FDR’s Legacy of Can-Do Government

Born to a well-to-do family 132 years ago, Franklin Roosevelt would earn the hatred of America’s plutocrats when – as President – he deployed the federal government to battle the Great Depression, an animosity toward FDR that the modern Right continues to this day, writes Beverly Bandler.

By Beverly Bandler

When Franklin Delano Roosevelt took the oath office on March 4, 1933, he faced a spreading national catastrophe that was grinding into its fourth year. America was suffering through what would be the longest and most severe economic depression ever experienced in the industrialized Western world, lasting until 1939 by most accounts.

The Great Depression originated in the U.S. in the summer of 1929 and spread across other countries where the timing and severity varied substantially. The stock-selling panic in October 1929 further affected confidence and was a significant factor in the decline in aggregate demand, production and employment in the United States.

President Franklin Roosevelt

President Franklin Roosevelt

That blow was followed by four waves of bank panics: one in the fall of 1930, two in 1931, and one in the fall of 1932, the last still underway during FDR’s inauguration. By 1933, one-fifth of the banks in existence at the start of 1930 had failed. And, back then, when a bank failed, depositors lost their money.

Of course, the boom-and-bust cycle of American capitalism was not new. The country had experienced periodic panics – or busts – through much of the Nineteenth Century and early Twentieth Century. The 1920s, while not an exceptional boom period, had been a “lively phase” of American capitalism – a continuation of the Gilded Age that began in the late Nineteenth Century.

The economic expansion that followed World War I had been marked by exuberant prosperity in which the business classes elbowed aside timid efforts at government regulation. It was laissez-faire capitalism “with a vengeance” and with much praise for “rugged individualism.”

The 1920s, known as the Roaring Twenties, was a time when the well-to-do famously let loose but mass production also extended modern wonders, like automobiles, to many middle-income Americans.

In 1923, President Calvin Coolidge announced that: “The business of America is business.” And, on the surface, the nation appeared to be doing well. Industrial production in 1929 was nearly twice what it had been in 1913. With easy money, construction and the stock market boomed. The optimistic belief was that technological progress would guarantee rapidly rising living standards.

But there were warning signs. An average of 600 banks failed each year. Income polarization increased significantly. In 1929, the richest one percent owned 40 percent of the nation’s wealth. The middle class was 15 to 20 percent of the population. But, more than half of the country’s population was living below a minimum subsistence level.

The Great Crash

Eight years of prosperity ended brutally and abruptly with the ’29 Wall Street Crash. Though Republican President, Herbert Hoover came into office in 1929 widely admired, he refused to abandon the old-time religion of unbridled market capitalism.

In the crucial early years of the Depression, those walking the corridors of power formed a chorus of “liquidationists,” men who resisted pursuing expansionary monetary and fiscal policies in favor of “natural” market forces. They displayed a rigid commitment to destructive policies and a marked disengagement from human suffering. In 1930, Treasury Secretary Andrew Mellon announced that the Federal Reserve would stand by as the market worked itself out: “Liquidate labor, liquidate stocks, liquidate real estate.”

By the summer of 1932, the country was in a state of near rebellion. The “Bonus Army” of angry World War I veterans was camped out in Washington. By the time FDR took the presidential reins in March 1933, the specters of violence and even revolution were in the air. Machine guns guarded government buildings.

“There is no doubt in my mind that during the spring of 1933, the Army felt that the time was approaching when it might have to ‘take over,’” wrote Rex Tugwell, one of FDR’s “brain-trusters.”

For many, democracy itself seemed exhausted. Some believed that humanitarianism, liberalism and democratic forces were played out; that the choice lay between two bleak extremes, communism and fascism.

Adolf Hitler had become chancellor of Germany just over one month earlier; Benito Mussolini, as Italy’s prime ministerial dictator since 1922, was fairly popular in the United States. A Pennsylvanian Republican Sen. David Reed: “If this country every needed a Mussolini, it needs one now.”

When FDR took the oath of office as the 32nd U.S. president, over 10,000 banks had already collapsed and every bank in the country was in the process of closing its doors amid a terrifying fourth bank panic.

Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real Gross Domestic Product (GDP), a measure of the nation’s total economic activity, fell 30 percent. The wholesale price index declined 33 percent (deflation). The production per worker went down to a level 40 percent below that attained in 1929. Unemployment exceeded 20 percent.

A thousand homeowners a day lost their homes. Almost two million men and women abandoned all pretense of a settled existence and simply took to the road, traveling in freight cars or on foot, sleeping in caves or shantytowns.

