18 Successes and Disasters Created to Battle the Great Depression

2. Leaving the gold standard shortened the depression for most countries

In 1931 Great Britain abandoned the gold standard, followed shortly thereafter by Japan, Norway and Sweden, in order to protect their gold reserves, and all of them ceased exchanging gold for bank notes. The United States remained on the gold standard through the Hoover Administration, an act which was in part responsible for the protectionist policy of the tariffs. According to a 2010 economic study published in the Journal of Economic History, remaining on the gold standard exacerbated the depth of the depression and increased its length. “The length and depth of a country’s economic downturn and the timing and vigor of its recovery is related to how long it remained on the gold standard. Countries abandoning the gold standard relatively early experienced relatively mild recessions and early recoveries. In contrast, countries remaining on the gold standard experienced prolonged slumps”, the report read.

The abandonment of the gold standard allowed for the devaluation of currencies across the globe (for those nations which abandoned it). Those nations which remained on the gold standard, such as the United States in the early years of the Great Depression, were forced to decrease the money supply in order to prevent the outflow of gold, which led to deflation, meaning domestic prices declined. Farmers in particular found that their crops were of less value, and due to the tariffs they had less markets in which to sell them. Lower prices for goods caused manufacturers to lay off workers and in many cases close plants entirely. In 1931 a credit crisis in Germany and Austria led to Hoover suspending Germany’s reparation payments from the First World War, which deepened the international financial crisis as banks around the world faced collapse.

3. Happy Days are here again

In 1932 Herbert Hoover faced re-election, opposed by Democratic candidate Franklin D. Roosevelt. Roosevelt promised the nation a “New Deal” a term which was borrowed from Mark Twain, who used it in his popular novel A Connecticut Yankee in King Arthur’s Court. Prior to Roosevelt’s programs, there was no insurance protecting the savings of Americans which were in banks. Relief for the poor and hungry was the responsibility of churches and social institutions, rather than the government, though some local governments offered some relief. By 1932 even those that did were overwhelmed by the sheer number of people in need of relief, unemployment was at 25%, and most of those who were employed worked less than full-time, their paychecks reduced accordingly. Income for farmers had dropped by half, and nearly 20% of American farmers had seen their properties foreclosed on by the banks.

Roosevelt, campaigning to the tune of Happy Days are Here Again, promised direct federal action to battle the depression and restore the American economy. Roosevelt stated that the election of 1932 was a “call to arms”. Although Roosevelt promised a New Deal, as the campaign went on he did not define what it would entail, largely because he didn’t know. Not until he took office did the series of programs and initiatives which became the New Deal take shape, the result of a group of advisors which he called his Brain Trust. Largely consisting of academics with a legal background, the Brain Trust members changed over time, consulting with the President and his cabinet as the policies of the New Deal emerged, helping to guide them through a hostile Republican opposition in Congress and the courts.

4. Roosevelt’s first hundred days introduced the New Deal

During the first hundred days of his administration, FDR remained in constant contact with the Congress, which acceded to his every request, wary of the enormous political power Roosevelt held as a result of popular demand for government action. March 1933, the month in which Roosevelt took office, was the nadir of the American economy during the Great Depression. Improvement began the following month, and remained steady, though often slow. The Economy Act was passed on March 14, 1933, ten days after Roosevelt took office. The Economy Act cut veteran’s pensions and civil service salaries to balance what Roosevelt referred to as the “regular” federal budget. To Roosevelt, there was a regular budget and an emergency budget, the latter being a temporary expedient needed to fund the programs which would end the depression.

Five days before the passage of the Economy Act, Roosevelt proposed the Emergency Banking Act (which had been proposed to Hoover though he failed to act), under which some banks would be reopened under the supervision of the United States Treasury. Federal loans were made available to allow some banks to return to solvency. Within three days 75% of banks which were part of the Federal Reserve System reopened. Before the end of 1933 over four thousand small banks closed or merged into larger banks. Nearly all who had lost their savings received eighty-five cents for each dollar lost, still a loss but not the total loss long perpetuated by myth. The Banking Act also created the Federal Deposit Insurance Corporation, insuring individual savings accounts of up to $2,500, reducing the risk to banks caused by runs on the bank, in which panicked savers withdrew all of their money at once, forcing banks to close their doors due to insufficient cash on hand.

5. The removal of the gold standard

In his early days in office Roosevelt used the power of executive orders and leverage in Congress to remove the United States from the gold standard. He issued orders which forbade the exportation of gold by anyone except those who held a license issued by the Treasury of the United States. In 1933 gold coins were still in circulation in the United States, and during the panicked early days of the Great Depression many hoarded them, as people have hoarded gold in times of crisis throughout history. Roosevelt ordered that gold coins would no longer be considered legal tender in private transactions. All gold coins were thus valueless except when turning them into the government, when they were honored at face value.

