers got their credits and started restoring the agricultural sector.

It is stated, that the white-collar service sector was not severely hurt by the Depression, and the financial crisis, however, it also experienced essential troubles. To grant work for the white-collars, Franklin Roosevelt started creating different committees, and every committee was devoted to some particular problem or sphere. However, the committees also required financial support. Thus, the Work-Relief Agency got up to $11 billion for the period 1935-1943, and WPA provided up to 8 million jobs for this period.

As for the effectiveness of the New Deal, it should be mentioned, that historians express no doubt, that it helped to overcome the Great Depression. The economists, in their turn, are not so certain, and some of them argue, that it only worsened the Depression. Thus, the survey showed, that 51% of the economists agreed on the effectiveness of the New Deal. As for historians, 73% agreed.

The creation of the New Deal Coalition was the necessary step for overcoming the Depression crisis. It consisted of poor labor people, mainly the white southerners. They perfectly knew what people wanted from the presidential administration, and were able to formulate these requirements for the following law projects. The fact is that the people that entered this coalition were not professional financial experts, law experts, or even social workers. They were just the representatives of the masses, that is why this coalition is the subject of numerous arguments.

Conclusion

The New Deal promised by Roosevelt to the Americans was aimed at ending depression. In the early days of his presidency, the administration of Roosevelt initiated a passage of different laws related to banking reforms, relief programs for lifting emergencies along different other agricultural and work relief programs. (Mcelvaine, 1993) FDR’s New Deal practically supported improving the general standards of lives suffered from the disastrous effects of the Great Depression.

Moreover, in the long run, the programs of the New Deal served as a precedent, particularly for the federal government to assume a primary role in the social and economic affairs of the nation. (Sowell, 2007) It could be concluded, based on arguments presented in the paper, that FDR’s New Deal was successful in pulling the economy from Great Depression and has a perpetual impact on the economy of the United States.

References

Barnanke, B (2004) Essays on the Great Depression. Princeton University Press.

Bernanke has included a collection of essays in his book. He is a scrupulous and careful econometrician in his argumentative discussion about the decline of the economy after the Great Depression. He has provided a complete overview of the macroeconomics of the Great Depression.

McEclvaine, R (1993) The Great Depression: American 1929-1941. Three Rivers Press.

Robert McEclvaine’s description of the cultural shock and economic collapse brought by the Great Depression is presented in the book. The author has stated the responses of Roosevelt and Hoover that shaped the modern-day anticipations of the role played by the federal government in the daily routine lives of people. The book specifically deals with the events after World War I and events involving U.S in World War II.

Powell, J (2004) FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great” Depression Three Rivers Press.

Jim Powell focuses on the effects of major policies implemented by Roosevelt. Powell has portrayed the sketches of the major players also. He has discussed the Social Security System about unemployment and the phenomenon of higher taxes as well as new labor laws along with their impact.

Smilely, G (2003) Rethinking the Great Depression. Ivan R. Dee, Publisher.

Gene Smiley has endeavored to link the events of the Great Depression with overproduction, inequality of wealth, and speculation in the stock market. These along with some other causes led to the New Deal implementation. These events have been investigated and their effects have been presented in the book.

Smith, Jean (2008) FDR. Random House Trade Paperbacks.

Smith is a renowned and independent biographer. He has magnificently presented a biography of one of the significant Presidents of the United States. Scores of articles and books have already been written about Roosevelt but the expressive blend of the complex life of FDR has been presented in an elaborative way

Sowell, T (2007) Economic Facts and Fallacies. Basic Books.

Thomas Sowell in economic Facts and Fallacies has attempted to expose some of the famous fallacies regarding economic issues and has included many beliefs disseminated in the mass media by politicians. Sowell has published popular and scholarly articles on economics and some interesting facts and figures about Great Depression.

Zelizer, J. E. (2000). The Forgotten Legacy of the New Deal: Fiscal Conservatism and the Roosevelt Administration, 1933-1938. Presidential Studies Quarterly, 30(2), 331.

Julian Zelizer aimed to analyze the New Deal Approaches from the viewpoint of the current economic affairs and difficulties. The book entails the analysis of the origins of the New Deal approaches, studies the innovations, and offers the comparison with the contemporary approaches.

Click Here To Order Now!