The federal government in 1933 was highly underdeveloped. In fiscal year 1930, federal spending amounted to only 3.5 percent of gross national product. Only 5 percent of Americans paid income tax. Before 1935, government officials even lacked solid figures about the exact levels of unemployment. For the average American, the federal government was a remote presence, basically just the post office. And the business community wanted to keep it that way.

The issue in 1933 was not whether the government could respond to the economic crisis; the issue was whether officials could build the institutions needed to handle a challenge as severe as the Depression. But Franklin Delano Roosevelt was faced with stark choices: recovery or revolution. He chose recovery through the New Deal.

The First Hundred Days

Upon taking office, Roosevelt pioneered the concept of legislative activism in his first 100 days, a measuring stick that has been applied to every president since.

On his first day in office, March 4, 1933, he called Congress into a special session that began on March 8 and did not adjourn until 99 days later on June 16, a frenzied period described by Arthur Schlesinger Jr. as a “presidential barrage of ideas and programs unlike anything known to American history.”

The editorial of The Nation on March 22, 1933, noted: “Like a hurricane FDR’s New Deal is blowing away Washington’s old line powerbrokers on the strength of FDR’s personality and his ability to use the radio to get his message across to the American people.”

The executive and legislative branches had never cooperated with such a profound impact, subordinating private interests for the good of the nation. FDR “brain truster” Raymond Moley said many legislators “had forgotten to be Republicans or Democrats” as they worked together to relieve the crisis.

The speed was such that humorist Will Rogers quipped: “Congress doesn’t pass legislation anymore — they just wave at the bills as they go by.”

Highlights in FDR’s 100-day Legislative Campaign include: Four-day bank “holiday” (March 6-13). “Emergency Banking Act” passed (March 9). “Economy Act” passed, “Volstead Act” amended making beer sales legal (March 13). Civilian Conservation Corps (CCC) passed (March 31). FDR takes U.S. dollar off the gold standard (April 19). “Emergency Relief Act” for administering state relief and “Agricultural Adjustment Act” passed (May 12). Tennessee Valley Authority established (May 18). “Federal Securities Act” passed establishing the Securities and Exchange Commission (May 27). National Employment Service created (June 6). “Home Owners Refinancing Act” (June 13). “The National Industrial Recovery Act” establishing the Public Works Administration (PWA), the National Recovery Administration (NRA), the “Farm Credit Act,” the Federal Deposit Insurance Corp. protecting the savings of bank customers, and the “Railroad Coordination Act.” (June 16). “Banking Act of 1933” (also known as “Glass-Steagall” to discourage Wall Street speculation by banks) passed (June 16).

When Congress adjourned after 99 days, 16 major laws had been passed. The nation was still staggering, but hope and optimism had been restored. FDR had transformed the American government into an institution that was finally fulfilling the Constitution’s mandate to “provide for the … general Welfare.”

Roosevelt was determined to provide immediate relief to those who needed it most and to provide long-lasting reform to the nation’s economy so the boom-and-bust cycles wouldn’t devastate the livelihoods of so many Americans in the future.

In doing so, Roosevelt built on a foundation that had been laid, in part, by progressive Republicans in the early decades of the Twentieth Century. FDR also was aided by his team of advisers, known as his “brain trust,” who were specialists in the fields of finance, agriculture, energy, housing and industrial policies.

Roosevelt’s New Deal was a direct repudiation of “free-market” theories that hold that the “magic of the market” should be allowed to work its wonders without the influence of government policies.

At the Democratic nominating convention on July 2, 1932, Roosevelt had declared that “Our Republican leaders tell us economic laws — sacred, inviolable, unchangeable — cause panics, which no one could prevent. But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.”

A Second Phase

Historians often divide the New Deal in two phases: a “First New Deal” of the first Hundred Days and the following year (1933-34), and a “Second New Deal” (1935-38).

FDR’s first concerns were the banking crisis and putting people to work, so the first New Deal sought to provide emergency recovery and relief through banking regulations, price stabilization efforts, farm relief programs and numerous emergency organizations.

The Second New Deal continued relief and recovery measures but represented a policy shift toward welfare legislation, what conservatives charged was “more radical, more pro-labor and antibusiness” than the first.

The second phase included the National Labor Relations Act (Wagner Act, 1935), which revived and strengthened the protections of collective bargaining, and the Works Progress Administration (1935), which nationalized unemployment relief and created hundreds of thousands of low skilled blue-collar jobs for the unemployed between 1935 and 1941.

The Social Security Act was the most important program of 1935 and perhaps of the entire New Deal. It established a system of universal retirement pensions, unemployment insurance, and welfare benefits for poor families and the handicapped.

