Great Depression and the New Deal
The late 1920s were a time of great optimism in the United States, and few in public life expressed this optimism more clearly than Herbert Hoover. Even before becoming president in 1928, Hoover was one of the most respected men in the country, if not the world. Born in a rural village in Iowa and orphaned at the age of nine, he earned an engineering degree from Stanford University. After graduation he began a career in mining, becoming a millionaire by launching successful operations in Australia, Asia, Africa, and Latin America. During and after World War I he organized a massive relief effort to feed starving people in war-torn Europe, and became an international celebrity in the process. Later, as secretary of commerce under Presidents Harding and Coolidge, he inaugurated the policy – which continues to this day – of collecting statistical data on unemployment. He sincerely believed that American individualism, supported by a dynamic federal government, could end the nation’s problems. As he put it in a campaign speech in 1928, the country had “come nearer to the abolition of poverty, to the abolition of fear of want, than humanity has ever reached before” (Document 1).
On October 24, 1929 – only seven months after the start of Herbert Hoover’s presidency – the economic boom that had characterized so much of the 1920s came to an abrupt end. The stock market crashed, and the thousands of investors who had purchased stock on credit were asked to make good on their promise to pay. When they could not, they were forced to sell their stocks, so that securities prices continued to plummet over the next two weeks. For ten years thereafter, the country would continue to struggle through the worst economic crisis of its history – the Great Depression. Banks, threatened with insolvency, called in their loans; and businesses, cut off from their sources of capital, scaled back their operations. Over the next few years millions would be laid off from their jobs. This in turn made the situation worse, since unemployed people could not buy the sort of consumer goods – radios, washing machines, vacuum cleaners, and most importantly automobiles – that had sustained the economic growth of the 1920s. Throughout Hoover’s presidency, therefore, the economy continued to deteriorate.
Hoover believed that the severity of the crisis demanded a strong response by the federal government. He held a series of conferences with business and labor leaders in which he exacted promises not to reduce wages, even as profits fell (Document 2). He authorized new federal public works projects, and urged states and localities to do likewise. He signed a new tariff bill designed to protect American agriculture and manufacturing from cheap foreign imports (Documents 3 and 4). Hoover also argued that capital had to be pumped into the economy so that business confidence would be restored and the unemployed put back to work. It was in this spirit that he established, with congressional approval, the Reconstruction Finance Corporation (RFC) (Document 7). The RFC made loans to banks and other major financial institutions in the hope that they would, in turn, extend credit to corporations, allowing them to hire more employees, place new orders with other firms, and invest in new enterprises.
There were, however, certain steps that Hoover refused to take. He opposed the idea of making direct relief payments to individuals and families, fearing that this would foster an un-American dependence on the federal government (Document 5). He therefore vetoed legislation such as the Veterans’ Bonus Bill in 1931 and the Emergency Relief Bill in 1932 (Documents 12, 13 and 11). Moreover, he did not believe that the government should compete with private business, leading him to veto a congressional resolution to bring electricity to parts of the rural South (the Muscle Shoals joint resolution of 1931; see Document 6). Finally, by 1932 Hoover was concerned that large budget deficits would impede recovery, so he tried to reduce overall federal spending.
In spite of Hoover’s best efforts, the economy continued to slump. By late 1932 American banks were collapsing at an alarming rate, and some writers were beginning to call for the adoption of fascist or communist forms of government, such as those already in existence in Italy and the Soviet Union. Nevertheless, Hoover stood again as the Republican presidential nominee (Document 15). Very few people expected him to win; in fact, many people had come to believe that Hoover was simply not interested in the plight of ordinary people affected by the Depression. On Election Day, therefore, the voters turned overwhelmingly to the candidate of the Democratic Party, Franklin Delano Roosevelt.
