The New Deal was a set of domestic policies that was based on the theories of John Maynard Keynes and enacted under President Franklin D. Roosevelt. It expanded the role of the federal government in the economy by creating a wide range of programs which offered economic relief to the suffering, regulated private industry, and grew the economy.  Even though it was implemented in response to the Great Depression, it was so successful that many New Deal era organisations remain active to this day. 

The First New Deal (1933-4) 

The First New Deal was a direct response to the Great Depression, at a time when industrial output had halved in three years, the stock market had barely recovered, and unemployment stood at 25%. In the short-term, the role of the New Deal was to improve the lives of people suffering from the effects of this economic downturn. Beginning with “The First Hundred Days”, Congress passed legislation addressing the banking crisis (at the time, customers were turned away from banks due a shortage of cash), unemployment, and weak industrial output, through an “alphabet soup” of new laws and agencies. Some of the most important policies were: 

  • The Agricultural Adjustment Act (AAA) 
  • The National Recovery Act (NRA) 
  • The Federal Emergency Relief Act (FERA) 

The AAA increased prices by restricting production and boosting the value of economic output at the same time. This was essential because previously, farmers were producing more than customers could buy, resulting in the price of their crops, and hence their incomes, decreasing rapidly. More revenue for farmers meant that they could get by more easily, so rather than harming the poor, higher prices ensured a more stable food supply. This was carried out by the Secretary of Agriculture, Henry Wallace, who implemented a “domestic allotment” plan which subsidised farmers in return for cutting output. It had success; for example, it boosted national cotton prices from 6.52 cents/pound in 1932 to 12.36 cents/pound in 1936. However, although it helped property-owning farmers (who were the ones paid to reduce output) it harmed the farmers who worked the land, because they were no longer needed for production and were often evicted.

The NRA established industry codes that set prices to increase profit margins, raised wages, and guaranteed the right for workers to unionise, which gave them more power to negotiate for better working conditions. Hundreds of codes were established that affected over 22 million workers, allowed for the employment of over two million people, and imposed regulations which curbed unhealthy competition and overproduction. And although the NRA was invalidated by the Supreme Court in 1935, worker conditions continued to improve. This was because the law had inspired the formation of the Congress of Industrial Organisations (CIO), a body independent of the government which organised workers in industrial unions across North America.  

The FERA distributed over $500 million to states and local agencies to increase salaries for government workers and aid the poor with programs such as local soup kitchens. This was followed by the Emergency Relief Appropriation Act in 1935, which provided $5 billion to corporations to employ over 3.5 million workers and included the Federal Art, Writers, and Theatre Projects. However, there were disagreements between Harry Hopkins and Harold Ickes, two key figures of the New Deal, on which agencies would receive funding and on what the level of wages would be. This led to significant delays in enacting the FERA, which diminished its efficacy; by September 1935, it had only administered $1 billion, and less than a quarter of the 3.5 million people had been employed. 

The Second New Deal (1935-8)

Although the First New Deal. which focused on economic recovery, benefitted the big businesses and farmers, the economy continued to struggle with high unemployment rates and widespread poverty. Therefore, the Second New Deal was needed to tackle these problems. Important legislation included: 

  • The Works Progress Administration (WPA) 
  • The Fair Labour Standards Act (FLSA)
  • The Social Security Act (SSA)

The WPA was essentially Roosevelt’s attempt to achieve what he could not through the FERA. This new program employed 8.5 million Americans in projects such as building infrastructure which consisted of over 650,000 miles of roads, 75,000 bridges, and 125,000 public buildings, and aided the entertainment and art industries. It was highly expensive, but made a monumental difference to the people they supported. 

The FLSA was introduced as part of the National Recovery Act, and implemented a 40 hour work week, set an hourly minimum wage, and restricted child labour. The Wagner Act of 1935 also allowed workers to unionise and thus to bargain together. 

The Social Security Act required workers to pay taxes to the Social Security trust fund, which made monthly payments to retirees over 65 and those with long-term disabilities. The benefit of this was not short-term, but long-term: during the 1950s, those over 65 were the poorest demographic in the US, yet by 2010, they had become the wealthiest. It was one of the largest successes of the New Deal and continues to this day, and is  regarded by biographer Kenneth Davis as “the most important single piece of social legislation in all American history”.

The impact of the New Deal 

The New Deal used federal deficit spending (when a government’s expenditures exceed its revenues) to promote economic growth, a fiscal approach proposed by Keynes. He argued that government spending which gave consumers money would lead to an increase in demand by enabling them to buy products made in the private sector. As companies sold more products, they would have money to hire more workers, who, in turn, could afford to buy more products. Roosevelt and his supporters believed that this could reverse the downward economic spiral of the Great Depression.

However, the New Deal was only partially implemented, since the Supreme Court ruled against many of its proposed initiatives. Indeed, progress remained painfully slow, greatly hindering the economic recovery; for example, throughout the 1930s, the unemployment rate had only been reduced by a third. There were also a series of missteps; most notably, Roosevelt cut half of WPA jobs in 1937, mistakenly believing the economy had recovered. This led to less industrial production and the crashing of the stock market, forcing him to quickly reverse this change.

Ultimately, it was the massive military expenditures of World War II, not the New Deal, that pulled the US completely out of the Great Depression. At the onset of war, the economy was mobilised to produce military aircraft, munitions, and steel. All of this required people and money, leading to higher wages and thus greater consumer spending. However, the New Deal can be credited with partially rejuvenating the economy, which meant that when war came, America was ready to bounce back. And bounce back it did.

The legacy of the New Deal 

Importantly, the New Deal resolved the structural weaknesses in the American economy which the Great Depression had revealed, from the out-of-control level of speculation in financial markets to the lack of regulation across Wall Street. Roosevelt also took steps towards greater equality in American society by forming a council of civil rights, known as the “Black Cabinet”, comprising of community leaders working to ensure that black citizens were receiving an equal share of the New Deal aid. 

It also improved Roosevelt’s reputation; even though he was greeted with sneers across the political spectrum upon his election, and was branded an “amiable boy scout” by the journalist Walter Lippman, the success of the New Deal silenced his critics.

Many elements of the New Deal are intact today, including federal regulation of the workplace and the social security system, which supports 63 million Americans. And whilst it may not have succeeded in all its aims, the New Deal was a landmark moment for the American economy, heralding a new era of government intervention, and an era of hope, out of the turmoil of the Great Depression.