In 1932, the U.S. economy reached its nadir during the Great Depression. Unemployment had risen to more than 20 percent, or 11 million Americans, matched by a similar number of the underemployed as factories and businesses closed their doors. Banks were closing at an alarming rates as people instantly lost their life savings. Hundreds of thousands of farmers and urban dwellers alike were suffering forecloses and lost their homes. Breadlines were long and strained the resources of private charities and local governments.
In May, Democratic candidate, Franklin D. Roosevelt promised “bold, persistent experimentation” by the national government in solving the economic crisis. The centerpieces of that experimentation would be “economic planning” and a “wiser, more equitable distribution of national income.” In his September Commonwealth Club Address, Roosevelt promised an “economic declaration of rights” with government-provided entitlements and “enlightened administration.” When accepting his party’s nomination, he pledged “a new deal for the American people.”
In his inaugural address, FDR laid out his vision for building a regulatory state that would manage the crisis of the depression without being bound by too many constitutional scruples. He would seek authority from a Democratic-controlled Congress for “broad executive power to wage a war against the emergency.” Congress complied with several programs in the First New Deal.
The Congress and President Roosevelt rapidly expanded federal intervention in the economy. Congress first passed the Emergency Banking Act that authorized the president to close the nation’s banks with a “bank holiday” based upon the dubious constitutional authority from a Trading with the Enemy Act. Because of the agricultural crisis, Congress passed the Agricultural Adjustment Act in which the federal government made decisions about the right allotments for agricultural production and paid farmers not to plant crops and slaughtered 6 million pigs in order to raise prices artificially. The Tennessee Valley Authority was an attempt at rural electrification and regional social and economic planning.
FDR and Congress also created relief programs so that the government would provide money and jobs for the unemployed. The Civilian Conservation Corps paid young men to plant trees and fight forest fires, the Federal Emergency Relief Administration sent money to the states to distribute to the poor, and the Public Works Administration spent $3.3 billion on relief. The Civil Works Administration created “make-work” jobs for four million people by the following January. When FDR expressed concern that the dole would make people dependent on the government, Congress created the Works Progress Administration which employed millions to build infrastructure or for cultural productions.
Building on government-business cooperation and regulation during World War I, the National Industrial Recovery Act allowed industries to write government-approved codes of self-regulation and gave exemptions from antitrust prosecution to reduce competition and increase prices. The act also provided a sop to organized labor by protecting the right to organize labor union and bargain collectively. However, big business quickly resented the regulations, small business felt excluded from the cartels that were created, unions complained they were not protected, and consumers opposed the higher prices.
The Supreme Court declared several key New Deal programs unconstitutional. The Court ruled that the NIRA and the AAA unconstitutionally regulated intrastate trade, and the NIRA constituted an unconstitutional delegation of authority from the Congress to the executive branch. After the NIRA ruling, Justice Louis Brandeis told a member of the administration to inform FDR that, “We’re not going to let this government centralize everything. It’s come to an end.”
The New Deal programs and reforms did not end however. Indeed, a Second New Deal took shape in 1935 and 1936. The Social Security Act created a system of old-age pensions as well as unemployment insurance and welfare to widows with dependent children. The program, however, increased taxes on employers and workers during a time of economic depression. The Wagner Act protected union organizing and collective bargaining, and established a National Labor Relations Board.
FDR and the Democrats proudly enunciated the New Deal governing philosophy in the 1936 election. They frequently attacked business owners and bankers as “economic royalists,” “plutocrats,” and “malefactors of great wealth.” The job of government was to reorganize the economy, regulate business, and redistribute the wealth to rectify inequality. FDR and the Democrats in Congress interpreted their huge landslide as a mandate for continued reform and regulation.
Although FDR won a huge electoral victory, the tide began to turn against New Deal reform. The first major public rejection of the New Deal resulted from FDR’s misguided “Court-Packing” plan to retire elderly judges on the Supreme Court and expand their number so that the Court would be more favorably disposed toward his programs. FDR then cut millions of workers and billions of dollars in federal spending which caused misery in a “Roosevelt recession” in 1937. A series of sit-down strikes and violence instigated by the Congress of Industrial Organizations wracked industry. Republicans and conservative Southern Democrats made gains in the 1938 congressional elections and opposed the expansion of the federal government. Finally, the nation’s attention began to shift to the coming world war.
The New Deal did little to stimulate economic recovery but resulted in a legacy of a modern welfare state. The New Deal was an unprecedented amount of federal spending and regulation of the economy that was expanded in the decades after World War II. The constitutional principles of separation of powers, checks and balances, federalism, and limited government were all altered by a Living Constitution philosophy that asserted that constitutional government should be adapted to current circumstances. Therefore, the New Deal had profound political and constitutional implications for the twentieth century.
Tony Williams is the author of five books including Washington and Hamilton: The Alliance that Forged America, co-authored with Stephen Knott.