Hello, my name is Richard J. Garfunkel and I want to thank Linda Paver for inviting me once again to the JCC of the Hudson. I am happy to be back here once again. For those of you who have not met or heard me before, I have been talking, writing about FDR and collecting his memorabilia for more than 40 years. I have been associated with the FDR Library and Museum and have been a member of the Roosevelt Institute for many years and I host a radio show on WVOX Radio called The Advocates. I have had the pleasure of broadcasting over 20 shows over the years that have featured authors, experts, and people from Hyde Park; including William vanden Heuval and the Director Ms. Cynthia Koch.
The subject of the Great Depression, FDR and his New Deal is a profound one that has engaged million of Americans in thought since those dark days in and around FDR’s First Inaugural on March 4, 1933.
Today I will try to consolidate the massive amount of material on the causes of the Crash, the rise of FDR and his New Deal in the next 25 minutes and I know we will have some time for questions!
First of all let me mention some of the myths about the New Deal and the Great Depression!
- The New Deal extended the Depression
- The New Deal made a Recession into a Depression
- Unemployment did not go down significantly
- Growth did not increase
- The New Deal did not accomplish anything
- The New Deal opened the door to socialism
- There was a great deal of waste and corruption
To frame those thoughts in today’s lexicon, I have in front of me an apology from a Republican Congressman Steven Austin, who stated not too long ago, that he conceded that President Franklin Delano Roosevelt did not cause the Great Depression. I am glad to hear that one of our newly minted representatives has finally read a book or two and some dispassionate history. With all that in mind…
The Crash 1929 and Its Aftermath
- The economy 1919-29
- The boom after WWI
- Growth of National Income in the early 1920’s
- WWI debt owed to the United States by the Allies
- Recurring business cycle
After the war, while Western Europe was suffering from a lack of food and fuel, American mines, farms, railroads, and shipping created a false economic bubble that started to end when Europe once again became self-sufficient. In that period, farms couldn’t grow enough food for needy Europe mouths, and between coal and grain shipments the railroads were booming. But there were economic rumblings being heard and even though there was a return to the pre-war wealth, there would be great change stirring in the wind. Did President Calvin Coolidge, who seemed to hate government, and sleep away his afternoons at the White House really care? There many warnings, and in the in the words of Alan Greenspan, an atmosphere of “irrational exuberance.” Author Kennedy even believes that the low unemployment figures for that period were way over –stated. The collapse of pre-war Europe and the economic balance of employment and trade sowed the seeds for a future world-wide economic meltdown.
- The Stock Market Collapse of 1929
- Overvalued stocks
- Margin debt owed to brokers
- Stock Market value in 1932; 17% of Sept ’29 value
- Reduced consumer spending
- Over-saturated automobile market
- Reduction of immigration- reduced housing
Before the Crash of 1929, more wealth was in the hands of fewer people then any other period in our long history. Unrestricted capitalism led to wild speculation in the market places, an eventual credit crunch, and since we didn’t believe in “safety nets” or entitlements, the ensuing collapse devastated our social order. In Arthur M. Schlesinger Junior’s great works, on that period, which include The Crisis of the Old Order, and the Coming of the New Deal much of this history is accurately reported and eloquently described.
The Dow Jones Average had hit a high of on September 3, 1929, at 381.17. The market had been a bit shaky throughout the fall. Richard Whitney (1888-1974), who had graduated from Groton and Harvard, as did Franklin D. Roosevelt, but was admitted to Pocellian, unlike the late President, was a Wall Street legend. He was a member of the New York Stock Exchange at age twenty-three, was elected to the Board of Governors at thirty-one, and was the head of his own investment company. He was the mirror of the “old guard” of the New York Stock Exchange, which was a loose group of wealthy investors who crafted and guided its direction and destiny. As the leader of this group and at that time in the fall of 1929, he was a Vice-President of the Exchange and its acting President. At the beginning of the Panic on “Black Thursday”, October 24, 1929, he moved on the floor in the midst of the selling frenzy, and placed huge orders in an attempt to bring confidence back to the marketplace and to try to stem the avalanche of selling. He placed an order for 10,000 shares of US Steel at 205, which was 40 points above its current selling price. He also placed other orders for his group in a number of other blue-chip stocks. These orders were estimated to be in the range of $20 million. No one in history had ever spent that type of money in a single afternoon. Of course since he was associated with the House of Morgan, many traders assumed that Morgan was behind such incredible action. This legendary effort seemed to work for a while, and the market, which had dropped precipitously, seemed to take pause. That day over 12.9 million shares had changed hands and the market had lost an incredible amount of its value. Over the weekend investors thought over the situation and decided to sell their holdings and the market absorbed a record 13% loss in value.
