New Deal

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America experienced severe social, political, and economic turmoil in the three years after the onset of the Great Depression (1929). Immediate pressures for economic relief were coupled with long-term strains of vast economic inequality resulting from the transition to a newly industrialized nation and the tightening of job availability in the face of unprecedented immigration levels. The New Deal was President Franklin Roosevelt’s first effort to address the problems created by and underlying the Great Depression. The New Deal was more than a series of actions responding to the Great Depression; it created a new governing philosophy for the nation.

This new governing philosophy was influenced by Progressivism. A generation before the New Deal, Progressives fractured into various groups or periods, such as the “New Nationalism” of Teddy Roosevelt and the “New Freedom” of Woodrow Wilson. Yet, Progressives as a whole had two broad objectives. First, they sought to dissolve concentrations of wealth, to which end they coupled “trustbusting” (attack on financial trusts) with the creation of new rights that protected the individual from the uncertainties of the marketplace. Second, Progressives sought to empower the masses politically, to which end they initiated a number of direct democracy reforms. These two objectives advanced a new understanding of the relationship between the individual and government that became the foundation of New Deal thought.

During his tenure in office, Roosevelt built a unique and lasting coalition of support that realigned the party system. Central to this phenomenon was his redefinition of the social contract. A new concept of liberty anchored in the existing constitutional framework was central to this redefinition. In his eighth annual address before Congress (January 1941), Roosevelt stated that every American was entitled to Four Freedoms: freedom of speech, freedom of religion, freedom from want, and freedom from fear of armed aggression. In turn, Roosevelt disassociated “liberalism” from Jefferson, who advocated notions of natural rights and limited government, by transforming liberalism into the assertion and expansion of federal government toward ideals of social justice.

Roosevelt believed that effective government produced social justice. To pursue social justice, Roosevelt sought to expand rights beyond the protection of individual property. More particularly, Roosevelt sought to expand negative rights (freedoms from government action), established in the Bill of Rights, to include a broader range of entitlements or positive rights (guarantees of government action), such as Social Security and an Economic Bill of Rights. Thus, many consider the New Deal a turning point in American history because the era forever altered the founding vision of liberty and social contract by incorporating a new rights-based notion of social justice that ensured a basic level of general welfare.

THE NEW DEAL AND COOPERATIVE FEDERALISM

Sustained intergovernmental interaction of administration, servicing, or financing of government programs was minimal during the first 140 years of American constitutional history. Federal, state, and local governments had relatively separate dominions of power and control. This system was known as “dual federalism.” Dual federalism’s demise began with the onset of the Great Depression. In dealing with the depression, the New Deal gradually reshaped federalism into a system that became known as “cooperative federalism.” Cooperative federalism is the broad sharing of public finance, public programs, public administration, regulation, and politics between the national, state, and local levels of government. The impact of the Great Depression on state and local governments is a useful starting point for understanding the development of cooperative federalism.

The economic crisis of 1929 was a huge blow to state and local governments already heavily in debt from a decade of deficit spending. The economy’s rapid and unexpected slide into depression produced sharply rising welfare costs coupled with sharply falling tax revenues. Local governments felt the effects of this crisis first. By 1933, approximately 15 million people were unemployed with little savings and minimal relief from private bankrupt agencies. In turn, many citizens applied to local relief boards for assistance. These boards, however, collected most of their revenue from property taxes, which had been reduced by as much as 20 percent, sometimes more. In some cities, the situation was so bad that property taxes simply could not be raised.

States responded in a variety of ways. Prior to instituting a general sales tax in 1933, many states issued executive orders to provide small amounts of relief and urged better management of the economy in administration to bring lopsided budgets into closer balance. The Hoover administration advanced with comparable caution. In October 1930, President Herbert Hoover created the Emergency Committee for Employment to help boost the economy. The committee, however, was severely limited by lack of funding and did little more than espouse a steady rhetoric of state responsibility. Some governors appealed directly to Hoover for aid, while others were optimistic on the prospects of an economic rebound through 1931. Even critics of the administration advocated increases in previously authorized highway grants, rather than sizeable new federal appropriations.

