The First New Deal, 1933–35 (AQA A-Level History): Revision Notes
The First New Deal, 1933–35
The Hundred Days
Following Roosevelt's inauguration in March 1933, the new President summoned Congress to an extraordinary session lasting 100 days. This period witnessed intensive legislative activity that produced the First New Deal – a substantial programme of emergency measures establishing numerous government agencies (commonly termed 'alphabet agencies' due to their acronyms). Historians typically categorise these measures according to three objectives: relief, recovery and reform. Whether Roosevelt possessed a coherent blueprint for transforming American society remains contested.
The First New Deal's three-pronged approach addressed different aspects of the Depression crisis:
- Relief – immediate assistance to those suffering hardship
- Recovery – measures to restart the economy
- Reform – long-term changes to prevent future economic collapse
Source B: Frances Perkins on Roosevelt's 1932 campaign
Frances Perkins, who served as Roosevelt's Secretary for Labor from 1933 and later wrote about the 1932 election campaign in The Roosevelt I Knew (1946), observed Roosevelt's campaigning style. During the campaign, Roosevelt travelled extensively across the country. Perkins noted that his personal interactions with crowds operated at a straightforward level of friendly, neighbourly communication.
Roosevelt's aims and approach
Roosevelt's overriding priority was achieving economic improvement. His strategy extended beyond immediate recovery measures to include infrastructure modernisation, particularly in banking and finance. This would enable the system to function more effectively and withstand potential future economic downturns. Roosevelt possessed considerable personal charisma, which he deployed strategically. He communicated directly with the American people through radio broadcasts known as 'fireside chats', where he explained his policies in accessible language. His reassuring voice helped restore public confidence and fostered belief that economic recovery was underway.
Agriculture
Agricultural recovery as a priority
Roosevelt assigned agricultural recovery higher priority than industrial recovery. This reflected practical reasoning: thirty per cent of the American workforce earned their living from agriculture. If agricultural workers experienced income growth, they would purchase more manufactured goods, thereby stimulating industrial expansion.
Agricultural Adjustment Act, May 1933
American agriculture's most pressing problem was overproduction. The Agricultural Adjustment Act's central principle held that the federal government would subsidise farmers to reduce their acreage and production voluntarily. By producing less, food prices would rise, consequently raising farmers' incomes.
A new agency, the Agricultural Adjustment Administration (AAA), was established to pay farmers for reducing production of staple items – initially corn, cotton, milk, pork, rice, tobacco and wheat. The programme would be self-financing through a tax levied on companies processing food. These companies were expected to pass increased costs to consumers.
Cotton production reduction proved particularly urgent. At the beginning of 1933, unsold cotton stocks in the USA already exceeded the total average annual consumption of American cotton. Moreover, farmers had planted 400,000 acres more than in 1932. Farmers were paid to destroy much of this surplus. A total of 10.5 million acres were ploughed under, causing the cotton price to rise from 6.5 cents per pound in 1932 to 10 cents in 1933.
However, destroying cotton proved far less contentious than destroying food when millions of Americans faced hunger. Six million piglets were purchased and slaughtered. Although many carcasses were subsequently processed and fed to unemployed people, the public outcry was enormous. This highlighted the moral complexity of the New Deal's agricultural policies.
In practice, the AAA destroyed only cotton and piglets. Drought facilitated matters by making the 1933 wheat crop the poorest since 1896, whilst agreements were reached to limit acreage in other crops during subsequent years.
AAA Success Indicators:
Total farm income rose from $4.5 billion in 1932 to $6.9 billion in 1935. The percentage of farmers signing up for AAA agreements was high initially – ninety-five per cent of tobacco growers, for example – and the Act proved popular with farmers. Faced by drought, Western ranchers sought to bring beef cattle under AAA protection in 1934. By January 1935, the Government had purchased 8.3 million head of cattle, in return for which ranchers agreed to reduce breeding cows by twenty per cent in 1937. Overall, the AAA appeared to work effectively in addressing the overproduction crisis, although problems remained.