This set the stage for its ultimate collapse. On “Black Tuesday”, October 29, 1929 the selling reached a historically un-reached crescendo. The losses were incredible and with record 16.4 million shares traded, the market lost another 12%. The market crash had wiped out an incredible amount of wealth. It would eventually bottom out at 41.22 on July 8, 1932 to a level not seen since the 1800’s. By April of 1942 it would have lost 75% of its 1929 value and the Dow Jones Industrial Average would not recover to its 1929 levels until November of 1954.
- Collapse of raw material prices
- Decline of exports
- Collapse of German economy
- The Smoot-Hawley protective tariff
- Retaliatory foreign tariffs and trade restrictions
- British withdrawal from the Gold Standard
- Liquidity crisis over the Federal Reserve’s policies
The panic and collapse of the economy, brought on by the crash resulted in a massive deflation that President Herbert Hoover called the “Depression.” The New Deal, authored by Franklin D. Roosevelt, stopped the bleeding, but because of the severity of the collapse it could never resurrect the artificially inflated, halcyon days of the 1920’s. Of course present day business -oriented “talking heads” like to say that the New Deal prolonged the slump. Of course they have conveniently forgotten that the 1920’s made the “Techie Bubble” of 2000 look like a walk in the park.
Many seem to have forgotten or have totally ignored the disaster that we faced in 1933. After three and one-half long years of inaction from the Hoover Administration that left us an enduring and unending legacy of breadlines, shanty towns (Hooverville’s), hobos riding the rails, abandoned farms, beggars, apple selling retailers on the streets, unemployment in the tens of millions, social unrest, starvation, and a net loss of population, as more left America then immigrated, we were mired in an economic situation unlike any in history.
The Aftermath 1929-32
- Business Failures per 100,000 concerns
- 1928 -109
- 1929- 104
- 1930- 122
- 1931- 133
- 1932- 154
- 1933- 100
- 1934- 61
- 1935- 62
Gross Nation Product (Goods and Services of U.S.A.)
- 1929- 103.8 Billion
- 1930- 90.7
- 1931- 75.9
- 1932- 58.3
- 1933- 55.8
- 1934- 64.9
- 1935- 72.2
- 1936- 82.5
- 1937- 90.4
- 1938- 84.7
- 1939- 90.5
- 1940- 99.7
- 1941- 124.5
The size of the economic cataclysm is almost hard to perceive. Even though the Department of Commerce listed unemployment at 25% many estimates believe it ranged as high as 36% and the most likely number is probably a bit above 30%. The amount of new capital financing had declined 95% since 1929. The amount of new building contracts had declined by at least 75% in those same years. The Dow Jones Average was off 90% since its high in late 1929, and there were 5000 bank closings since the crash, which eliminated nine million, pre FDIC uninsured accounts. US Steel, which had almost a quarter of a million full-time employees in 1929, now employed no one but executives. Schools in major cities and some states virtually shut down for lack of money. In the first half of 1933, 250,000 homes were taken over by the banks, and over 1000 families per day were cast homeless into the streets. This is what Franklin Roosevelt inherited on March 4, 1933.
By 1933, business failures had risen almost 50% from the end of 1928 (109 to 154 per hundred thousand). From 1933 to 1935, only two years they dropped to almost 40% from the 1928 levels (62 to 109 per thousand). Unemployment rose from 3% in 1929 to 25% in 1933. From 1933 through 1937 unemployment dropped 44% to 14%. This figure did not include over 2 million workers employed by the WPA. As to the Gross National Product, by 1933 it had dropped from $103.6 billion in 1929 to $56.4 billion in 1933. This represented a loss of 44% of the total goods and services of the country in 3 years. In FDR’s first administration it rose approximately 64% to $92 billion. By 1940, with defense spending still only 22 % of the federal budget (from 1928 through1932, defense spending represented an average of 38% of the US Budget), and 2% of the GNP, the GNP had risen to $101.4 billion or 4% higher than 1928! Because of the New Deal, hourly wages which had dropped from 58 cents per hour in 1928 to 49 cents for hour in 1933 (a drop of approximately 25%) rose 74 cents per hour in 1940. This represented a strong recovery of 28% from 1928. These figures are undeniable.
