One of the most crucial shifts in American social and political history, the New Deal was the name of a series of economic and social reforms as well as a new orientation of the U.S. federal government toward more active regulation of the national economy. Initiated by President Franklin D. Roosevelt, the New Deal programs were a set of policy responses to the massive economic crisis spawned by the collapse of the American economy in 1929 and the Great Depression that followed. Following his November 1932 election and with unemployment surging to nearly 25 percent in early 1933, Roosevelt proposed a set of reforms to stimulate economic growth and employment and to rebuild the structure of the American economy by expanding the government’s capacity to regulate market activities.
The basic idea put forth by the New Dealers in Roosevelt’s administration was that the Great Depression was not simply a blip in an ordinarily self-regulating economy that would soon correct itself. Rather, in their view, the problem was one of too much competition: Excessive competition within the industrial and agricultural sectors had the effect of lowering overall wages and prices. A key element of the New Deal was therefore to erect new government agencies and powers to regulate and coordinate economic and industrial activity in order to avoid catastrophic troughs in the business cycle and to insulate workers from the attendant economic hardships. This impulse to exercise greater regulatory authority over economic and labor markets had two main intellectual and historical roots that converged in the New Deal reforms.
Origin of New Deal Reforms
The first precursor was the steady drive for an expanded executive branch of the government during the Progressive Era, which was in part a response to the concentration of private, corporate power during the Gilded Age and political reform efforts that arose to restrain these corporate giants. President Woodrow Wilson had been one of the first presidents to expand the reach of the executive branch, and before Wilson,
President Theodore Roosevelt had made an antimonopoly stance one of the core elements of his economic program. This trend in American political development had its roots in a new intellectual orientation that began in the last quarter of the nineteenth century and the early decades of the twentieth. This new approach to political economy was a decisive turn toward the creation of a more modern and expanded American state with the capacity to regulate the economy as opposed to the laissez-faire political economy of the nineteenth century. One of the central aims of progressive reformers was to empower the state to regulate the economy for democratic or public ends rather than for private benefit. Much of this populist and progressive ethos and regulatory impulse was embraced and refined by New Deal policy makers.
Organized labor, which had seen its power waning in the years of the Depression, was given new life under the New Deal. One of Roosevelt’s central policy initiatives was the balancing out of the powers of capital and labor. Labor had largely failed for the previous fifty years to organize the bulk of the workers in major industries such as steel, textiles, mining, and auto manufacture. Ten years prior to 1933, the unionized workforce was approximately five million; at the start of Roosevelt’s presidency, it had shrunk to about two million. Roosevelt’s policies were designed to give new strength to unions, to collective bargaining, and to ability to unionize. These actions endeared organized labor to the Roosevelt administration and to the New Deal coalition for the next several decades, and this alliance had a major impact on the redistribution of wealth in American society.
A second influence on New Deal policy and thought was the economic theory of British economist John Maynard Keynes. Keynes’s ideas were crystallized and published in 1936 in his General Theory of Employment, Interest and Money, in which he argued that in times of crisis, expanded public sector spending was crucial to stimulate economic growth. The central government had to infuse money into the macro economy, thereby creating what Keynes termed a “multiplier effect,” with which money available for industry would spur employment, consumption, and broader economic recovery. This pump priming of the macro economy via deficit spending was not, however, accepted by many of the New Dealers themselves. Keynes viewed public deficits as a necessary and crucial component of such policies, but many New Dealers, including the treasury department’s Henry Morgenthau, believed that balancing the federal budget was more important than following Keynesian policy prescriptions.
New Deal in Action
The New Deal was launched on March 3, 1933.The increased regulatory role of the state was evident in the first policies enacted. The Emergency Banking Act brought banks under the supervision of the treasury department, and the passage of the Federal Deposit and Security Act created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. The Agricultural Adjustment Act created the Agricultural Adjustment Administration (AAA). The policies of the AAA were also regulatory in nature: Prices were to be inflated by regulating the amount farmers produced. Farmers were paid to leave land idle, and the AAA set limits on the production of corn, wheat, rice, and pork. The reforms in both banking and agriculture were exemplary of the early ideas of the New Deal: that the federal government’s central role is to regulate economic activity.
Yet another layer of New Deal policies was aimed at the reform of the industrial sector. Also created in 1933 was the National Recovery Administration (NRA). The reforms pursued by the NRA were sweeping: The limiting of the work week to 35 to 45 hours, the abolition of child labor, and the establishment of the minimum wage were all key reforms aimed at enlarging the power of labor and decreasing the hyper competitiveness of the industrial sector, which Roosevelt saw as a key cause of the Depression.
Like other key New Dealers in his administration, Roosevelt was wary of running massive budget deficits, but he also saw the need for the state to become more than simply a regulator of economic activity. Roosevelt allowed certain budget deficits, and there was immense government spending; however, it was not as expansive and intense a pump-priming fiscal policy as Keynes had proposed. It is possible that the consistent requirement to balance the federal budget had much to do with the dull effect that New Deal policies had on stimulating economic growth. It is important to recall the general concerns that drove New Deal thought: Excessive competition, the weakness of labor’s bargaining power vis-à-vis that of corporations, and the need for expanded federal regulation were the main elements of New Deal policy.
This was most evident in the last phase of the New Deal: Later New Deal reforms were less concerned with economic growth and more focused on support for labor and the protection of the public from economic insecurity. The Works Progress Administration (WPA), the Social Security Act, the creation of the National Labor Relations Board (NLRB), and finally the Fair Labor Standards Act were all intended to strengthen the bargaining power and working conditions of labor and create a more economically enfranchised and protected working class.
Impact of the New Deal
In hindsight, the New Deal was both controversial and successful. The NRA and AAA were struck down as unconstitutional by the U.S. Supreme Court, and public support began to wane with the New Deal’s apparent overreach into the economy. Although the New Deal did not succeed in reigniting prosperous economic growth (that would come with the war economy during WWII [1939–1945]), it did succeed in restructuring the American political economy. The notions that the state can and must intervene in economic affairs, play an active role in promoting equality, direct certain forms of development, and protect people from the harshness of market failures were all hallmarks of the New Deal. Many of its enduring programs—such as Social Security, the Securities Exchange Commission, and Fannie Mae—have been remarkably successful and enjoy enduring political support.
Despite these successes, the New Deal also had its critics, both then and now. The most prevailing critique of the New Deal while it was being enacted came from those who were fearful of the intervention of the state into society as a whole and into the economy in particular. Roosevelt utilized the newly expanded powers of the state, which had begun under the Wilson administration, in order to bring about reforms. Critics, however, saw New Deal policies as socialist and began to argue that it was an overreach of the executive branch. The big business community saw the reforms themselves, specifically the powers Roosevelt granted to labor, as endangering their own political and economic power. Today, these criticisms of the New Deal are still voiced, as is the charge that it did nothing to stimulate economic growth and is therefore, in economic terms, a failure. Nevertheless, there is no denying the changed pattern of American society and government after the New Deal reforms, especially in the way that it gave renewed power to organized labor as well as the new powers accrued by the state. In the end, it is this transformation of the orientation of government that makes the New Deal a seminal development in American political and social history.
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