The New Deal Programs
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The New Deal is the name of the economic policies pursued by the administration of U.S. President Franklin Roosevelt in 1933 to overcome the major economic crisis, the Great Depression, which swept through the United States in the years of 1929-1933.
On March 4, 1933, Franklin D. Roosevelt in his speech promised to apply the strongest measures to combat the crisis. Following his speech, extraordinary measures were taken during a special session of Congress, which started on the 9th of March and lasted for more than 3 months. During this period, a number of important laws were adopted, which seriously affected the economy of the United States and laid the foundation for the New Deal. This period is called ‘the first 100 days’. The most important task was to rescue and stabilize the U.S. financial system. The basis of the New Deal was to strengthen state regulation of the economy and allow for deficit financing of the budget, which were both important institutional changes.
One of the first steps was the announcement of a ‘bank holiday’ for a week, during which all U.S. banks were closed. Then, in order to clean up the banking system, a total audit of all banks was carried out. Bankrupt banks have come under control of the state Reconstruction Finance Corporation (RFC). Stable banks gained the right to continue working. The result was a consolidation of the banking system, and most banks that were deemed to be healthy were large. In order to improve the situation, a number of important laws were taken. One of the most important was the Glass-Steagal Act creating the Federal Deposit Insurance Corporation.
Commercial banks were not allowed to work with securities but received the right to specialize financial institutions thus reducing risks that were possible for bank depositors’ funds. In order to cut borrowing at higher rates, which is typical for high-risk operations, a ban on the payment of interest on current accounts and interest on deposit accounts were regulated by the Federal Reserve System (FRS).
Exchange credit was regulated by the Federal Deposit Insurance Corporation (FDIC). Thus, banks deducted contributions to the insurance fund, and they scanned bank deposits in case of bankruptcy and paid insurance within the statutory limit on contributions of the bank. The economic situation in the country dictated the need for reform to begin with credit solutions to financial problems. On the initiative of Franklin D. Roosevelt, the Congress proposed an emergency law on banks. The export of gold was prohibited. Special decree ordered the compulsory surrender of U.S. citizens’ gold reserves, which were worth more than $ 100. At the same time, the release of new banknotes not backed by gold was permitted. Following this, the government imposed an embargo on gold circulating between the United States and abroad.
The second most important banking law was the law on banking, adopted on June 16, 1933, by which deposit and investment functions of banks were separated. By the beginning of 1934, about 80% of all U.S. banks had insured their deposits, given the desire of the majority of investors to have similar protection. The law established that the deposits of up to $10,000 were insured by 100%, from $10,000-$50,000 by 75%, and over $50,000 – by 50%. Public confidence in the banking system was quickly restored. In January 1934, the dollar was devalued, which reduced its golden content by 41%. The minting of silver coins introduced bimetallism in the country. The devaluation of the dollar, withdrawal of monetary gold out of private hands and facilitating access to credit contributed to higher prices and inflation, thus, created a mechanism for the U.S. economy by giving money to the state for reformation processes in other sectors.
Positive effect on the stabilization of the financial and credit systems of the U.S. was produced with the abolition of the ‘dry law’. With the lifting of prohibition of alcoholic beverages, a tax on their sales was introduced. A special place in the reform of the New Deal established Civilian Conservation Corps resources.
At the suggestion of Franklin D. Roosevelt, Congress passed the direction of the unemployed urban youth to work in the forest areas. According to the president, this made it possible to improve the natural resources of the country and strengthen the health of young people. In the early summer of 1933, camps were arranged for 250 thousand young people from assisted families aged 18 to 25 years, and unemployed veterans. They were engaged in construction jobs, building roads, telephone poles, firebreaks, irrigation canals, national parks. The total number of people employed in this system was more than 7 million. During the first hundred days after taking office, the president presented to Congress a great deal of bills for approval. The first actions of the administration were to temporarily close the banks allowing them to organize their activities, restore confidence in the banking system, and the organization of public works for the unemployed.
In order to stabilize the monetary system, the export of gold abroad was banned; the banking system escalated, resulting in the receiving of significant loans and grants by the largest banks. Industrial recovery was entrusted to a specially created institution, the National Recovery Administration industry. On July 16, 1933, according to the law on the restoration of the national economy, the whole industry was divided into 17 groups, whose activities regulated codes of fair competition. They defined quotas of production, distribution of markets, prices, loan terms, working hours, wage controls, and more. The end to alcohol prohibition ushered in a temporary legalization of the manufacture and sale of alcoholic beverages in March 1933 by special act, following which the Twenty-first Amendment to the U.S. Constitution was adopted, which abolished the previously adopted the Eighteenth Amendment. As a result, the budget received income from a new branch of legitimate business, and the president gained additional support of the voters.