- The Social Atmosphere
- National Conditions:
- Vast unemployment
- Collapse of commodity prices
- Failure of the farms
- Immigration from the farms to the Coasts
- Bank failures
- Social unrest
- Political Consequences
- Shift in power
- 1860-1932 GOP the dominant party
- Controlled the Senate for 62 years
- Controlled the House for 46 years
- Two Democratic Presidents (16 years) Cleveland
FDR took bold decisive action in the Hundred Days, and fifteen pieces of major legislation passed. The hemorrhaging of the banking crisis ceased, stability was brought back to the market places, and the NRA which came out of the National Recovery Act was the first of many regulatory efforts which would eventually include, the SEC, the AAA, the CCC, the PWA and the WPA.
On May 7, 1933, Roosevelt extolled the CCC in a fireside address on the radio:
“First, we are giving opportunity of employment to one-quarter of a million of the unemployed, especially the young men who have dependents, to go into the forestry and flood prevention work. This is a big task because it means feeding, clothing and caring for nearly twice as many men as we have in the regular army itself. In creating this civilian conservation corps we are killing two birds with one stone. We are clearly enhancing the value of our natural resources and second, we are relieving an appreciable amount of actual distress.”
The goal of the WPA was to employ most of the unemployed people on relief until the economy recovered. Its administrator, Harry Hopkins testified to Congress in January 1935 why he set the number at 3.5 million, using FERA data. At $1200 per worker per year he asked for and received $4 billion.
“On January 1 there were 20 million persons on relief in the United States. Of these, 8.3 million were children under sixteen years of age; 3.8 million were persons who, though between the ages of sixteen and sixty-five were neither working nor seeking work. These included housewives, students in school, and incapacitated persons. Another 750,000 were persons sixty- five years of age or over. Thus, of the total of 20 million persons then receiving relief, 12.85 million were not considered eligible for employment. This left a total of 7.15 million presumably employable persons between the ages of sixteen and sixty-five inclusive. Of these, however, 1.65 million were said to be farm operators or persons who had some non-relief employment, while another 350,000 were, despite the fact that they were already employed or seeking work, considered incapacitated. Deducting this two million from the total of 7.15 million, there remained 5.15 million persons sixteen to sixty-five years of age, unemployed, looking for work, and able to work. Because of the assumption that only one worker per family would be permitted to work under the proposed program, this total of 5.15 million was further reduced by 1.6 million–the estimated number of workers who were members of families which included two or more employable persons. Thus, there remained a net total of 3.55 million workers in as many households for whom jobs were to be provided.”
The WPA employed a maximum of 3.3 million in November 1938. Worker pay was based on three factors: the region of the country, the degree of urbanization and the individual’s skill. It varied from $19/month to $94/month. The goal was to pay the local prevailing wage, but to limit a person to 30 hours or less a week of work.
As to the great Harry Hopkins, later in his illustrious career he served as FDR’s special ambassador during World War II. On his initial visit to war-torn Britain in early January of 1941, he met with Prime Minister Winston Churchill to discuss Lend-Lease aid. At the end of Hopkins’ tour of Britain with the Prime Minister they ate dinner at the Station Hotel in Glasgow, Scotland. Churchill drew out Hopkins with praise for Roosevelt and a reference to “the Democracy of the great American Republic.” Hopkins, who was quite ill from the affects of the long-grueling trip and his own weakened constitution sat for a moment after Churchill’s remarks, and the rose to face the Prime Minister.
“I suppose you wish to know what I am going to say to President Roosevelt on my return.” In his soft-measured voice, “Well I ‘m going to quote you one verse from the Book of Books in the truth of which Mr. Johnson (Tom Johnson, the secretary of state for Scotland and a member of the party) and my own Scottish mother were brought up: ‘Whither thou goest, I will go; and where thou lodgest, I will lodge; thy people shall be my people, the God my God.’” The dropping his voice, he added, “Even to the end.” No one could have said it better. Churchill sat with tears in his eyes.
This vignette reveals just a fragment of what made up the great Harry Hopkins, who was one of FDR’s greatest New Deal lieutenants.
The National Industrial Recovery Act on June 16, 1933, created the Public Works Administration (PWA) and budgeted several billion dollars to be spent on the construction of public works as a means of providing employment, stabilizing purchasing power, improving public welfare, and contributing to a revival of American industry. Simply put, it was designed to spend “big bucks on big projects.”
