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The First New Deal: Stemming the Tide of Depression in 1933

The 24th October 1929 began like any other day, but it would enter the history books as Black Thursday. A day that saw panicked investors send the Dow Jones Industrial Average crashing by 11% – which was on top of a 4.5% drop the previous day. Over the next five days, things would get dramatically worse and by the following Tuesday, stock prices had plunged by over 25% compared the previous week. 

What followed has come to be known as the Great Depression. In the U.S industrial production fell by 47% over five years, the nation’s GDP dropped by 30% and national unemployment reached 23% – which was considerably higher in certain areas and among certain groups. It was a truly harrowing time for many across the United States, but in 1933 a program began that aimed to kick-start the economy, and the nation, once again. It was known as the New Deal. 

The New Deal focused on the 3 Rs – relief, recovery and reform. Relief for the vast numbers of unemployed and those living in poverty, recovery to leverage the economy back to pre-depression numbers, and sweeping reform of the financial system aimed at preventing a similar disaster from ever happening again. 

The legacy of the New Deal is unsurprisingly complex. This was, after all, America’s closest flirt with socialism that it would ever experience and if you’re American your opinion on it is likely coloured by decades of red fear that erupted during the Cold War.  

This was a popular Democratic program which helped to keep them in power for seven out of the nine presidential terms from 1933 to 1969 – even Republican President Dwight D Eisenhower who served from 1953 to 1961 continued the New Deal programs and even expanded some. This was followed by Lyndon B Johnson’s Great Society plan, which we’ve already covered here on Megaprojects, but as big business began to dominate and calls for economic deregulation grew ever louder, suddenly such programs began to fall out of favour. 

While some may grumble about some of the more socialist ideas involved in the New Deal, a huge number of regulations that we consider perfectly normal in the modern era arrived in those dark days of the Great Depression. 

The Great Depression   

To set the scene for the New Deal let’s begin at the start of the Great Depression. The stock market collapse in 1929 proved to be the spark in the powder keg. Investors, fearful of massive losses, began unloading stocks and assets left right and centre, and this was followed by a huge deflation in asset and commodity prices. Demand and credit plummeted and trade experienced enormous disruption. The result of it all was massive unemployment and an increase in general poverty. At its peak, 12,000 people were being made unemployed every single day and even those with jobs often saw their wages slashed as the reasonable average weekly wage fell from $50 ($778 today) to $22 ($342 today). Those numbers sound high to us in the modern era, but the reality was that in the late 1920s and early 1930s, it was barely enough to get by.   

Banks across the nation began failing and in turn shutting their doors with as many as 9,000 banks closing during the 1930s. At this point, money held within these banks was not insured so millions lost their savings. Many Americans had little to no access to their bank accounts as governors across the country had already authorised limits on withdrawals out of a fear of mass panicked withdrawal which would have sent the economy crashing ever further. 

The U.S stumbled painfully forward and it wasn’t until 1933 that glimmer of light seemed to appear at the end of the tunnel.

A New President 

Let me just say from the get-go, the economic recovery was not simply down to Franklin D Roosevelt, the Democratic Party or the New Deal. By early 1933 small buds of hope were beginning to emerge among the wreckage, but they were few and far between. America needed something radical, and that’s exactly what they got.  

As Roosevelt accepted the Democratic nomination in 1932 he made a speech in which the New Deal was mentioned for the first time. 

“Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for a more equitable opportunity to share in the distribution of national wealth… I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms”

This certainly served as a rallying call as Roosevelt thrashed Herbert Clark Hoover during the election to sweep into the White House. But it’s fair to say that the new occupant of 1600 Pennsylvania Avenue was greeted with the kind of national upheaval not seen since the days of Abraham Lincoln over sixty years before.

To give you an idea of what wasn’t available to Americans at the time, Frances Perkins who would become Secretary of Labor, outlined her priorities to the new President during her job interview.