Unlike Hoover, Roosevelt had been in politics all his life. He had served in the New York state legislature, served as assistant secretary of the navy under Woodrow Wilson, and had run unsuccessfully for vice president on the Democratic ticket in 1920. In the early 1920s he was struck with polio, which left him paralyzed from the waist down, but a few years later he returned to public life and, in 1928, was elected governor of New York. During the 1932 presidential campaign he promised “a new deal for the American people,” but remained vague as to what this might mean (Documents 10, 14). Ultimately his victory resulted from Hoover’s extreme unpopularity and Roosevelt’s own cheery, optimistic style. As one Supreme Court justice put it, he may have been a “second-class intellect,” but he possessed a “first-class temperament.”1
In his inaugural address (Document 17), Roosevelt promised quick and dramatic action, and he was as good as his word. His election had coincided with the Democratic Party picking up 101 seats in the House of Representatives, strengthening their majority, and 12 in the Senate, giving them majority control in that house as well. Within the first hundred days of Roosevelt’s administration Congress passed an amazing number of bills that the president recommended or favored. In an attempt to increase the supply of money, he removed the dollar from the gold standard. An Agricultural Adjustment Act promised aid to farmers, but only on the condition that they reduce the amount of agricultural goods that they produced so that prices would rise. A public works bill authorized spending millions of dollars to put the unemployed to work. Another bill created the Tennessee Valley Authority, which brought the federal government into the provision of electricity to rural areas (Document 18); still another set up the National Recovery Administration, which oversaw the drafting of codes of conduct for various industries (Document 19). A few of the measures enacted during this period were extensions of Hoover’s own program; most, however, went far beyond, involving the federal government in areas that Hoover had insisted should remain within the scope of the private sector.
But although Roosevelt’s New Deal was wildly popular, it immediately drew fire from both the Right and the Left. Conservatives in both the Republican and Democratic parties claimed that the president was violating the Constitution (see Documents 32 and 35). In several instances the Supreme Court agreed, striking down the National Industrial Recovery Act in 1935 (Document 28), and the Agricultural Adjustment Act in the following year (Document 31). Radicals, meanwhile, complained that Roosevelt was not doing enough to destroy the power of large banks and major corporations. Many on the Left demanded the nationalization of certain industries, the redistribution of wealth, and the creation of a full-scale social welfare system similar to those which had already been established in some European countries (see Documents 27 and 34).
When the early legislation of the New Deal failed to bring about economic recovery, Roosevelt himself veered sharply to the left. In 1935, he unveiled a series of new, more radical measures. These included nearly $1 billion in new spending on public works projects, new taxes that would fall on the wealthiest Americans, and a system of old-age insurance called Social Security. The National Labor Relations Act gave a tremendous boost to labor unions, by guaranteeing the right of workers to organize and requiring employers to bargain with union representatives. The Fair Labor Standards Act (Document 39) abolished child labor and established a federal minimum wage. Many on the Left applauded these moves, while conservatives complained that Roosevelt was turning America into a socialist country (see Document 41).
Although the promised recovery was slow to come, most Americans believed that the New Deal had improved their lives, so they gave it their enthusiastic support. Roosevelt managed to create a new coalition of reliably Democratic voters. Union workers in the Northeast joined with farmers from the South and Midwest, while African-Americans abandoned their traditional support for the Republican Party. When the president stood for reelection in 1936 against Alf Landon, the Republican governor of Kansas, the voters returned him to office in a landslide.
Roosevelt’s second term, however, would bring disappointment. His attempt to add more justices to the Supreme Court (Document 38) was interpreted as an attack on the Constitution, leading Congress to hand the president his first serious political defeat. Moreover, the economy took a sudden downturn in 1937, underscoring Roosevelt’s failure to bring the country out of the Depression. The president’s efforts to drive more conservative members of his own party from Congress by campaigning for their opponents in the 1938 primaries (Document 42) met with disaster. Not only did nearly all of the conservatives survive the challenge, but they returned to Washington vowing revenge against the president who had tried to unseat them. The general elections compounded the president’s problems, as Republicans made major gains in Congress for the first time in ten years. Thereafter, Republicans were able to join with conservative Democrats to block further presidential initiatives.
By 1939, then, the New Deal had effectively ended, although the Great Depression went on. Gross domestic product did not exceed its 1929 level until 1941; unemployment remained above pre-Depression levels until 1943; and the stock exchange did not return to its pre-crash height until the late 1950s. The crisis – and the way the Hoover and Roosevelt administrations responded to it – would forever change the relationship between Americans and the federal government. Many of the agencies established during the 1930s, such as the National Labor Relations Board, the Securities Exchange Commission, the Federal Housing Administration, the Federal Deposit Insurance Corporation, the Tennessee Valley Authority, and, of course, Social Security, continue to affect the lives of millions of people. More broadly, the Depression and the New Deal altered Americans’ expectations of the federal government. Before the 1930s few believed that Washington, DC was responsible for the nation’s economic health, or for the wellbeing of its citizens. Since that time almost no one denies it.
1. David M. Kennedy, Freedom from Fear: The American People in Depression and War (New York: Oxford University Press, 1999), p. 100.