Under the leadership of Harold W. Ickes, the Secretary of the Interior, the PWA epitomized the Rooseveltian notion of “priming the pump” to encourage economic growth. Between July 1933 and March 1939, the PWA funded the construction of more than 34,000 projects, including airports, electricity-generating dams, and aircraft carriers; and seventy percent of the new schools and one third of the hospitals built during that time. It also electrified the Pennsylvania Railroad between New York and Washington, D.C. Its one big failure was in quality, affordable housing, building only 25,000 units in four and a half years. It provided the federal government with its first systematic network for the distribution of funds to localities, ensured that conservation would remain an element in the national discussion, and provided federal administrators with a broad amount of badly needed experience in public policy planning.
When Franklin D. Roosevelt was elected as president, he appointed Henry Wallace as his Secretary of Agriculture. In 1933 Wallace drafted the Agricultural Adjustment Act (AAA).
The AAA paid farmers not to grow crops and not to produce dairy produce such as milk and butter. It also paid them not to raise pigs and lambs. The money to pay the farmers for cutting back production of about 30% was raised by a tax on companies that bought the farm products and processed them into food and clothing. The AAA also became involved in trying to help farmers destroyed by the creation of the dust-bowl in 1934. By the time the Agricultural Adjustment Administration began its operations, the agricultural season for many crops was already under way.
The agency oversaw a large-scale destruction of existing cotton crops and livestock in an attempt to reduce surpluses. No other crops or animals were affected in 1933, but six million piglets and 220,000 pregnant cows were slaughtered in the AAA’s effort to raise prices. Many cotton farmers plowed under a quarter of their crop in accordance with the AAA’s plans.
Large farms benefited from the AAA policy of reducing surpluses, having “gross farm income increased by 50% during the first three years of the New Deal.” The increase in gross income for farmers was largely paid for through government subsidies.
These of course are the major programs. FDR would have to fight the Courts over the constitutionality of many of his programs, and a number would be voided. As for example, in 1936 the Supreme Court declared the AAA unconstitutional. The majority of judges (6-3) ruled that it was illegal to levy a tax on one group (the processors) in order to pay it to another (the farmers). In 1938, another AAA was passed without the processing tax. It was financed out of general taxation and was therefore acceptable to the Supreme Court.
This struggle of course opened up the next phase of reform with his Second New Deal. Eventually the Court ruled Social Security to be constitutional, and a number of these very old Justices finally resigned after FDR’s effort to re-organize the Federal court system (The Court Packing!). Eventually, he was able to put his total imprint on the court despite losing his abortive court reform initiative. But with all of his success, new generations of his critics have been spawned in the 60+ years since his untimely death.
The First New Deal 1933-4 Aims ( The first Hundred Days)
- Unemployment and poverty relief
- Economic Recovery
- Economic and Social Reform
- Phase One- Stop the Panic- Bring back confidence in the government
- The Hundred Days- Legislation- 1933
- Unemployment relief- jobs- CCC, PWA, FERA
- Banking and Security Reform-FDIC
- Regional Development- TVA, CWA
- End of Prohibition- Repeal of the Volstead Act
- National Planning- NRA , NLB
- Farm Relief- AAA, FCA
- Fireside Chats
- Bank Holiday
- Reversing the panic
- Support of Business
Phase Two- Social Change and Reform- 1934
- The Emergence of Labor, Federalization and Regulation
- Labor Laws- NRB, NLRB (Wagner Act)
- Housing- FHA
- Regulation- FCC-SEC
- Transportation- NRAB- railroads
The NRA- National Recovery Administration
Government and Business Cooperation
AAA factories couldn’t prosper while farms were in a depression.
- PWA- Harold Ickes- Interior Dept.