Circumstances worsened severely by 1932. Local resources were exhausted and state tax collections had fallen more than $1 billion in the two previous years. Hoover signed a relief bill in July 1932 that offered $300 million in loans to the states distributed through the Reconstruction Finance Corporation. The money was far from enough to relieve economic strain, and it antagonized some state officials who were upset by the strict enforcement of distribution regulations. Political squabbling, intraparty factionalism, and barren treasuries all contributed to the poor economic conditions experienced by state and local governments prior to Franklin Roosevelt’s election in November 1932. Even Roosevelt, who was governor of New York during this period, was slow to embrace drastic reform and happy to assert power while at the state level. Once president, however, varying notions of how to stimulate economic recovery became central to the development of cooperative federalism.

In contrast to President Hoover, who rejected a broad construction of federal commerce power, the New Deal scrapped states’ rights approaches to economic recovery. In this first inaugural address, Roosevelt stated his intention to ask Congress for “broad Executive power to wage a war against the emergency,” claiming that the “greatest primary task is to put people to work.” To this end, Roosevelt assembled what became known as the “brain trust,” an influential group of cabinet advisers primarily composed of university professors from Columbia and Harvard. In what is known as the first New Deal (1933–35), the administration adopted a flexible approach to the constitutionality of vast economic reform, enacting a number of emergency measures in the areas of banking, agriculture, industry, investment, labor, and conservation. Much of this was accomplished in what is called the first “hundred days,” and these initiatives constituted an extraordinary assumption of federal authority in economic matters.

The Federal Emergency Relief Administration (FERA), Agricultural Adjustment Act (AAA), and National Industrial Recovery Administration (NIRA) are but three examples of the fifteen pieces of significant legislation passed in the First Hundred Days. The AAA sought to save a devastated agricultural sector. In contrast to other sectors of the economy that prospered in the 1920s, agriculture faltered and then collapsed in 1929 when the Depression drove down demand. By 1932, net farm income had fallen by two-thirds in five years. The largest obstacle was chronic overproduction. Jobless families in the nonagricultural sector had little to spend. In turn, many farmers produced more in order to make up for their losses. They sent this increased production out, thus glutting the market and producing a cycle of low demand and low prices.

To alleviate the problem of overproduction, the AAA used federal subsidies to reduce production, control farm output, and raise prices. “I tell you frankly,” Roosevelt stated in a message to Congress with a draft of the bill, “that this is a new and untrod path, but I will tell you with equal frankness that an unprecedented condition calls for the trial of a new means.” This was the first time that farmers were paid by the federal government not to produce. Conservative critics in Congress claimed the bill was Socialist in nature. The bill passed despite conservative opposition, exemplifying the truly revolutionary scope of New Deal planning.

The FERA was created to deal with unemployment. The Reconstruction Finance Corporation had been created under the Hoover administration, but could only loan money to business and industry; Hoover vetoed the bill that would have expanded the RFC to loan money to states, cities, and individuals. In contrast, FERA received $500 million for distribution to the states. Half was distributed through matching grants. The other half was distributed through the discretion of Harry Hopkins (head of the agency), Roosevelt’s longtime friend and former relief administrator in New York. Supplemented by several additional appropriations, FERA funding exceeded $3 billion. Among the most rapid extensions of federal welfare in American history, FERA was particularly effective where federal officials convinced resistant states to devote time and money to welfare if they wanted federal funds. In these states, federal money provided relief to the jobless, persuaded state leaders of the need for public welfare, and encouraged cooperative intergovernmental relations. In turn, the economic crisis and New Deal response combined to force states into a new role that neither affluence nor conservatism could completely disavow.

The NIRA was created to improve labor standards and eliminate ruthless competition in interstate commerce. Led by Hugh Johnson, the NIRA created codes for hundreds of various industries, establishing a series of minimum labor standards such as minimum wage laws, maximum hour rules, and rights of collective bargaining with employers through representatives freely chosen by employees. Federal officials urged states to pass “little NIRAs” to protect against foul play on the behalf of many intrastate companies that had flagrantly abused labor in the past. To pursue this objective, Johnson created a special division of state relations with the headquarters in Washington.

A small number of field agents were deployed in various states to explain the bill’s advantages, particularly the bill’s role as a deterrent to deviant business practices and the utilization of state courts in prosecutions of violations, all without any additional expense to the states. Rural opposition, state political calendars, and a general hostility toward a growing federal bureaucracy severely limited the success of this special NIRA division. A comparison of FERA and the NIRA reveals that the New Deal tried to both force and persuade states to support legislation with mixed results. Thus, the cooperative nature of New Deal federalism was a fluid and often a tense struggle between coercive federal incentives and varying levels of state resistance.

