During the years after World War I and those leading up to his nomination and subsequent election to the Presidency, Franklin Roosevelt [FDR] was fully aware of the nation's problems. Although FDR had been born into and grew up in a household of wealth and
privilege, he had first hand knowledge of the economy and the various strata of that era's society.
His knowledge was gained through his education and various governmental posts at the local, state and federal levels. FDR-
Groton, Harvard and Columbia Law educated, had worked as a lawyer in New York City; was a NY state Senator, US Senator, Assistant Secretary of the Navy and NY Governor.
The nation was experiencing unbridled prosperity in the years after the world war. The concept of "installment buying" had arrived !!! People on all levels of society were making purchases with small down payments followed by a few dollars monthly until the purchase was complete.
This concept had eventually spread throughout the economy including the stock market. Brokers allowed stock purchases with as little as 10-15% as a down payment. The broker then loaned the investor the balance of the purchase price. This advance called a "margin," was paid back at the sale of the stock. With so much investing done on the margin, brokers were forced to borrow funds from banks who also became heavily in debt.
Almost everyone from the day laborer to the Wall Street financier, were "making money-hand over fist" !!! The period from the mid to the late 1920s provided great
prosperity for the vast majority of Americans. Housewives were investing their milk money !!!
The New York Stock Exchange reached it's highest levels in August, 1929.
The Dow-Jones Industrial Average [
DJIA or "The Dow"] is a
mathematical barometer of the health of American stock markets as a whole.
On September 3, 1929, the
DJIA reached it's peak at 381.17. The market then fell sharply, the decline lasted approximately a month, loosing 17% of it's value. During the next week, prices gained about half their losses, but then suffered a drastic downturn once more. This accelerated into "Black Thursday", October 24, 1929. Although
minuscule by today's standards, a record 12.9 million shares traded on that day alone. On the following Monday the trading continued; on into the following day, "Black Tuesday", October 29, 1929-setting a record [16.4 million shares traded] that wasn't broken again until 1969. By the close of business on "Black Tuesday", nearly all stocks were worthless. On the 29
th alone, the market lost more than $14 billion in value. The total for the week was more than $30 billion. By comparison, the $30
bil. was 10 times greater than the federal budget and far more than the US spent in all of World War I.
Millionaires became paupers overnight; those who had invested their savings were left penniless !!! And this wasn't the worst, the
DJIA finally reached it's lowest point on July 8, 1932 at 41.22. The Dow would not regain it's highest 1929 levels until 1954.
With a republican [Herbert Hoover] in the White House at the start of The Great Depression, democrat FDR was "a shoo-in" for the presidency.
Looking back seventy-five years to 1933, the phrase "New Deal" should have made the average adult "giddy" with anticipation !!!
Remember, the country was deep in the grasp of The Great Depression; the unemployment rate for that year was 24.9% [13,000,000 people] !!! Actually, there are two sets of statistics-those previous which considered the total civilian population and the 'Darby' rate which considered
WPA workers as employed. The 'Darby' rate for the same year was 20.6%...... not far behind !!!
The phrase "New Deal" actually has a history that precedes FDR's use. FDR initially used the term in 1932 during his speech accepting the presidential nomination at the Democratic National Convention in Chicago.
FDR may have borrowed from the David Lloyd George who used the phrase: "A New Deal for Everyone" during his 1919 campaign for British Prime Minister.
American reformers have used it as well, including Sen. Carl
Shurz [Mo] in 1871, Woodrow Wilson during his NJ gubernatorial campaign in 1910 and Sen. Robert
LaFollette [
Wi] in 1912.
FDR's New Deal involved three phases:
1. Confidence in the banking system had to be restored to end the panicked withdrawals at banks throughout the U.S.
2. Prices had to be stabilized to encourage businesses and farmers to resume production.
3. Provide federal assistance to those described as the one-third of the nation that was "ill-housed, ill-clad, ill-nourished."
Mr. Roosevelt got started practically as he sat down at his desk.
FDR's inauguration was on March 4, 1933.
On March 6, he proclaimed a "bank holiday" and called the Congress into special session. In the first 100 days of that session, Congress passed the President's program: the Emergency Banking Act, the Agricultural Adjustment Act and the Nation Industrial Recovery Act as well as the legislation creating the Tennessee Valley Authority, the Home Owners Loan Corporation and the Federal Emergency Relief Administration. FDR also took the country off the gold standard to prevent a run on government reserves.
Later New Deal laws created and/or funded the following:
Public housing for workers
Unemployment insurance
Social Security pensions
Welfare for needy families
Framework for labor unions and workers' collective bargaining
Public service jobs for the unemployed
AMONG OTHERS !!!
The New Deal program became nearly as defining a moment in American History as the Civil War.