Measures aimed at the normalization of production were reflected in the National Industry Recovery Act (NIRA), adopted on 16 June 1933. The basis of this law was to take the plan proposed in 1931 by the president of the General Electric Company Gerard Swope, and approve by the U.S. Chamber of Commerce. The law required all business associations to develop codes of fair competition, which defined the conditions, the volume of production, and the minimum level of prices. Thus, with companies that adopted such codes were filmed antitrust sanctions. Such an alignment was advantageous for big monopolies that actually determined the conditions of production and marketing in their industry. It was made up by 557 major and 189 additional codes that have engulfed more than 95% of the workers. Adoption of codes promoted compulsory cartelization of the industry.
Article 7 of the NIRA contained social measures that introduced restrictions on the length of the working week and prescribed a mandatory minimum wage. It also presented the right to organize trade unions and bargain collectively.
The process of the implementation monitoring of the program was imposed by the NIRA and created the National Recovery Administration.
To combat unemployment and to improve the financial situation of the population the following measures included direct aid to the unemployed, the introduction of unemployment insurance and public works. The program used control of economics as the primary means to overcome unemployment, the government used direct assistance to the unemployed in the form of cash grants and organizations that funded public works, introduced unemployment insurance and pensions.
On May 12, 1933 the Roosevelt administration approved law on the allocation of $ 500 million to help the unemployed. The head of the Federal Emergency Relief Administration (FERA) Mr. Hopkins was appointed for the major role in the implementation of social programs of the New Deal. In general, the government spent of more than $ 4 billion on programs that fight unemployment.
However, the unemployed have preferred public works to receiving cash. The first object of such assistance the government had chosen young people, considering that in this layer of the population there were the most explosive forces.
Most of the unemployed preferred public works over receiving the benefits. Based on the recommendations of the NIRA, Public Works Administration (PWA) was established, dealing mainly with large construction projects, building bridges, roads, schools and other public buildings, thus proving that money does not go down the drain. Total volume of work performed by its projects was approximately $ 3.3 to 6 billion.
In spring of 1933, the government organized camps for the unemployed youth where young people worked and lived for six months with complete security. Their wage was about $30, of which $25 were sent home by each worker.
In 1935, a law was passed providing for old-age insurance and unemployment insurance. Despite the low level of payments and non-proliferation law for large segments of workers, the law had revolutionary implications. Common features of both types of insurance included reducing the number of large groups of workers such as agricultural workers, domestic workers, civil servants, government employees. There was a low level of insurance payments, as well as a number of reservations of the right to receive benefits. However, there were also important differences. Pension benefits was a fully federalized program.
Funds were created by a tax on employers as well as for workers and mployees in the amount of 1% of the amount of wages since 1937, bringing to 3% by early 1949. This tax was applied to a part of the salary of each worker (to first 3 thousand dollars a year) and, accordingly, the same proportion of the total payroll charged to the employer’s workforce. Total sum of these funds created an autonomous pension fund. The law established a pension limit that limited the amount of compensation to no more than 85 dollars a month. The recipients of these benefits were set to be insured only to those citizens who have reached the age of 65, but starting not earlier than January 1, 1942.
Unemployment Insurance was based on the federal full-time basis. The law provided for general taxation, which was extended to entrepreneurs employing eight or more workers. The tax was set at 1% in 1936, rising to 3% from January 1938 to pay it only by entrepreneurs starting from the first 3 thousand dollars annual salary of each worker. These funds were received in a special fund, which was stored in the Ministry of Finance.
The range of recipients, the amount and timing of payments were determined by state law. By 30 June 1937, all states have adopted the relevant statutes, and the following year unemployment insurance laws were enacted everywhere. The average benefit was paid during 9.4 weeks $ 11 per week, which constituted 36.6% of wages. During the crisis of 1937-1938, amendments to the law were adopted. They moved the start date of retirement benefits to January 1, 1940 and extended the right of dependents to receive them in the case of a pensioner’s death. In 1940, the Social Security Administration issued checks to the first 13 thousand pensioners. The average size of grants amounted valued $ 22.1 per month.