They were “a forty-hour workweek, a minimum wage, worker’s compensation, unemployment compensation, a federal law banning child labour, direct federal aid for unemployment relief, Social Security, a revitalized public employment service and health insurance”

Except for health insurance which continues to be a sticky subject, I don’t think any American would argue against this wish list. But it does highlight just how far we have come, that in the modern age we wouldn’t think twice about these and none of them seem particularly radical. But in 1933 things were very different. 

The First 100 Days 

Roosevelt had entered the White House on the back of huge public support as American patience for their struggling country began to wear thin. Demands for dramatic action had been steadily increasing, in contrast to the slumping popularity of the previous Republican government. 

American Presidents love to crow about their achievements during their first 100 days, but it’s unlikely that anyone will ever match what President Roosevelt accomplished during his century of days that kicked off his presidency. 

During this time he met Congress every day and every request that the President put in front of them was granted. 

Relief 

Perhaps the most pressing matter that faced President Roosevelt was the millions across the country now close, or in, abject poverty. Local and state budgets had been decimated over the previous four years, and people with next to no safety net even before the depression, now faced enormous difficulties. 

A flurry of programs were quickly enacted by the new government. One of these, the Civilian Conservation Corps (CCC), which we have already done a video on, focused on providing jobs for young unemployed men. Much of this work was done in rural locations across the nations, and over 2,650 CCC camps were established. 

To put a modern slant on this, imagine if the Scouts were suddenly employed to build dams, National Park trails, fight forest fires and work in soil-erosion control. That might be taking things a little too simplistically, but isn’t far off. These young men – and later veterans who had fought in World War I – received room and board along with a modest salary, most of which they were required to send home to their families. 

The Federal Emergency Administration of Public Works (which later became simply the Public Works Administration – PWA) was also established in 1933 and set about providing both jobs and much needed public infrastructure such as dams, bridges, hospitals and schools. In total, the administration spent over $7 billion ($132 billion today) on contracts throughout the Great Depression.

 Between July 1933 and March 1939, it funded the construction of more than 34,000 projects including 70% of new schools – a total of 7,428 – a third of new hospitals along with airports, large scale dams, bridges and even warships for the Navy. Major projects included the Lincoln Tunnel in New York City, the Overseas Highway which connects Key West and the rest of Florida, and perhaps most famously, the Hoover Dam. At its peak in 1934, an estimated 4 million people were employed on PWA projects.  

The one area that is generally seen as a failure in terms of the PWA was the affordable housing units that had been promised. This was seen as a pillar of the entire initiative, but in the end, only 29,000 units were constructed over nearly five years and what was built was said to worsen segregation even more than before.  

Rural America was feeling the brunt of the depression worse than most, with shocking levels of poverty seen across the country, but especially in the South. The 1920s had seen an unprecedented acceleration of farming thanks to mechanical engineering and the increased use of insecticides. But while there was a short-lived boom, this led to dramatic overproduction which left the agricultural industry on the brink. Prices became so low that it was longer profitable to harvest the fields, or indeed even slaughter the livestock.   

The Agricultural Adjustment Administration (AAA) appeared in May 1933 to begin addressing this very issue, and it began with a method known as artificial scarcity. This involved the government paying subsidies to farmers and landowners to leave the fields empty in a hope of raising prices. 10 million acres (40,000 km2 – 15,000 m2) of growing cotton was ploughed up and left to rot, while six million piglets were killed and discarded to force the general price of cotton and pork upwards. 

Recovery

Generally speaking, most of the U.S recovery was achieved by 1937, although unemployment remained higher than it had been until the outbreak of World War II. And much of this recovery was led by the NRA – no, not that one – The National Recovery Administration. 

The Roosevelt Administration believed that unbridled and excessive competitiveness had in part led to the Great Depression. Wages and prices had been driven down by greed and a large scale re-think was quickly needed. 

The NRA provided funding for the PWA but it was its effect on working conditions that it is most remembered for. One of its first acts was to urge every company in the nation to adopt a series of changes known as the “blanket code”. This included a minimum wage of between 20 and 45 cents per hour ($3.79 – $8.54 today), a maximum workweek of 35–45 hours and the abolition of child labour. At the same time, leaders in certain industries were encouraged to design and implement specific codes for their own industries.

