The Great Depression (1920–1940)

Although Franklin Roosevelt’s New Deal provided relief to millions of Americans, the New Deal ultimately failed because it did not end the Great Depression. The New Deal was simply not enough to cure the economy of its maladies.

Admittedly, the New Deal was highly successful in achieving the limited goal of providing immediate relief to millions of hungry, homeless, and jobless Americans. The Federal Emergency Relief Act, for example, earmarked about half a billion dollars to distribute to states on the verge of bankruptcy and directly to Americans who needed government handouts the most. The Public Works Administration, Works Progress Administration, Civilian Conservation Corps, and Civil Works Administration also provided invaluable employment to millions of young men during the depression. Most of Roosevelt’s new alphabet agencies, however, were just quick fixes to remedy the most visible effects of the Great Depression without doing anything to solve the problems that had caused the economic collapse in the first place.

Roosevelt and New Dealers did make attempts to put the nation back on track toward long-term recovery and to reform the American financial system. Along with Congress, Roosevelt created the Federal Deposit Insurance Corporation (passed under the Glass-Steagall Banking Reform Act) to prevent future bank failures and the Securities and Exchange Commission to regulate commodity trading on the stock market. The Wagner Act and Fair Labor Standard Acts, meanwhile, protected the rights of laborers, and the Social Security Act set up retirement pensions for the elderly and disabled.

These reforms were still not enough, however, as the Roosevelt Recession of 1937 demonstrated. Believing the worst of the depression to be over and wanting to appease critics, Roosevelt cut back deficit spending in the hopes that the government had already injected enough dollars into the economy for it to right itself. This hope proved mistaken, as the stock market collapsed again and millions of people lost their jobs. Perhaps contemporary critics such as Huey P. Long were correct: more federal dollars were needed to prime the economic pump. As it turns out, however, only the wartime demands placed on manufacturing and labor during World War II pulled the American economy out of its hole.

The New Deal faded away in the late 1930s primarily because Roosevelt grew overconfident in his own abilities to end the Great Depression. As a result, he made several bad decisions that turned a significant group of Americans against him and the New Deal.

When Roosevelt was first elected president in 1933, most Americans believed he was the only person who could save the economy. As governor of New York, he had successfully used Keynesian-style deficit spending to inject money into the economy and reduce the devastating impacts of the depression. He had also had some success initiating across-the-board reforms to make sure the state would never again be hit hard by a financial crisis like the Crash of 1929. Compared to the conservative Herbert Hoover, who refused to provide any direct assistance at all, Roosevelt seemed like a godsend.

Roosevelt delivered on his promises in many ways and thus earned the solid support of the American people. During his First Hundred Days in office, he put the nation’s banks back on solid footing and created a variety of new alphabet agencies such as the Civilian Conservation Corps, Public Works Administration, and Federal Emergency Relief Administration to dole out jobs and money. He also reformed Wall Street and propped up American agriculture. His Second New Deal initiatives were also so popular that he received all but eight electoral votes in the presidential election of 1936.

During his second term, however, Roosevelt overstepped his bounds and took controversial actions that proved very unpopular. With Congress under his control, he had only to defeat the conservative Supreme Court in order to ensure that his New Deal policies would endure. With this in mind, in early 1937 he requested Congress to grant him the power to add as many as six pro–New Deal justices to the Supreme Court and to force all justices over the age of seventy to retire. This action shocked Congress, which flatly denied the request. Even fellow Democrats were astonished by Roosevelt’s flagrant attempt to undermine the system of checks and balances and separation of powers. The American public was also horrified, especially as Roosevelt repeatedly denied his obvious intentions for wanting to pack the Court with New Deal supporters.

This move cost Roosevelt dearly: he lost many supporters, not only among the American people but also among congressmen in his own party, on whom he relied to pass his legislation. Soon thereafter, Roosevelt made an additional mistake in reducing the amount of federal dollars he pumped into the economy in the hopes that the economy could finally pull out of the depression by itself. Lacking enough support, the economy crumpled again, causing the Roosevelt Recession. The president’s attempt to point fingers only frustrated Americans more. As a result, voters ousted many Democrats from Congress in the midterm elections of 1938, effectively ending any chance of passing additional New Deal legislation. Had Roosevelt not overstepped his bounds via the court-packing scheme nor vehemently denied responsibility for the 1937 recession, the New Deal might have survived longer than it did.

Even though the First New Deal (1933–1934) and the Second New Deal (1935–1938) were both part of Roosevelt’s plan to reinvigorate the economy with Keynesian-style federal deficit spending, the two bundles of legislation were in many ways quite different. First New Deal legislation, for example, was passed primarily in order to provide immediate relief to the bankrupt states and directly to the people. On the other hand, much of the Second New Deal legislation was meant to reform the economy and prevent future depressions. As a result, the First New Deal had the more immediate effect on the U.S. economy, but the Second New Deal had much greater significance after the Great Depression.

Most legislation passed during Roosevelt’s First Hundred Days was intended to help the poorest Americans, to whom Herbert Hoover had refused to give assistance. The Federal Emergency Relief Administration, for example, distributed over half a billion dollars in grants (rather than loans) to the individual state governments and directly to the people. The Civilian Conservation Corps, Civil Works Administration, and Public Works Administration were also established to give jobs to the unemployed and improve the national infrastructure. The first Agricultural Adjustment Administration provided subsidies to farmers to cut crop production and artificially raise the price of agricultural goods. These programs had an enormous impact on those Americans who needed immediate relief the most. On the other hand, benefits from these “alphabet agencies” were all short-term benefits. The agencies distributed money to those who needed it but made no attempt to cure the depression at the source.

Much of the legislation passed in the Second New Deal, however, did try to reform the system to prevent another catastrophic depression from occurring in the future. The Wagner Act and Fair Labor Standards Act altered the power imbalance between big business and labor by recognizing workers’ right to bargain collectively and by establishing a minimum wage and forty-hour workweek in select industries. These new laws gave a boost to blossoming labor organizations such as the Congress of Industrial Organizations, which has since become one of the largest unions in the United States. The Social Security Act of 1935 was even more sweeping, as it created a federal pension system funded by employers and taxpayers to keep the disabled and retired workers from becoming destitute.

Not all Second New Deal legislation focused on reform, however. In fact, Roosevelt and Congress created several new relief organizations, such as the Works Progress Administration and the United States Housing Authority, in response to criticism that the First New Deal had not helped Americans enough. Likewise, some reform-oriented agencies had been created in the First New Deal in 1933 and 1934, such as the Federal Deposit Insurance Corporation, Tennessee Valley Authority, and Securities and Exchange Commission. For the most part, however, Roosevelt and fellow Democrats legislated the First New Deal to provide immediate relief and the Second New Deal to initiate long-term reform.