The Revenue Acts of 1935, 1936 and 1937 provided measures to democratize the federal tax structure. The 1938 Fair Labor Standards Act (the 44-hour workweek) was the final major New Deal measure.

People who criticize the New Deal for simply creating “make work” jobs miss a crucial element of FDR’s strategy. The Depression was a catastrophic event that left the country with no jobs for well over 20 percent (and probably closer to 33 percent) of the work force as well as the loss of housing and food for those unemployed and their millions of dependents.

The public works achievements of the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) also are too often under-appreciated. The WPA, the largest jobs program in history, represented the biggest New Deal agency and served as a linchpin of FDR’s New Deal. Between 1935 and 1943, it employed 8.5 million people and put $11 billion into the nation’s economy.

To this day, almost every community in America has a park, bridge or school constructed by the WPA. As of 1940, the WPA had erected 4,383 new school buildings and made repairs and additions to over 30,000 others. More than 130 hospitals were built and improvements made to another 1,670. Nearly 9,000 miles of new storm drains and sanitary sewer lines were laid. Conservation work included the planting of 24 million trees. Over 2,500 sports stadiums were built or refurbished to serve 6 million people.

The nation’s transportations needs accounted for much of the WPA’s work: By the summer of 1938, 280,000 miles of roads and streets had been paved or repaired and 29,000 bridges had been constructed. Over 150 new airfields and 280 miles of runway were built. Unemployed artists, sculptors, actors and musicians were also provided work.

The CCC protected America’s natural wonders and made them more accessible to average people. It also provided unskilled manual labor jobs for 3 million men aged 18-25 from families on relief between 1933-1942. Nearly 3 billion trees were planted to help reforest America, more than 800 parks were built nationwide, methods for fighting forest fires were developed, and thousands of miles of public roadways were laid.

FDR’s Stumbles

Some New Deal measures ran into trouble with conservative Republicans on the U.S. Supreme Court. In 1935, for instance, portions of the National Recovery Act were declared unconstitutional, though the WPA was allowed to stand.

In 1937, FDR, frustrated by a conservative-dominated Court, tried to increase the number of justices from nine to fifteen. Legislation was introduced to expand the federal courts, ostensibly as a straightforward organizational reform, but actually to “pack” the courts with justices sympathetic to Roosevelt’s proposals. FDR was unsuccessful, but the Court gave in with key justices changing direction in support of the New Deal.

The justices would eventually come to accept that the federal government had the constitutional authority under the Commerce Clause and other provisions to regulate the national economy.

The speed of New Deal reform slackened after 1937, amid growing Republican opposition to New Deal public spending, taxes and centralization of power in the Executive Branch of the federal government. Within the Democratic Party, there was strong disapproval from the “old guard” and from disgruntled members of the brain trust.

The New Deal, which had begun in a burst of chaotic energy during the first terrifying years of the Depression, petered out in 1938 and 1939 and there was significant backsliding on the economic recovery.

The modern argument disparaging the New Deal’s success relates more to the political decisions in 1937 to ease off the government stimulus because it was believed the recovery was doing so well by late 1936 that some economists feared that inflation would result.

Premature spending cuts threw the country back into recession, prompting FDR to reverse course. “Taking the wrong turn in 1937 effectively added two years to the Depression,” concluded economist Christina Romer.

The uptick in government spending was again followed by a restoration of growth. After the 1937-38 dip, the GDP grew rapidly. (Even in the downturn, the annual GDP did not fall back below its 1929 peak.) The recession ended in June 1938. The GDP soared by 10.9 percent in 1939 and industrial production skyrocketed 23 percent.

New Deal critics also ignore the long-term value of government-sponsored work during that era, the infrastructure that brought modernity to much of rural America and improved transportation to urban America. Some of those New Deal projects include New York’s Lincoln Tunnel and the Triborough Bridge complex and the Tennessee Valley Authority which brought electricity to much of the South.

As the prospect of war in Europe increased, the emphasis of government shifted to foreign affairs. But most of the New Deal reforms were long-lasting. At the end of World War II – after a flood of government spending on the war extinguished the final embers of the Great Depression – most of the New Deal legislation was still intact and remained the foundation for American economic and social progress for decades.

Lost Memories

However, as memories of the Great Depression faded, conservatives and right-wing business leaders worked at erasing the New Deal’s lessons and eroding the foundation for the Great American Middle Class that Roosevelt had built.