Modern Americans would most likely baulk at such government interference, but these were very different times and the NRA was able to secure effective cooperation from almost every industry – and the effect was dramatic – on the industries at least. Industrial production was 43% higher in March 1934 than it had been exactly a year before. 

In a slightly bizarre ending, the NRA was found to be unconstitutional by the U.S Supreme Court in 1935 and was scrapped, but not before persuading over 2 million employers across the country to adopt a minimum wage, an 8-hour workday – and finally – the abolishment of child labour. 

Further relief was also brought about in a very different, and yet hugely popular move. Since 1919 the U.S had seen prohibition of alcohol across the country, but in 1933 this was repealed and once again manufacturers could churn our beer and liquor to their heart’s content. A move that not only raised extra revenue through taxes but surely brought a smile to the many who had been surviving on moonshine all those years.   

Reform

The final R of this triple-pronged approach was reform. It was all well and good re-building the country and granting workers new rights, but what if the same thing happened again?

The banks were an obvious place to start, not necessarily because it was all their fault, but in the increasingly capitalist world a safe and steady banking system was an absolute must – and in 1933 when 4,000 banks alone failed, it was anything but. 

The Glass-Steagall Banking Act passed in 1933 stabilized the banking industry and essential split commercial banking and investment banking. The use of bank credit for speculating had seen large scale losses leading up to the Great Depression and this act was intended to put a halt to that, with only 10% of commercial banks income allowed to come from securities. While there was certainly some opposition to these reforms, they were broadly popular and sailed through congress. After the hellish crash of 1929, the majority of Americans felt it prudent to take such actions. Funnily enough, this act was not repealed until 1999 when the Gramm-Leach-Bliley Act was passed into law. And 9 years later a large scale recession once again swept across the country – humans just never learn do they? 

Another major reform badly needed led to the Federal Deposit Insurance Corporation (FDIC) which insured money in bank accounts (up to $2,500 – around $50,000 today) for the first time. By 1933, depositors who had money in banks which collapsed lost an estimated $540 million ($10.6 billion today) – eventually they received on average 85 cents for every dollar lost, but the damage caused had been enormous. Unsurprisingly, the idea of insuring money in banks is something that has remained in place to this day

By 1933, nearly half of the $20 billion in home mortgages were in default. This not only created an absolute horror show for those living in the homes but severely weakened lending institutions and badly undercut home values. In response, the government launched the Home Owners Loan Corporation (HOLC), which aimed to help refinance home mortgages currently in default to prevent foreclosure. Over the course of its first three years, the HOLC supplied nearly 1 million loans across America and by 1936 it had financed 20% of the mortgaged urban homes in the country. Along with this, they also issued cash advances to pay for property taxes and home repairs. Quite simply nothing had been seen like the HOLC in such a large scale role, and again it is a service that still continues today.  

Looking Back 

Whether you believe that the New Deal was the glorious stabilizer that led to unchecked prosperity after World War II, or that it was a huge waste of time and money, as well as a serious infringement on the hallowed rights of the American people, there are plenty of voices on both sides. 

Did the New Deal single-handedly bring an end to the Great Depression? No. Did it play a huge role by getting millions back to work and helping to rebuild the shattered psyche of the nation? Yes. 

At this point, it’s probably worth just going back over some of the elements that appeared during this period. Social security, minimum wage, a standard working week, banking regulations, banking insurance – and of course it became illegal to hire children. Few would dare to argue against any of these regulations, so while it can be debated that the New Deal wasn’t entirely to thank for the end of the Great Depression (World War II was probably the final massive boost the country needed) it did set out an extraordinary array of changes that have stood the test of time, and the inevitable partisan see-sawing. It was a program that quite simply transformed the United States.   

I don’t know about you but I’m strangely drawn to large-scale dramatic changes in the face of overwhelming adversity and the New Deal was exactly that. We can quibble about small elements of it and examine details under our modern microscope, but the truth is that in 1933 the United States was on its knees. Nothing had ever been seen like the Great Depression and it was a long and difficult road to recovery, but at the end of it, the United States stood on the brink of becoming a global superpower. A very different era now beckoned.  

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