Adoption of the NIRA facilitated unionization, but at the same time strengthened the unions and creation of convivial. During the NIRA existence unions came to 2,600 in number. The workers demanded stringent measures to protect their right to organize collective bargaining, identification of the trade unions and convivial unions. Trade unions also sought to be legitimized the majority rule according to which an organization was recognized by the majority of the workers of the contract unit. It also would have the right to speak on behalf of all who work within the organization.
Federal Security Act disclosed assets and liabilities if selling stock, provided Securities and Exchange Commission (S.E.C.), established Police Wall St to prevent “insider trading” and fraud.
The Revenue Act that was adopted in 1938 set higher taxes on higher incomes, gifts, and inheritance. It introduced the first corporate income tax that covered all incomes over $1 million so that they were taxed at 90%, and after W.W. II all incomes over $500,000 were taxed at 88%.
A major step of the second phase of reforms was the adoption of the National Labor Relations Act on July 5, 1935, the Wagner’s law. The law guaranteed the right of workers to organize collective bargaining and strikes. The next step in the development of social rights was the adoption of the law on fair labor conditions (FLC) in June 1938, which provided the mandatory minimum wage of 25 cents an hour, introduction of the tariff in excess of one and a half of the length of the working week consisting of 44 hours and introduced limits to the usage of child labor. Fair Labor Standards Act did not prescribe the maximum length of the working week. It introduced a three-quarter hours of pay, which were outside the first 44 hours, then - 42, and from October 1940, 40 hours per week. It limited the use of child labor. As stated in the official explanation of the law in 1938 the Fair Labor Standards under its provisions did not fall farm workers, seamen, transport workers, some printers and employees of the retail trade, the canning industry, fishermen and other categories of workers. The report, submitted in December 1938, by the first administrator of F.L.S.A. noted that the provisions of the statute applied to the 11 million employees only.
Wagner Act created N.L.R.B. to supervise union elections and collective bargaining, outlawed employer retaliation
For the first time in the history of the U.S. trade union rights were officially proclaimed and defended by the state agency with real power. The core idea of this statute was that the leaders of the New Deal narrowed the basis for class conflict, recognizing the principle of state-regulated collective bargaining for the best model of labor relations and stressed the undesirability of strikes. Wagner Act stated that the law did not ban the right to strike. It listed five types of unfair labor practices of entrepreneurs. They were forbidden to interfere in the work of the rights enumerated in Article 7, in any way, including funding, participating in the establishment of workers’ organizations and dominate them. They were prohibited to imply discriminatory measures against union members. There was used the sanctioned practice of closed shop when the employer were obliged to hire only union members. Every dismissed or harassed worker could fill a complaint or testify in accordance with this Statute to abandon collective negotiations with the duly elected representatives of the workers.
To investigate complaints of trade unions and workers on the question of unfair labor practice of entrepreneurs and suppress there was established the National Labor Relations Board (N.L.R.B.). This Board received the power to issue enforceable orders that were possible to avoid only by achieving a negative Circuit Court of Appeals for the N.L.R.B. solutions, confirmed by the Supreme Court of the United States. N.L.R.B. was, therefore, a quasi-judicial body, disobeying which could have caused the punishment. The second major function of the N.L.R.B. was holding of elections for the representatives of the workers of collective bargaining. It officially certified the representative chosen by the majority that was the trade union, as the sole representative of all the workers. Such politics brought into practice a principle, which fought for the unions of labor relations majority.
The adoption of Wagner Act was a result of recovery of the labor movement in the mid 30s. It significantly changed the legal aspect of labor relations in the direction of democratization. Radical extension of appropriations for public works and the introduction of social security testified that in 1935 in the social policy of the New Deal there was a marked shift to the better.
Article 7a of the NIRA proclaimed the right of workers to form trade unions and obliged employers to respect the maximum working hours, minimum pay and other conditions of employment, approved and prescribed by the president. All this was recorded in the Fair Labor Standards Act. Prior to making working conditions regulated by the typical executive agreement for the restoration of employment, published on July 27, 1933, it was envisaged that the working week should not exceed 35 hours. There were also exceptions that offered to pay 40 cents per hour, provided that the wages of the worker on July 15, 1929 were not below that level as an hourly wage figured 30 cents. This agreement was signed by entrepreneurs, who employed 16.3 million workers during that time.
To reduce unemployment with its negative effects, the extraordinary measures were taken. A guide to the implementation of these measures was assigned to the Federal Emergency Relief Administration, and was replaced by the Administration of Public Works. The unemployed were sent to special organized labor camps, were they were engaged in the construction and repair of roads, bridges, airports and other administrative objects. A special role was played by the organization of work for young people. Conducting of the New Deal required mobilization of major financial resources, which were a critical success factor to the government of Roosevelt. Initially, public works were organized only for men, who were considered the breadwinners of their families.