Tennessee Valley Authority (TVA), May 1933
The TVA was established to address underdevelopment and poverty in the Tennessee Valley. It represented one of the New Deal's most ambitious schemes. Created to harness the River Tennessee's power, which flowed through seven of the USA's poorest states, the scheme aimed to make the region – 80,000 square miles with a population of 2 million people – more prosperous. The TVA had several major tasks:
- to construct twenty large dams controlling the floods that periodically affected the region
- to develop ecological schemes such as tree planting to prevent soil erosion
- to encourage farmers to adopt more efficient cultivation methods, such as contour ploughing
- to provide jobs through establishing fertiliser manufacture factories
- to develop welfare and educational programmes
- most substantially, perhaps, to produce hydro-electric power for an area where existing electricity supplies were limited to two out of every 100 farms
The TVA effectively became a central planning authority for the region. It bore responsibility for the modernisation and improved living standards that enabled residents to increase their average income by 200 per cent between 1929 and 1949.
Banking and finance
The banking crisis
Alongside agriculture, a particularly urgent concern was the American banking system's collapse. By 1932, banks were closing at the rate of forty per day. In October 1932, the Governor of Nevada, fearing an important banking chain's imminent collapse, declared a bank holiday and closed every bank in the state. By Roosevelt's inauguration, banks were closed in many states.
Emergency Banking Relief Act
On 6 March 1933, Roosevelt closed all banks in the country for four days to give Treasury officials time to draft emergency legislation. The resulting Emergency Banking Relief Act passed through Congress after only forty minutes of debate. Its aim was simply to restore confidence in the American banking system. It gave the Treasury power to investigate all banks threatened with collapse. The Reconstruction Finance Corporation was authorised to purchase their stock to support them and assume many of their debts. In doing so, the RFC became effectively the world's largest bank.
Meanwhile, Roosevelt appeared on radio with the first of his fireside chats. He explained to listeners, in language all could understand, the crisis's nature and how they could help. The message for this occasion was simple: place your money in the bank rather than under your mattress. It worked. Solvent banks were allowed to reopen whilst others were reorganised by government officials to establish them on sounder footing. By the beginning of April, $1 billion in currency had been returned to bank deposits and the crisis was over.
Fireside chats
Roosevelt was said to possess 'the first great American radio voice'. His fireside chats became so popular that those who did not own a radio would visit those who did to ensure they did not miss the President. The mass media was still developing. Until Calvin Coolidge went in for close-up photography, few Americans had ever seen a picture of their president, let alone heard his voice. Now the reassuring voice of Roosevelt in living rooms throughout the nation restored confidence and helped people to believe that everything was going to be alright.
After Roosevelt told people over the radio to tell him their troubles, it took a staff of fifty to handle his mail, which arrived by the truckload. By contrast, one person had been employed to deal with Herbert Hoover's correspondence.
The Glass-Steagall Act
Roosevelt subsequently drew up legislation to place the banking system on sounder long-term footing. The Glass-Steagall Act of 1933 had the following effects:
- Commercial banks that relied on small-scale depositors were banned from involvement in the type of investment banking that had fuelled some of the 1920s' speculation.
- Bank officials were not allowed to take personal loans from their own banks.
- Authority over open-market operations such as buying and selling government securities was centralised by being transferred from the Federal Reserve Banks to the Federal Reserve Board in Washington.
- Individual bank deposits were to be insured against bank failure up to the figure of $2,500, with the insurance fund to be administered by a new agency, the Federal Deposit Insurance Corporation (FDIC).
Regulation of the stock exchange
To ensure that the 1920s' excesses, which had caused the Wall Street Crash, were not repeated, two measures were passed:
- The Truth-in-Securities Act, 1933, required brokers to offer clients realistic information about the securities they were selling.
- The Securities Act, 1934, established a new agency, the Securities Exchange Commission (SEC). Its task was to oversee stock market activities and prevent fraudulent activities such as insider dealing, as in the bull pool.