Replacing FDR’s determination to give meaning to the Constitution’s “general Welfare” mandate, the Right sold millions of Americans on an anti-government ideology that again called for trusting the “magic of the market.” As President Ronald Reagan famously declared in his Inaugural Address on Jan. 20, 1981, “government is not the solution to our problem; government is the problem.”

The Right’s success led to elimination of key regulatory reforms, a cutback in government social programs, and an emphasis on slashing taxes mostly for the wealthy with the idea that investment of that capital would lead to prosperity for all.

The result instead was a return to the massive income inequality of the Twenties, a hollowing out of the middle class, and widespread stock speculation which encouraged new boom-and-bust cycles, including the Wall Street collapse of 2008 which threw millions of Americans out of work and provoked what is called the Great Recession.

Still, the Right’s anti-New Deal myths continue to hold currency with many Americans who repeat the mantra that the New Deal did nothing to end the Great Depression, that it was only World War II that did.

However, the statistics tell a different story. The Gross Domestic Product (GDP), which represents the overall economy, declined by nearly one-third from 1929 until 1933. When the New Deal was initiated in 1933, recovery began immediately. By 1936, after-tax personal income, consumer spending, real private investment and jobs all reached or surpassed their 1929 peaks. Real GDP surpassed its 1929 peak in 1936 and never again fell below it. The real GDP rose at an average rate of 9 percent per year between 1933 and 1937.

Yet, despite its groundbreaking successes, the New Deal erred, in many ways, on the side of caution. It brought real relief to most Americans and stabilized a collapsed economy, but it was the massive public spending in World War II which demonstrated the need for even more fiscal stimulus in the face of an economic catastrophe on the scale of the Great Depression.

The New Deal was not socialism. It was capitalism with safety nets and subsidies. Indeed, FDR and the New Deal deserve substantial credit for saving capitalism and arguably Western civilization. The New Deal also laid the cornerstones of America’s post-World War II economic stability.

By building on the foundation that FDR laid, Presidents Harry Truman, Dwight Eisenhower, John Kennedy and Lyndon Johnson oversaw an economy that shared the nation’s wealth.

Roosevelt’s legacy included the Great American Middle Class and a modern government that could sustain a modern nation, lessons that have been obscured and washed away in recent decades at a huge cost to the American people.

Beverly Bandler’s public affairs career spans some 40 years. Her credentials include serving as president of the state-level League of Women Voters of the Virgin Islands and extensive public education efforts in the Washington, D.C. area for 16 years. She writes from Mexico. As full disclosure, she notes that she considers herself a member of the “Democratic wing” of the Democratic Party, but a U.S. citizen first.

Sources and Suggested Reading

Badger, Anthony J.  FDR: The First Hundred Days. Hill and Wang; First Edition (May 27, 2008).

Baker, Kevin.  “FDR: A Democracy-Builder, Eager to Try.” The New York Times, 4-13-95. http://www.nytimes.com/1995/04/13/opinion/13iht-edbaker_0.html

Berlin, Isaiah.  “Franklin Delano Roosevelt.”

http://www.southerncrossreview.org/51/berlin.htm

Brown, E. Cary. “Fiscal Policy in the Thirties: A Reappraisal.” American Economic Review, 1956.

Brinkley, Alan.  “No Deal.” Learning from FDR’s mistakes. The New Republic, 12-31-08. http://www.tnr.com/article/no-deal

Cohen, Adam.  Nothing to Fear: FDR’s Inner Circle and the Hundred Days That Created Modern America. Penguin Press HC, The (January 8, 2009).

Conkin, Paul K.  The New Deal. 2nd Ed. 1975, The AHM American History Series.

Davidson, Lawrence.  “Forgetting the Why of the New Deal.” ConsortiumNews, 2012-08-20. http://consortiumnews.com/2012/08/20/forgetting-the-why-of-the-new-deal/

DeLong, J. BradfordSlouching Towards Utopia: The Economic History of the Twentieth Century. March 1997. http://econ161.berkeley.edu/tceh/slouch_old.html

Galbraith, James. K.  “Unemployment During The New Deal Era.” Talking Points Memo, 2009-01-21. http://tinyurl.com/ck2vym

Galbraith, John Kenneth. The Great Crash 1929. Mariner Books; Reprint edition (September 10, 2009).

Katznelson, Ira.  Fear Itself: The New Deal and the Origins of Our Time. Liveright; 1 edition (February 22, 2013).

