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Not surprisingly, Hoover was not reelected in 1932. The victor was Democrat Franklin D. Roosevelt (a.k.a. “FDR”), a distant cousin of Theodore Roosevelt. FDR wanted to address the Great Depression by giving Americans a New Deal, a package of legislation that would allow the government to alleviate some of the problems created by the Great Depression. The plan included programs that would provide relief, or immediate aid (food, housing, etc.); recovery, or longer-term plans to reduce problems in the economy (job programs); and reform, or legislation that would prevent the problems that caused the Great Depression from happening again (regulating the stock market, insuring bank deposits).
Bank and Finance Reform
Immediately after his inauguration, FDR began to address financial issues with a bank holiday, during which banks were temporarily closed to prevent further withdrawals. In the early days of the Great Depression, bank runs had caused many banks to close. In a bank run, many depositors (those who have kept their money in the bank) come to the bank and try to withdraw all of their money at the same time. A strong bank makes money by loaning money out and charging interest, so even the best banks would have difficulty paying all their depositors at once. As a result, bank runs caused numerous banks to close, and depositors would simply lose their money.
Then, under the Emergency Banking Relief Act, the Treasury inspected all banks; those in good shape would reopen, and those in bad shape would receive loans to help stabilize them. This revived public confidence in banks, and, because now people had more faith that their banks were sound, they didn’t all withdraw their money at once—essentially stopping bank runs. The Federal Deposit Insurance Corporation (FDIC), which insured individual bank accounts up to $5,000, also helped reestablish confidence in banks. Finally, the Securities and Exchange Commission (SEC) regulated the stock market to prevent another crash from happening.
Other New Deal Legislation
Remember that for the exam, we use illustrative examples, so we don’t have to memorize every single law. It’s important for you to be able to explain an example of at least one agency or law for the relief, reform, and recovery aspects of the New Deal.
The Agricultural Adjustment Act was enacted with the goal of raising crop prices by lowering production. To do this, the government paid farmers to leave a certain amount of farmland unplanted, destroy some already-planted crops, or slaughter surplus animal livestock.
A series of agencies, such as the Civil Works Administration, Works Progress Administration, and Public Works Administration, all provided employment through the creation of government-funded public works projects. These involve the work of building things that the government pays for, and the community can use for free (like roads, schools, libraries).
The Tennessee Valley Authority (TVA) harnessed the power of the Tennessee River by building dams to generate electricity and to help prevent floods. This created thousands of jobs. In addition, the TVA brought electric power to millions of people in rural areas.
The National Labor Relations Act created a board that was authorized to help resolve labor disputes by enforcing employee rights.
And, finally, the Social Security Act provided an old-age insurance program for retirees 65 and older, and their spouses, an unemployment compensation system, and aid to the disabled and families with children. This encouraged older workers to leave the workforce, opening jobs for younger workers.
How the Roosevelt Administration Changed the Federal Government
Before the New Deal (except for a short interlude during the Progressive Era), the government had been somewhat laissez-faire or reluctant to intervene in the economy. However, the legislation and agencies associated with the New Deal gave the government a more active role in shaping the economy, infused the economy with millions of dollars, created federal jobs, increased the government’s participation in settling labor disputes, and regulated banking and investment. For a time, the Roosevelt Administration had changed the United States into a limited welfare state—a system that allows the government to protect the well-being of its citizens using loans, grants, or pensions.
The Depression and the New Deal also caused a major party realignment, meaning that certain groups of people began to identify with different political parties from what they previously had. Traditionally, Southern whites had supported the Democrats (Solid South), while African Americans supported the Republicans (“Party of Lincoln”). However, under FDR, the Democratic Party’s liberalism in economic matters began to appeal to some African Americans, blue-collar workers, low-income people, and recent immigrants (called the New Deal Coalition). Most Southerners still supported the Democrats because the South was largely agricultural, and the New Deal benefited them in that way.