In many states, the law prohibited occupation of administrative positions by a husband and wife at the same time. This rule was extended to work positions for the unemployed. Only in 1935, the government launched a program that was intended to make single women self-sufficient. Women were mainly employed in the sewing work for the needs of hospitals and charitable organizations.
In winter 1933-1934 the government had to take over public works that did not require tangible capital expenditures and could be organized anywhere. Their goal was to take some measures to ease unemployment and social tensions. Franklin D. Roosevelt created the Civil Works Administration (C.W.A.), under the guidance of G. Hopkins. During 4.5 months of its existence $ 933 million was spent and in middle of January 1934 more than 4.3 million people worked at its facilities. In 1935, the country had created an organization Works Progress Administration (W.P.A.), which was allocated with $ 4.9 billion. As a result of their actions there were 2.1 million jobs available per year, including construction jobs, vacancies for artists, writers, musicians, teachers and other professions in 1935. N.Y.A. presented first project of part time jobs for teenagers.
Social Security act that was adopted in 1935 covered the question of old age pension from $10 to $85 as a maximum for people aged 65 years and older. The money had to be transferred by a trust fund (F.I.C.A.). It also provided unemployment insurance $15-$18 per week during 26 weeks. Aid to Families with Dependent Children (AFDC) was established that provided financial help to such families. There was partial financing for women with minor children with more than $3.8 million of funds. Disability benefit was determined for people that were terminal or unable to work for 12 or moree months.
Elimination of NIRA in May 1935 stopped the direct regulation of working conditions by the federal government. However, in 1936, the Walsh-Healey law was passed to establish the maximum length of the working week and a minimum wage for workers employed in enterprises that carried out the orders of the federal government. Starting from then, all contracts worth over 10 thousand dollars included positions on the consent of the contractor to adhere to the wage level, determined by the Minister of Labor, and to pay half more for each hour over 40 hours a week, do not hire teenagers younger than 16 and women younger than 18, and not to use prison labor.
During the Great Depression, the government paid considerable attention to the development of housing, particularly mortgage lending. In 1933, the first company issuing bonds to finance mortgages was established and was called Homeowners Loan Corporation. In 1938, the Federal National Mortgage Association (FNMA) was created that took all the housing questions under the state control. The initial capital of the company was formed using the budget sources.
In May 1933, Roosevelt signed the bill on aid to farmers that proposed measures to deal with the crisis in agriculture-related decline in product prices and the massive devastation of the farmers. Its main part was the law of the Agricultural Adjustment Act known as AAA.
Its main idea was to eliminate a sharp difference between the price the farmer consumed for production and the price he received in its implementation. In order to balance supply and demand to raise the price of agricultural products, land was withdrawn from agricultural use, for which farmers were paid subsidies. First of all, this measure increased the competitiveness of large farms that received the bulk of the premiums for the reduction of seed grain.
A number of measures were taken in order to help small farmers. In 1935, the Resettlement Administration was created that converted to the Administration at the beginning of 1937 for the Protection of farms. These institutions gave financial assistance to small farmers for the purchase of farms, and their migration to higher-quality land stimulated the development of cooperatives, which marketed products and aided the purchase of equipment.
In 1936, a law to maintain soil fertility and the quota for the domestic market was passed. Under its provisions, premiums were paid by households, which reduced the area under crops, depleting the soil, as well as for taking measures to improve the soil. The need for these measures was caused by a severe drought in 1934, accompanied by dust storms.
The law on the regulation of Agriculture, which was adopted in 1938, introduced the concept of always normal granary. The purpose of this new start was the same, to restore parity prices, but the methods were already achieving other aims as the products were not destroyed and preserved, payments were made on accounts for the goods that were not sold yet.
At fixed prices, Grain Bureau bought surplus food, payment of farm debt was postponed for an unlimited period of time, and reduction of the mass of commodities had to raise prices to a level that ensured the profitability of medium-sized and even small farms to prevent their destruction. In particular, 40,000 square kilometers of cotton crops were destroyed and 6 million pigs were slaughtered. The measures taken by the administration in agriculture were extremely unpopular. However, food prices remained below the level of 1929. In 1935, the Administration regulation of agriculture was eliminated. Instead, the government initiated a new program, which financed sowing farmland of alfalfa and other plants, enriching the soil and were not intended for sale.