Keynes. Brad DeLong. University of California, Berkeley. http://econ161.berkeley.edu/Economists/keynes.html

Krugman, Paul.  “New Deal economics.” The New York Times, 2008-11-08.

http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics/

_______   Introduction to The General Theory of Employment, Interest, and Money, by John Maynard Keynes. 2006-03-07. http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

Lasser, William. “Just How Critical Are the First 100 Days? “

http://college.cengage.com/polisci/resources/first_100_days/articles/critical.html

McElvaine, Robert S. The Great Depression: America 1929-1941. Times Books (December 6, 1993).

McMillion, Charles W.  The “FDR Failed” Myth.” Campaign for America’s Future, 2009-02-03. http://tinyurl.com/243n2ar

The Nation, 2010-08-31. http://www.thenation.com/learning-pack/fdrs-first-hundreddays

National Park Service. “The Creation of the CCC.”

http://www.nps.gov/history/history/online_books/ccc/salmond/chap1.htm

Phillips-Fein, Kim.  Invisible Hands: The Businessmen’s Crusade Against the New Deal. W. W. Norton & Company; Reprint edition (January 11, 2010).

Rauchway, Eric.  The Great Depression and the New Deal: A Very Short Introduction. Oxford University Press, USA (March 10, 2008).

Romer, Christina D.  “What Ended the Great Depression?” Journal of Economic History, 2003-12-20. http://elsa.berkeley.edu/~cromer/great_depression.pdf

_______ “Lessons from the Great Depression for Economic Recovery in 2009.” Council of Economic Advisers. Brookings Institution, 2009-03-09.http://www.brookings.edu/~/media/files/events/2009/0309_lessons/0309_les

Sann, Paul.  The Lawless Decade: A Pictorial History of a Great American Transition: From the World War I Armistice and Prohibition to Repeal and the New Deal. 1st ed. (1957); Dover Publications (October 18, 2010)

sons_romer.pdf

Schlesinger, Jr., Arthur M.  The Age of Roosevelt: The Coming of the New Deal, 1933-1935. The second of three volumes of The Age of Roosevelt series. First ed. 1958. Mariner Books; 1 edition (July 9, 2003).

Sugrue, Thomas J.  “The Hundred Days War: Histories of the New Deal.” The Nation, FDR’s first hundred days were unprecedented in their ambition and scope–and anything but politically coherent. The Nation, 2009-04-08. http://www.thenation.com/article/hundred-days-war-histories-new-deal

Taylor, Nick.  American-Made. The enduring Legacy of the WPA: When FDR Put the Nation to Work. Bantam; Reprint edition (February 24, 2009).

 

 

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2 comments on “FDR’s Legacy of Can-Do Government

  1. William on said:

    This is a convincing article that effectively debunks claims that WWII was the real, or main, reason the Great Depression ended. She cites statistics showing that GDP rose markedly from 1933, prior to the war, and never again fell to the Depression lows. However, she says nothing about the contribution of war-preparation production by the allies and axis powers to economic recovery. I’m a bit unsure about the unemployment figures because reliable sources say an accurate comparison using these numbers isn’t possible because the government didn’t maintain unemployment figures at that time, so no one knows what the actual unemployment rate was then. Also, she mentions FDR’s April 1933 abandonment of the gold standard, but says nothing about how that loosened the money supply and stimulated recovery. Hoover had refused to go off the gold standard, thus constricting the Federal Reserve’s ability to increase the money supply, causing severe deflation and prolonging the downturn. Overall, this is an excellent, brief overview of the Great Depression and the New Deal.

  2. Beverly Bandler on said:

    I appreciate your comments.
    Depression Era Unemployment Statistics are provided in U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1957. Washington, D.C. (1960). p.70.
    I’ll be glad to send you (or other interested readers) my pdf, “FDR & the New Deal,” 20 pgs., from which the Consortium News segment was taken. My pdf has a lengthier bibliography (there are probably tens of thousands of articles/books on the New Deal at this point). The purpose of the pdf was to provide a clear summary of the complex New Deal story in 20 pages for the general reader. bgbandler@yahoo.com

    One of major contributions of the Roosevelt administration was to initiate the compiling of meaningful statistics.
    Other employment/unemployment references: – Carter, Susan B. , “Labor force, employment, and unemployment: 1890–1990.” Table Ba470-477 in Historical Statistics of the United States, Earliest Times to the Present: Millennial Edition, edited by Susan B. Carter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright. New York: Cambridge University Press, 2006.
    - Darby, Michael R. “Three-And-A-Half Million U.S. Employees Have Been Mislaid: Or, An Explanation of Unemployment, 1934-1941.” National Bureau of Economic Research. Journal of Political Economy (February 1976). http://www.nber.org/papers/w0088.pdf

    Re money supply, I was unable to extend my research into that complex area, but you raise a good question.