Industrial recovery
Industrial recovery was a priority for the New Deal. However, it had only limited success due to the industrial collapse's scale. Although the economy grew ten per cent per year during Roosevelt's first term from 1933 to 1936, output had fallen so low since 1929 that this still left unemployment at fourteen per cent. The problem was that no consensus existed on how to ensure industrial recovery.
Roosevelt's primary aims were to return people to work and to increase consumer demand. He introduced the National Industry Recovery Act (NIRA) of June 1933. The Act came in two parts:
- National Recovery Administration (NRA)
- Public Works Administration (PWA)
National Recovery Administration
The NRA was established to oversee industrial recovery. Headed by General Hugh Johnson, it seemed to offer something to groups involved in industry. Powerful businessmen, for example, benefited from the suspension of anti-trust legislation for two years. The argument behind this was that if industrial expansion was to be promoted, maintaining laws that restricted it was counterproductive. Firms were encouraged to agree to codes of practice to regulate unfair competition such as price cutting, and to agree on such matters as working conditions and minimum wages in their industry.
Ultimately the codes did not help economic recovery. This led Johnson to attempt a 'Buy Now' campaign in October 1933 to encourage people to spend and therefore stimulate production. He also advocated an overall ten per cent wage increase and ten-hour cut in the working week. Neither was successful.
Problems with the codes
Critical Flaws in the NRA System:
Problems with most NRA operations quickly became apparent. Many codes, for example, turned out to be unworkable. This occurred partly because they were adopted so quickly, often without proper thought or planning, but also because they were often contentious. Many large manufacturers, notably Henry Ford, never subscribed to them and yet small firms complained that they favoured big business. Many small firms found it difficult to comply with the regulations, particularly the minimum wage clauses. It was hoped, for example, that firms adopting the codes would introduce a minimum wage of $11 for a forty-hour week. Few small firms could afford this.
In reality, the NRA codes looked impressive but could not bring about economic recovery. Many critics argued that, in practice, they did little except give large firms the opportunity to indulge in unfair practices – the very opposite of what had been intended.
The Supreme Court dealt the death blow in May 1935 when it declared the NRA unconstitutional.
Source C: D. M. Kennedy on the NRA
From Freedom from Fear by D. M. Kennedy (Oxford University Press), 1999:
The Blue Eagle (a symbol used by companies to show compliance with NIRA) was meant to symbolise unity and mutuality, and it no doubt did for a season, but Johnson's ubiquitous 'badge of honor' also clearly signified the poverty of the New Deal imagination and the meagreness of the measures it could bring to bear at this time against the Depression. Reduced to this kind of incantation and exhortation for which they had flayed Hoover, the New Dealers stood revealed in late 1933 as something less than the bold innovators and aggressive workers of government power that legend later portrayed.
Public Works Administration
The second part of NIRA established an emergency Public Works Administration (PWA) to be headed by the Secretary of the Interior, Harold Ickes. It was funded with $3.3 billion and its purpose was 'pump-priming'. It was hoped that expenditure on public works such as roads, dams, hospitals and schools would stimulate the economy. Road building would lead to increased demand for concrete, for example, which would lead the concrete companies to employ more workers, who would therefore have more money to spend, and so on. Eventually the PWA put hundreds of thousands of people to work, building, among other things, nearly 13,000 schools and 50,000 miles of roads.
Pump-priming refers to the activity of helping a business, programme, economy, etc., to develop by giving it money.
It pumped billions of dollars into the economy and was responsible for massive public works schemes, particularly in the West, where it enabled dams to be built to help irrigate former semi-desert land, electricity to be produced and four vast National Parks to be created.
Civil Works Administration
A further measure to create employment was the Civil Works Administration (CWA). This agency was created in November 1933, with a $400 million grant from the PWA, primarily to provide emergency relief to unemployed people during the hard winter of 1933–34. Although it put 4 million people to work on public works projects, it was closed down in March when the winter was over. However, FERA agreed to fund more public works projects itself.