Never before had so much legislation and policy emanated from the federal government and in the process it became the center of political authority.
Previously, crises governments had cut spending, balanced the budget, curtailed reform to provide the stability they thought necessary for economic recovery.
The New Deal reversed that pattern to lift the country out of hard times and in so doing, altered social and economic policy forever.
During the 1932 presidential campaign FDR had an advisory group later named the "Brain Trust". The members of his group were Columbia University professors Raymond
Moley,
Rexford Tugwell and Adolf Berle, Jr., among others. This group helped Mr Roosevelt formulate public policy solutions to the nation's social and economic problems. After the election they never met again as a group but were appointed to, and served, in various federal posts.
Small gains were made during the early years of The New Deal. Between 1933-1935, the gross national product [GNP] had risen a paltry $16 billion; unemployment was reduced by only 3 million. As small as these gains were, they were nearly derailed by an ill-advised budgetary move.
The 1937 recession seemed to prove that FDR's New Deal economic and social policies weren't working. The President had become cautious and cut government spending. He maintained a policy of "watchful waiting" until early in 1938 when he proposed a $3.75 billion relief bill.
By the time FDR took action, the recession had already done it's damage; personal income had dropped by 12% and there were 4 million added to the unemployment rolls.
Several things the President could have done to forestall or lessen the impact were not done. Increases in the federal gold reserves could have been used to relax credit restrictions and increase the money supply. FDR kowtowed to the bankers and financiers [who opposed any inflationary measures] and raised monetary reserve requirements which tightened credit.
In early 1939 public opinion of the New
Deal's effectiveness were 2 to 1 AGAINST !!! Most of the country believed that the economy was worse than at the start of The Great Depression.
Some members of FDR's cabinet were the main detractors, principally Henry
Morgenthau, the Secretary of the Treasury.
Mr
Morgenthau is quoted that May, saying
"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot." The Great Depression continued until the U.S. entered World War II.
The massive spending required during the war years doubled the GNP.
Businessmen redoubled their efforts for greater output as an
expression of patriotism.
Patriotism drove most people to voluntarily work overtime and forgo leisure activities to earn money after the devastating years at the start of the depression.
Patriotism meant that people willingly accepted rationing and price controls for the first time.
Cost-plus prices military contracts insured that businesses made a profit regardless of inefficiencies or poor labor.
The post-war economy co
ntinued to thrive, driven by the needs of the returning soldiers and the needs of what would be labeled "The Baby-Boomers".
The "Alphabet Soup [a PARTIAL list]:"
1. Reconstruction Finance Corp. [Large loans to big businesses] Ended in 1954.
2. Federal Emergency Relief Administration[
FERA] Unskilled jobs as relief. Replaced by the
WPA in 1935.
3. US "Bank Holiday." [1933] Closed ALL US banks until they were certified by Federal reviewers.
4. "Abandonment of Gold Standard." [1933] US currency no longer backed by gold reserves.
5. Civilian Conservation Corps. [1933] Young men performed unskilled labor in rural areas.
6. Tennessee Valley Authority. [1933] Generated electricity for rural areas in the Mid-south.
7. Agricultural Adjustment Act. [1933] Raised farm revenue by cutting total farm output, primarily crops and livestock.
8. National Recovery Act. [1933] Reduce unfair competition, raise prices and wages.
9. Public Works Administration. [1933] Built large public works projects using private contractors.
10. Federal Deposit Insurance Corp. [1933] Insure deposits in banks to restore public confidence.
11. Securities Act of 1933. [1933] Created the SEC. Codified stock market standards. Risks to be accurately disclosed.
12. Civil Works Administration. [1933-34] Provided temporary jobs to millions of unemployed.
13. Indian Reorganization Act. [1934] Moved away from assimilation.
14. Social Security Act. [1935] Provided financial assistance to elderly, handicapped. First payout-1942.
15. Works Progress Administration. [1935] National labor program. 2 million jobs for the unemployed. Construction projects for men; Sewing projects for women; Arts projects for artists, musicians, writers.
16. National Labor Relations Act [Wagner Act]. [1935] NLRB[
oard] to supervise labor-management relations. Modified by the Taft-Hartley Act [1947].
17. Judicial Reorganization Bill. [1937] FDR's attempt to "pack" the US Supreme Court. Failed to pass Congress.
18. Fair Labor Standards Act [29
USC Ch 8]. [1938] Established the 40-hour work week as the norm. Established $0.40 per hour as the minimum wage.
19. Federal Surplus Relief Corp [1938] Farm loans. Commodity purchase and storage to maintain price levels. Later consolidated with Div of Marketing and Marketing Agreements into the Surplus Marketing Administration [1940]. Merged into the Agricultural Marketing Administration [1942].
Nest time, let's have a look at President Johnson's "Great Society"
Til then......................
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