The measures taken by Roosevelt were reinforced the following year with the Gold Reserve Act of 1934. Removing the gold standard allowed the Federal Reserve System to release more money into the money supply without having to maintain gold reserves equal to the amount of dollars in circulation. This action led to the decline in prices slowing, and eventually reversing, increasing the value of products accordingly. Increases in industrial production and in the cost of farm goods began almost immediately, and by 1937 production overall had increased by a factor of 25%. By the 1990s economists had reached a near consensus that the removal of the gold standard was the action which had the greatest individual impact in restoring the American economy and ending the Great Depression.

6. The end of prohibition

In his early days in office Roosevelt delivered on a campaign promise to allow the manufacture and sale of alcoholic beverages under federal law, with individual states deciding whether if they were to remain wet or dry. As part of the New Deal (and which gained widespread popular support from it) Roosevelt lobbied Congress to amend the Volstead Act, the legal mechanism for the enforcement of the 18^th Amendment, to allow the sale of beer. Congress complied, and the breweries across the nation which had managed to survive prohibition were quickly back in business, employing their staffs as well as delivery drivers, distributors and salespeople, and providing an additional market for farmers. By December of the same year Prohibition was fully repealed with the ratification of the 21^st amendment to the Constitution.

The repeal of prohibition and the sale of legal alcohol was far more than a morale booster for the American public. In addition to adding to employment (virtually every American city of size had multiple breweries) it proved an important revenue source to local and state coffers through taxes. The political capital Roosevelt acquired, especially in the ethnic communities of urban areas, also helped him gain support for other New Deal programs which otherwise would have been less well-received. The legalization of alcohol also reduced the strain on local police departments which had struggled throughout prohibition to enforce the law, or had been corrupted through the bribery of organized bootlegging groups which had acquired significant power during the so-called “noble experiment”.

7. The National Industrial Recovery Act

The National Industrial Recovery Act, often referred to as the NIRA, was enacted by Congress under Roosevelt’s prodding in June, 1933. It created the Public Works Administration (PWA) and the National Recovery Administration (NRA) to stimulate the economy through the creation of public works and industrial codes and regulations. Initially well received by industry, the enthusiasm waned when manufacturers and others found themselves subjected to federal regulations (such as fair competition requirements, recognition of unions, and in some cases price controls). The NIRA demonstrated an example of FDR’s considerable political wiliness. The army and navy both had their budgets reduced, in part to provide money for the PWA, which was then used to build both ships for the navy (including two aircraft carriers) and tanks and airplanes for the army.

Business leaders and industrialists soured on the act, particularly the NRA, because in their eyes it favored trade unions over management, imposed excessive regulations, and increased their costs of operation. Strenuous arguments over the act drained public support of the NRA, and several lawsuits over portions of the NRA began working their way through the courts. In May of 1935, less than a month before the NIRA was set to expire, the United States Supreme Court ruled that Title I of the act (which created the NRA) was unconstitutional. The NIRA was considered to be a failure in its day and continues to retain that reputation. Many of the codes and regulations promulgated by the NRA were included in the National Labor Relations Act of 1935, a somewhat more successful vehicle.

8. The Public Works Administration was a successful federal program

When the NRA was determined to be unconstitutional in 1935, the PWA (which until then had been known as the Federal Emergency Administration of Public Works) continued in operation. Under the PWA, federal projects were proposed and planned by the federal government and then let out to private contractors for completion. Under the PWA and through federal funding, schools, hospitals, bridges, roads, dams, and other infrastructure were built throughout the country, providing jobs and stimulating private investment and spending. During its first six years of existence the PWA both funded and oversaw over 34,000 construction projects ranging from the paving of streets to the building of New York City’s Lincoln Tunnel. It built scores of airports, several dams, and several bridges, including the Overseas Highway which connected Key West to the mainland.

The PWA is sometimes confused with another New Deal agency, the Works Progress Administration (WPA). The WPA worked with local communities on considerably smaller projects and unlike the PWA paid the workers on its projects directly, rather than through private contractors. The WPA hired its workers directly, and worked with local communities on projects such as parks, community buildings, roads, and sewers. Eventually the WPA employed eight and a half million people before near full employment in 1943 led to it being terminated. The WPA also administered a program called Federal Project Number One to provide employment to artists and actors, musicians and writers, and others such as historians, because, in the immortal words of Roosevelt advisor and close friend Harry Hopkins, “Hell, they’ve got to eat too”.

9. The Civilian Conservation Corps was one of the most popular New Deal programs

The Civilian Conservation Corps (CCC), founded in 1933, grew in the public mind and perception into one of the most – if not the most – successful and popular New Deal programs. Over its nine years of existence, the CCC employed three million young men (initially 18-25 years old, later changed to 17-28), though its maximum size at any one time was 300,000. The CCC first built camps for their own housing with the aid of the US Army, and then built parks, lodges, hiking trails, retaining walls, and campsites, nearly all of which remain in use in the twenty-first century. Over the course of its existence the CCC planted over three billion trees across the United States. The CCC completed erosion control projects which contributed to the reforestation of American woodlands which had been depleted by uncontrolled logging. It was proposed to Congress by FDR in March, 1933, and remained in operation until 1942.

