How We Got Here (19)

June 6, 2014

The New Deal

Nobody really knows how many people were out of work by the election of 1932. What anyone could see, though, is that something was frighteningly wrong, and unless something was done, anything could happen. A few years later, Franklin Roosevelt was to say privately that the two most dangerous men in the country were Douglas MacArthur and Huey Long – one on the right, one on the left. Democracy had survived three years of depression. If the 1932 election did not improve matters, could the country survive – could the existing political system survive — until the next election in 1936?

Roosevelt was nationally known because, elected governor of New York state in 1928 and re-elected in 1930, he responded to the depression’s effects on his state with vigorous action that contrasted painfully with what was perceived to be the inaction of President Hoover on the federal level. Roosevelt campaigned pledging “a new deal for the American people,” and upon his election, a very interesting thing happened. I say “interesting,” but to the people at the time it was, at first, terrifying, and then became hopeful, and then, for a while, exhilarating.

1 Banks had been failing throughout the previous three years, but upon his election, they began to fail at a faster rate than ever, and the rate accelerated. During the winter of  1932-1933, 4,000 banks had been forced out of business. By the time he took office, people had lost all confidence. No one knew which banks were still solvent, if any. Sound and unsound banks alike were destroyed by panicky “runs” – depositors insisting on the immediate withdrawal of their money, which overwhelmed the bank’s financial reserves. (See “It’s a Wonderful Life” for an example of a run on the bank. George Bailey was lucky enough to have two dollars more than the investors demanded. Many other banks were not so fortunate.) There was a very real fear that the entire system would collapse.

2 In response, Roosevelt did three things. (a) He exuded calm confidence, and promised immediate action. “This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” He said he hoped that a combination of legislation and executive action could overcome the problems facing the nation. But, if he did not receive cooperation or timely action from Congress, “I shall ask the Congress for the one remaining instrument to meet the crisis—broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.”

(Roosevelt’s speech, which you can read or listen to: http://historymatters.gmu.edu/d/5057/)

(b) He restored confidence in the banking system. Many states had decreed bank holidays, shutting the banks temporarily by law before they could be permanently shut by panic. On March 5, Roosevelt called Congress into immediate special session (rather than waiting for the new Congress to convene in December, as had always been the custom) to pass emergency banking legislation. On the 6th, he issued a proclamation temporarily closing every bank in the nation. On the 9th, he sent the Emergency Banking Act to Congress, which gave the government authority to examine bank finances. It was approved within hours.

(c) He took to the radio to communicate to the people directly, hoping to instill confidence in the new banking reforms. The day before the approved banks were due to reopen, he made his first fireside chat, using a relaxed speaking style that made people feel as if he  were sitting in their homes speaking directly to them. An estimated sixty million Americans listened to the speech, and the next day, people started to put their money back into the banks. The immediate banking crisis was over. More important, ultimately, Roosevelt had found a way to bypass the largely hostile newspapers. His personal popularity among the people would give him powerful leverage with Congress. He wasn’t slow to realize it, or to put it to use.

3 The way Congress immediately passed the banking act showed Roosevelt that four months of cumulating panic between November 1932 and March 1933 had thoroughly scared the country and the Congress, and thus had given him a window of opportunity. Congress wouldn’t stay scared forever, so he struck while the iron was hot, resolved to introduce major initiatives while he had the chance. What followed has been called The Hundred Days. In the three months of that special session, the following acts were passed.

March 9 Emergency Banking Act

March 20 Government Economy Act

March 22 Beer-Wine Revenue Act

March 31 Creation of Civilian Conservation Corps

April 19 Abandonment of the Gold Standard

May 12 Federal Emergency Relief Act

May 12 Agricultural Adjustment Act

May 12 Emergency Farm Mortgage Act

May 18 Tennessee Valley Authority Act

May 27 Securities Act

June 5 Abrogation of Gold Payment Clause

June 13 Home Owners Loan Act

June 16 Glass-Steagall Banking Act

June 16 National Industrial Recovery Act

June 16 Emergency Railroad Transportation Act

June 16 Farm Credit Act

It was a revolution. The country could never return to what it had been on March 3, 1933. At the moment, few would have wanted to.

Summing up the New Deal: http://www.fdrlibrary.marist.edu/museum/pdfs/actionguide.pdf

 

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