Many villagers, especially in the South of America, lived in poverty in the 1930s. Government programs helped with construction of schools, roads, tree planting and expansion of forest land under federal ownership in this area. In particular, in the state of Tennessee in 1933, Roosevelt administration organized a financing program for the construction of dams to prevent flooding, water sources for electricity production and modernization of the poorest farms. Government pension plans, which covered not only farmers, but also the urban poor, small shopkeepers and traders that were introduced under the name of the New Deal, were supported by liberal and conservative congressmen.
In May 1935, the government created the Rural Electrification Administration (REA) that organized the work of rural electrification. Its main purpose was to bring electric power to all rural areas as it would make all the agriculture processes easier and more productive. The project of providing all rural areas with electricity was useful and popular measure that played a significant role for establishing trust and reliability of people towards the president and the government. As a result of the electrification measures 11% of all rural areas were joined to the electricity system.
African Americans were also forced to deal with the racism in American society along with problems associated with the economic crisis. They experienced discrimination based on race and racial segregation. Many political leaders, including President Roosevelt’s wife, Eleanor Roosevelt, tried to extend the action of government assistance programs for the poor to them. President Roosevelt himself hired so many colored citizens to obtain secondary positions in the administration that they were called ‘the black cabinet’.
He also tried to enlist the support of African Americans, especially in Chicago, and by 1936 they changed their political orientation from the Republican Party towards the Democratic Party. Since then, political alliance between blacks and the Democratic Party started. However, despite the abolition of racial segregation and Jim Crow laws in the southern states, both economic and political support for African-Americans was much more modest than for the white population, and the retirement program did not apply to them at all. In the South, this aspect of racial problem was covered by progressive automatic advancement of the region as a result of economic reforms.
In 1933, the Tennessee River Valley Authority (TVA) was created. They implemented the first realization of national development plans in the region, which was one of the most backward in the American South. The government program included building of hydroelectric power plants to supply the state with nitrogen fertilizers in the basin of the Tennessee River, which then grew into a broader concept of the state economy in order to increase the level of income and employment. In addition, the development of state power raised the level of competition in this important industry, which was previously monopolized. These measures stimulated the solvency of the population by implementing the inflationary mechanism for the U.S. economy.
In the 1930s-1940s, some radical populist proposals gained popularity. However, Roosevelt and most Democrats were not willing to support them. Most of these ideas were initiated by father Coughlin Charles, Louisiana Senator Huey Long, Francis Townsend, a physician and writer Upton Sinclair. Initially, they were thinking positively about the New Deal and supported it in all ways, but later switched to the opposition, believing that Roosevelt was not consistent in protecting the interests of the people.
Thus, a former socialist Sinclair founded a social movement to fight poverty in California. They tried to solve the unemployment problem by organizing cooperative production in abandoned factories.
Huey Long presented a program that was based on the introduction of higher taxes for the rich and restrictions on their income and property. During the spring of 1934, he introduced the Senate resolution on the confiscation of incomes that were over $1 million and inheritances over $5 million. Long also included other requirements, such as the ensuring of every family’s living wage of $2,000-5,000 per year, provision of goods necessary for life, including housing, cars, radios, etc., federal government procurement of agricultural surpluses, limitation of working hours, introduction of pensions for the elderly, extension of benefits to veterans of war and universal college education to every family. Along with all the above mentioned points, Huey Long presented the deployment of road construction, expansion of the network of educational and health institutions over the whole country. All the programs were meant to be financed by taxes on wealth – all incomes over $1 million taxed by 100%, and all inheritance over $5 million taxed 100%.
The New Deal response to all the ideas presented by Huey Long included the Revenue Act, the G.I. Bill and had no guarantees of annual income.
Francis Townsend advocated the need for the introduction of old age pension worth $200 per month, which was supposed to be spent within a 30-day period. The money for this segment was supposed to be financed by 2 cent national sales tax. In response to this suggestion, there was the New Deal’s response of establishing social security.
Charles Coughlin, in addition to anti-Semitism, was also famous for the ideas of nationalization of major industries and railways combined with a monetary reform. He also offered a guaranteed annual income intended to redistribute wealth from the rich to the poor, break up monopolies and nationalize banks. These populist initiatives attracted many supporters. However, the New Deal response included the Revenue Act that had certain relief programs, AAA and NIRA as the main monopoly principles, and established the Emergency Banking Act.