- FERA- Harry Hopkins –
- Monetary Expansion- going off the Gold Standard
Criticism over the pace of progress
- Thunder on the Left and the Right
- The Left:
- Huey Long
- Father Coughlin
- Francis Townsend
- Norman Thomas
- Upton Sinclair
- The LaFollettes
- The Right
- Herbert Hoover
- The Liberty League
- Business community
- The 2nd New Deal 1935- Response to Criticism
- New Legislation and its Impact
- Social Impact- REA- rural electrification
- Soil Conservation- SCS- helping farmers
- National Youth Act- NYA- social involvement
- Old Age Pensions- SSB- Social Security
- Employment- WPA- helping employ non factory labor
- Bituminous Coal Labor Board- labor in the minds
- Judicial Review
- Supreme Court rules NRA unconstitutional
- Other laws (Social Security, NLRB, Tax reform,
- Political referendum of 1936
- Landslide- winning 46 states- 60.8% of the vote
- Uniting different groups
- Urban workers
- Ethnic and racial minorities
- Southern poor
- Legislative dominance 1936 to the 1970’s
- New constituencies and favored legislation
- Labor laws
- Farm subsidies
- Religious and ethnic toleration- job set-a-sides
- Educational opportunities
- Medicare, Medicaid
Also in his Second Inaugural, the late President said, “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” (Second Inaugural, January 20, 1937)
Little really has changed in the minds of many of the old and new critics of the New Deal. But, did we go back to unrestricted capitalism, and therefore trash the SEC, NASD, and the Securities Laws of 1933, 1934, and 1940, wages and hours, child labor laws and the like? No, thankfully! Should we go back to the great enduring capitalistic legacy of the “Triangle Shirt-Waste Fire?” Or maybe we should trash the reform legacy of Ida Tarbel, Upton Sinclair, Sinclair Lewis, and others who revealed to the public the abuses of private capital and power. Meanwhile how many judges did the “economic royalists” own? How many of them came from the bosom of private capitalism and the world of property? (Thankfully Holmes, Brandeis, and Cardozo didn’t!)
The Third New Deal- 1937-8
- Electoral success versus Judicial Review
- Court Re-organization
- Legislation to expand the Court from 9 to 15 members
- Age criteria ( many of the Justices were over 70 years old, 7 were appointed by Republican Presidents and most were conservative)
- Congressional Coalition halts plan
- Justices retire
- Legislation upheld
- Roosevelt eventually appoints all new court
- Third New Deal Legislation
- Farm Security- FSA- 1937, Fed. Crop Ins. Corp. FCIC 1938
- Housing -USHA- Housing Authority -1937
- Regulation- CAA- Civil Aeronautics -1938, Maritime Labor Board- MLB Fair Labor Standards Act
- Federal Reorganization- BOB- Bureau of the Budget, Federal
- Electoral Purge of 1938 and political set-backs
- Evaluation of the New Deal
- Criticism from the Right
- Government intervention in the economy and society had gone to far.
- Market mechanism impaired
- Too much reliance on government
- Too much concentration of power in Washington
- Criticism from the Left
- New Deal saved a capitalistic system that failed
- Achieved only minor reforms
- Recovery did not really come until WWII
- Inequalities of income were not noticeably narrowed
- Relief from poverty was stingy and limited
- Both sets of these arguments were rejected by a majority of the electorate and historians.
- Programs universally applauded: CCC, FDIC, TVA, Social Security
- WPA was on one hand the most popular and the most unpopular!
- Much of the New Deal was unknown to most of the public.
- The New Deal enmeshed politics and economics- regulated or “safety-net capitalism
- Did not bring full economic recovery! Unemployment remained high and economic activity never fully recovered to 1928 levels.
In Roosevelt’s own words this introduction to the first volume of his collected papers and addresses possibly sums up his thoughts on the philosophy of the New Deal:
There were inconsistencies of methods…inconsistencies born of insufficient knowledge. There were inconsistencies springing from the need of experimentation. But through them all, I trust that there also be found a consistency and continuity of broad purpose.
Consistently I have sought to maintain a comprehensive and efficient functioning of the representative form of democratic government in its modern sense. Consistently I have sought through that form of government to help our people to gain a larger social justice.
Basically we aim at the assurance of a rounded, permanent national life. Change from what historian Arthur Schlesinger called “single-interest” government, to the goal of a comprehensive and efficient functioning of the representative form of democratic government. FDR’s desire for a “rounded permanent national life,” expressed his idea of a stronger sense of community mutuality and obligation, man to man, and man to land, which were in his view the only basis of a lasting security. Probably the most central concept of the New Deal, at least in terms of frequency was interdependence. In private, FDR mixed the satisfaction of achievement with disappointment that the New Deal system had not come closer to his intentions. But he often acknowledged its flaws as democracy’s price.
After the war, he said, there must be renewed efforts to achieve resource and public works planning… In the meantime, shortcomings should be noted in the spirit of a remark he made in 1936, so often quoted.
The immortal Dante tells us that divine justice weighs the sins of the coldblooded and the sins of the warmhearted in different scales. Better the occasional faults of a government that lives in the spirit of charity that the constant omissions of a government frozen in the idea of its own indifference.