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The New Deal Notes

History Notes > American History - 1863-1975 Notes

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AMERICAN HISTORY SINCE 1865 THE NEW DEAL Did the policies of the New Deal amount to a coherent attack on the problems faced by the United States after 1929?
Introduction What were the problems faced by America Banking - Fed, Gold, deflation, bank regulation Labour/Regulated industries/Work Programmes Agriculture Blacks Conclusion The New Deal: A.J. Badger
- The Great Depression penetrated every pore of American society, which lacked even the basic welfare provisions that many European nations had installed over the previous 30 years.
- Throughout the 1920s farmers had borrowed extensively to finance purchases of new land and machinery. The combination of global depression, drive agricultural produce prices down by as much as two-thirds, and widespread drought drove total farm income down from $6.1billion in 1929 to $2billion in 19321.
- Collapsed in the money supply - feed in economic history analysis.
- Impact of Smoot-Hawley tariff.
- Almost 5000 banks collapsed between 1923 and 1930, before the Depression had even started.
- By 1933 half of all home mortgages were in default and foreclosures reached 1000 a day.
- There was considerable disagreement over what the problems faced by the US were. Some believed that this was principally a failure of the banking system, and were therefore disappointed that Roosevelt did not move to nationalise parts of it or legislate more aggressively. Others saw demand deficiency, exacerbated by wealth inequality and restrictive credit conditions, as the fundamental cause of enduring Depression.
- Throughout the period the consensus of political opinion was that America should seek to balance the federal budget as soon as possible; deficit spending was both unwanted and misunderstood.
- As soon as Roosevelt took office he used the Trading with the Enemy Act to declare a bank holiday; the week of suspended banking allowed re-organisation and re-capitalisation of America's banks, and when they re-opened there were net inflows of money2.
- The Banking Act was passed and it included provision for federal deposit insurance, separation of investment and retail banking, and greater capital requirements. Fewer banks failed during the first two years of Roosevelt's presidency than in any previous to it.
- NIRA: declared unconstitutional on the grounds that it attempted to regulate non-interstate commerce and constituted an excessive delegation of power from congress to the executive.
- Second New Deal: the Wagner Labor Relations Act and the Social Security Act were the main features.
- The tax base composition in 1934 was heavily skewed towards indirect taxes; they constituted 55% of the federal tax take, whereas taxes on incomes and corporations comprised only 27%. The New Deal was being paid for by those least able3. The 1935 Revenue Act aimed to change this
- Coming of the Gold Standard in 1933.

1 The New Deal: A.J. Badger 2 The New Deal: A.J. Badger 3 The New Deal: A.J. Badger

- Roosevelt refused to countenance large federal budget deficits, and this not only limited the potential of New Deal spending programmes, it also presaged a second recession in the mid1930s.
- Labour market policies:
- Union membership and militancy grew rapidly during the late 1920s and early 1930s.
- The Wager Act supported unions as there power began to wane post-1935. It was hoped that the Act would help labour organisations gain and increased share of national income and that a nationwide model of industrial arbitration could be introduced.
- Anti-union legislation only emerged later with the passage of the Taft-Hartley Act.
- Agriculture:
- The New Deal offered production controls and government payments to ameliorate the rockbottom prices and drought faced by farmers in the South.
- Agricultural Adjustment Act gave the Secretary of Agriculture the discretion to implement policies he thought most appropriate.
- In 1933 the US government destroyed 10.5million acres of cotton and killed 6million piglets, and successfully supported the cash price of these agricultural products. Ranchers had initially refused to allow beef to come under AAA supervision in 1933, but the severe drought of 1934-35 changed their mind; by 1935 the government had purchased more than 8million head of cattle4.
- The New Deal farm subsidies went to those states which had lost income since 1929, rather than to those which were permanently poor.
- Welfare:
- Federal Emergency Relief Administration set up, with a $500million grant to fund state relief programmes.
- Unfortunately, some states were fiscally very conservative, and refused to unbalance their budgets with relief spending beyond the federal grants. Moreover, Southern states typically paid the white unemployed approximately twice as much as black.
- The Civil Works Administration provided employment for the millions of out of work Americans. Whilst successful in the short term, its funding was limited and there were complaints that it was deterring some from seeking private sector employment, as well as causing isolated labour shortages. To avoid the nation becoming dependent on CWA support it was terminated in Mar 1934, after 4 months of operation.
- 1935 Social Security Act. As late as 1932 only 15% of the industrial workforce had any kind of private pension provision; even fewer had unemployment insurance. The collection of social security taxes from payrolls had a deflationary impact and contributed to the 1937-38 recession5.
- America still had over 9million unemployed on the eve of World War 2. Roosevelt's resistance to budget deficits had severely limited New Deal spending programmes. There had been no significant attempt to break corporate America's stranglehold or redistribute wealth. Union strength grew largely unabated, benefitting the employed at the expense of the unemployed.
- There was disagreement among New Dealers about all areas of the programme, from business legislation to welfare spending. The Constitution in Crisis Times: P.L. Murphy
- Roosevelt sought constitutional flexibility when legislating to tackle the impact of the Depression. However, key items, including the AAA and the NIRA, were constitutionally vulnerable.
- By castigating the court's intransigence publically, and being combative privately, Roosevelt failed to foster the kind of working relationship with the justices which may have aided the application of New Deal policy6. 4 The New Deal: A.J. Badger 5 The New Deal: A.J. Badger

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