The second New Deal (1935–38) focused on more permanent reform, rather than short-term relief. As business proved to be less cooperative than Roosevelt had anticipated, the New Deal became more radical through pressures from within the White House and, to a degree, from Congress. The administration created a double-barreled plan to combat social deprivation: works progress and social security. The Works Progress Act (WPA) was the New Deal’s chief relief program from 1935 to 1938. One of many significant employment efforts in the New Deal (Civilian Conservation Corps, Tennessee Valley Authority), the WPA provided job training for the less skilled and work for unemployed artisans and craftsmen. Through $10.7 billion in funding, over 3 million Americans received jobs annually in these three years. By the time the program was officially terminated (June 1943), the WPA provided jobs for over 8.5 million people who worked on 1,410,000 projects. In contrast to FERA, the WPA did not require minimum state contributions or means to coerce states to cooperate.

The Social Security Act, on the other hand, sought to establish permanent government aid to the blind, to dependent children, and to the elderly. This important piece of welfare reform largely dictated to states how federal money could be used and which state agencies were able to distribute it. In dealing with the blind and with dependent children, the federal government matched up to one-third of state contributions to the program. In dealing with the elderly, old age insurance was funded by a federal tax on employers and employees, which was deposited into a reserve fund. Contributors received pensions from the fund at age 65. In turn, there was no independent role for the states.

With some resistance, all states enacted Social Security systems by 1937 and all provisions were operating by the midpoint of 1939. Most attacks on Social Security were from liberal authorities on social insurance who advocated a stricter national system, claiming that the New Deal federalism, which gave leeway to the states in the realm of Social Security, was impractical. Despite these attacks, Social Security has survived into the twenty-first century, fulfilling the New Deal goal of a lasting social safety net. For the first time in American history, the nation as a whole, through the federal government, had some responsibility for mass welfare.

Legislation was the prime, but not only, method by which the New Deal transformed intergovernmental relations. Roosevelt significantly expanded the power and influence of the executive, weakening the constraints of the party system and solidifying the modern presidency. Prior to the 1930s, the American party system was a highly decentralized organization hostile to administrative centralization. By design, the party system restrained the powers of the executive. In contrast to this tradition, the New Deal attempted to revitalize Alexander Hamilton’s arguments for a strong executive. This revitalization was evident in the bureaucracy, party system, and pubic realm. Administrative agencies were molded to use the federal government as an instrument of public good. The Democratic National Committee was reorganized to reflect the programs of the New Deal, weakening the patronage system and transforming the party into a truly national operation. In turn, “the party” was an important influence of American federalism. Furthermore, “fireside chats” (weekly radio addresses beginning in March 1933) made public reassurances and appeals in a time of great uncertainty, forever personalizing the relationship between the president and the public. These developments and more reshaped the presidency from an office to an institution. In turn, the New Deal established the foundations for unprecedented centralization of political responsibility and policy development in the White House.

As a whole, the New Deal was successful in achieving many of the goals in Roosevelt’s vision for social justice. Consequently, the New Deal was among the most transformative periods in American history in producing change. In the context of American federalism, a new era of cooperative federalism gradually replaced variations of the dual federalism system. Though successful in resurrecting a nation from the depths of the Great Depression, cooperation among the federal and state levels of government was a mixture of achievement, mediocrity, and confusion.

BIBLIOGRAPHY:

Sidney Milkis and Jerry Mileur, eds., The New Deal and the Triumph of Liberalism (Amherst: University of Massachusetts Press, 2002); James T. Patterson, The New Deal and the States (Princeton, NJ: Princeton University Press, 1969); Basil Rauch, The History of the New Deal, 1933–1938 (New York: Capricorn Books, 1963); Patrick Renshaw, Franklin D. Roosevelt: Profiles in Power (Boston: Pearson Longman, 2004); and David B. Walker, The Rebirth of Federalism (New York: Seven Bridges Press, 2000).

Luke Perry

Last Updated: 2006

SEE ALSO: Agricultural Adjustment Act of 1933; Banking; Bill of Rights; Cooperative Federalism; Executive Orders; Governors and Federalism; Insurance; Intergovernmental Relations; Interstate Commerce; Jefferson, Thomas; Johnson, Lyndon B.; Public Administration; Reconstruction; Roosevelt, Franklin D.; Social Security Act of 1935; State Courts; Welfare Policy