THE NEW DEAL1933-1936

The Situation in 1933• 13,000,000 unemployed• 34,000,000 belonged to families with no full time wage

earner (out of 125,000,000)• Industrial production had fallen by 45% from 1929• Homebuilding dropped 80% from 1929• About 5,000 banks went under from ’29-32.• By 1933, 11,000 of 25,000 banks had failed.• GDP fell by 30%, the stock market by 90%• By 1933, 25% of all workers and 37% of an non-farm

workers were unemployed• The income of the average family dropped 40%

The Banking Crisis• 3/6/33 – Closes banks• 3/9/33 – Emergency Banking Relief Act: All Federal

Reserve approved banks would be guaranteed cash flows from the Fed. Bank: bank runs end

• 6/16/33 – Glass-Steagall Act: Creates the Federal Deposit Insurance Corporation to guarantee bank deposits. Requires banks to separate their investment and commercial banking activities. (repealed in 1999)

The Hundred Day Congress

Financial Reform

• 4/5 – FDR orders US gold coins to be exchanged for paper dollars

• 4/19 – US abandons the gold standard

• This begins the era of a managed currency.

• 5/27 – Federal Securities Act

Immediate Relief• 3/31 - Unemployment Relief

act creates the CCC• 5/12 – Federal Emergency

Relief Administration created CWA

• 5/12 – AAA created• 5/18 – TVA created• 6/13 – HOLC created• 6/16 – NRA created (PWA)

The AAA• Agricultural Adjustment Act• Attempted to raise the price of farm goods by paying

farmers not to farm. Instead, they would be paid “parity prices” – what the crop would have sold for.

• This was intended to end overproduction and put more wealth in farmers’ hands.

• Ruled unconstitutional in 1936.• Congress replaced it with a conservation plan to pay

parity prices if farmers planted soil conserving crops like alfalfa.

• The government has been very involved in agricultural production ever since.

The NRA• All encompassing attempt to boost wages and production.• Largely voluntary.• Created a minimum wage and a maximum work week.• Created the PWA to “prime the pump”• Gave more bargaining power to unions• Ruled unconstitutional in 1935.• The Wagner Act and National Labor Relations Act was

salvaged from the NRA to preserve union bargaining power.

• Industrial production did rise 55% in the two years the NRA was operating.

Public Works • CWA - Immediate “make work”• CCC – Young men sent to the woods to do conservation

work (the beginnings of the American Army of WWII)• TVA – Built 20 dams in the Tennessee River Valley,

electrified the South.• REA – Spread electric power lines through rural areas.• PWA – Mostly larger scale public works projects (dams,

bridges, hospitals, schools, warships)• WPA – Mostly smaller scale projects like parks, poverty

relief, roads and educational projects (writers, poets and artists)

Long Term Reform• 6/6/34 – Securities Exchange Commission founded to

investigate fraud on Wall Street.• 6/12/34 – Reciprocal Trade Agreement allowed the

President to lower tariffs with other countries that did the same

• 6/18/34 – Indian Reorganization Act (Indian New Deal)• 4/30/35 – Resettlement Administration moves farmers off

poor lands• 8/14/35 – Social Security Act• 6/25/38 – Fair Labor Standard Act: Minimum wage created,

overtime rules, no child labor• 8/2/39 – Hatch Act prevents civil servants from campaigning

Social Security• Covers old age, disability, and survivors (orphans) of

those who die during their wage earning years.• Originally included unemployment insurance (it was later

moved into a separate program).• At first, agricultural, domestic and government workers

were exempted from the program.• Few blacks and women benefitted at first.• Money is withdrawn from paychecks (payroll tax) to pay

for the program.• Over time, it came to include almost everyone.

Recession of 1937• Disputed causes.• FDR bowed to pressure to balance the budget. He cut

spending in the PWA and WPA.• Also, Social Security taxes were being collected but benefits

were not being paid out.• The Federal Reserve also tightened the money supply.• Overall constricting of demand.• Unemployment went from 14% to 19%.• Industrial production fell 37%• FDR responded by putting more money into WPA and PWA.• The economy recovered some, but would await WWII for a

full recovery.

The Roosevelt Recession

Unemployment Government spending