Despite the fact that many jobs agencies such as the PWA were created, unemployment and attendant social problems persisted and the Federal Government had to turn to relief measures.
Relief
Millions of needy people existed in the USA. One major difference between Roosevelt and Hoover was the former's willingness to involve the Government in direct relief measures. These included the Federal Emergency Relief Act and the Civilian Conservation Corps.
Federal Emergency Relief Act, May 1933
This Act established the Federal Emergency Relief Administration (FERA). It was given $500 million to be divided equally among the states to help provide for unemployed people. Half the money was to be granted to states for outright relief. With the remainder, the Government would pay each state $1 for every $3 it spent on relief.
Roosevelt chose Harry Hopkins to run this programme. Hopkins had administered the relief programmes that the President had introduced when Governor of New York. The Act stipulated that each state should establish a FERA office and organise relief programmes. States should raise the money through borrowing, tax rises or any other means. When some states such as Kentucky and Ohio refused to comply, Hopkins simply threatened to deny them any federal monies.
Many states were wedded to the idea of a balanced budget and found expenditure on relief extremely distasteful. Many still felt that to be poor was your own fault. Those requiring relief were often not treated well. In many places there could be interminable waits and delays.
In the face of such opposition, FERA's effectiveness was limited. Its workers were refused office space in some states and often their caseloads were numbered in thousands. Its funds were limited, too. In 1935, it was paying about $25 per month to an average family on relief, whilst the average monthly minimum wage for subsistence was estimated at $100.
However, although its effects were disappointing, it did set the important precedent of federal government giving direct funds for relief.
Civilian Conservation Corps, 1933
Unemployment among young people was a huge problem and Roosevelt understood they needed a special programme to afford them both the experience of work and useful training in community service, co-operation and other skills essential to their growth as useful citizens. Unemployed young men between the ages of 17 and 24 (later 28) were recruited by the Department of Labor to work in the Civilian Conservation Corps (CCC) in national forests, parks and public lands. The Corps was organised along military lines, but its tasks were set out by the Departments of the Interior and Agriculture.
CCC Achievements:
The CCC was originally established for two years but Congress extended this for a further seven years in 1935, when its strength was increased to 500,000. During its lifetime, the CCC installed 65,100 miles of telephone lines in inaccessible areas, spent 4.1 million man-hours fighting forest fires and planted 1.3 billion trees. The CCC gave countless young men, particularly those from the cities, a new self-respect and valuable experience of both comradeship and life in the 'great outdoors'.
Unemployment statistics
| Year | Unemployed, in millions | Percentage of workforce unemployed |
|---|---|---|
| 1933 | 12.8 | 24.9 |
| 1934 | 11.3 | 21.7 |
| 1935 | 10.6 | 20.1 |
These figures demonstrate that unemployment remained at extremely high levels throughout the First New Deal period, declining only gradually despite the extensive range of measures introduced.
Key dates: First New Deal
- 1933 – The Hundred Days
- 1933 May – Tennessee Valley Authority
- 1933 May – Agricultural Adjustment Act
- 1933 November – Civil Works Administration (CWA)
Remember!
Key Points to Remember:
- Roosevelt's First New Deal represented an unprecedented expansion of federal government involvement in the American economy, creating numerous 'alphabet agencies' to address different aspects of the Depression crisis.
- The Agricultural Adjustment Act attempted to raise farm incomes by paying farmers to reduce production, achieving mixed results but significantly increasing farm income by 1935.
- Banking reforms through the Emergency Banking Act and Glass-Steagall Act successfully restored confidence in the banking system and established lasting regulatory frameworks.
- The National Recovery Administration's industrial codes ultimately failed to promote economic recovery and were declared unconstitutional in 1935, revealing the limits of the New Deal approach.
- Relief measures such as FERA and the CCC established important precedents for direct federal government assistance to citizens, though unemployment remained at approximately twenty per cent in 1935, demonstrating the enormous scale of the challenge Roosevelt faced.