As with the US Army of the day, the CCC was segregated, though the 143 all-black camps received the same pay and benefits as did their white counterparts. Initially camps were integrated, but the all-white southern voting-block in Congress insisted on segregation, and without their support funding was unobtainable. Another division of the CCC operated for the benefit of American Indians, completing projects on tribal lands. Although it remained popular in 1940, conscription began to drain the manpower supply, and by 1942 most healthy young men were entering the military – either by enlistment or the draft. Numerous states maintain similar agencies within their boundaries as of 2018, providing work, training, and pay for those youths who need assistance while benefiting the citizens of the state.

10. The Tennessee Valley Authority was born of the depression

In May 1933, a corporation owned by the federal government was created named the Tennessee Valley Authority. It was proposed by a Senator not from the states it most directly benefited but rather from Nebraska, George Norris. Roosevelt, himself from New York, supported it wholeheartedly. Several congressmen from the states of Tennessee, Kentucky, Alabama, and Mississippi opposed it, arguing that it would usurp private jobs and the development of privately held industries. The TVA was created to electrify the Tennessee Valley and neighboring states through the construction of hydropower dams, with the purpose of providing an environment for the expansion of industry and with it the creation of jobs from the private sector. Electrification was just part of the TVAs role in helping the residents of the Tennessee Valley however.

The TVA provided training to assist farmers in maximizing their crop yields, and developed new fertilizers and pesticides to help. It also provided instruction in erosion control techniques, reforestation of unused land, and conservation of natural resources. The technique of crop rotation was introduced to the valley, and though many locals were initially suspicious and distrustful of the folks from the federal government, the improvements in living conditions which electrification provided gradually won over the natives. The TVA also gradually earned the approval of both conservatives and liberals in Congress and in the legislatures of the states which it serves. In 1964 Senator Goldwater of Arizona proposed selling the TVA to private investors as a cost-saving measure and was stunned by the overwhelming opposition to the idea from both sides of the aisle. He quickly dropped the idea.

11. Paying Farmers not to farm in 1933

Roosevelt’s first Secretary of Agriculture, Henry A. Wallace, and the President were in complete agreement when it came to taking care of farmers. Both believed that an increase in the prices of farm products, while detrimental to the urban poor, would be beneficial to the rural communities across the nation. Both also believed in the need to electrify those areas of the country, in particular the rural south, which had not yet been modernized. Farmers were suffering from Depression conditions long before the rest of the country, in part because of their own efficiency in crop and livestock production, which kept prices for their products low since supply exceeded demand. During FDR’s first one hundred days he pushed through the first of many acts to benefit farmers, the Agriculture Adjustment Act of 1933.

Reasoning that the best way to aid farmers struggling to profit from their profession was to increase the prices they received for their crops, Roosevelt and Wallace derived a means to decrease production by farmers by compensating them for not growing certain crops, or producing less products such as milk. The bill also contained the first nutritional supplementation program in the United States, which evolved eventually into what became known as food stamps. In addition to compensating farmers for reducing production, the federal government instituted programs to purchase excess grain, storing it for gradual release as economic conditions dictated. Ever since, the United States farm bill has been a subject of controversy and debate in the American body politic.

12. The Supreme Court steps in on the Farm Bill

Under the Agriculture Adjustment Act, commodities such as cotton were plowed up and destroyed or left to rot in the fields. Pigs and chickens were slaughtered but not sent to market, destroyed instead. Though food prices did not reach the levels of their peak in 1929, the general public did feel the increase. By 1935 polls indicated that the majority of Americans disapproved of the AAA and the impact it had on the American consumer. The opposition reached the point of lawsuits, which eventually worked their way to the Supreme Court. In 1936, an election year, the Court ruled that the AAA was unconstitutional, and warranted an intrusion into the market which was, “beyond the powers delegated to the federal government”. The decision was one of several which led FDR to propose changes to the Supreme Court following his landslide re-election in November of that year.

Roosevelt and his aides crafted another measure to replace the AAA and although that one too was challenged in the courts, eventually it was upheld by the Supreme Court and ever since the federal government has used various methods to anticipate farm production and its impact on the national economy. The increase in food prices which greatly aided the rural poor had a negative impact on the urban poor, and led to the creation of the Food Stamp Plan in 1939. The plan was suspended in 1943 when the American economy was essentially at full employment and much food was subject to rationing, but in 1961 it was restored. It remained largely unchallenged, benefiting nearly all involved in the production, sale, and consumption of food until the twenty-first century.

13. The Reciprocal Tariff Agreements Act of 1934

During his first campaign for President in 1932 Franklin Roosevelt argued against the Smoot-Hawley tariffs, with the support of most of the nation’s leading economists. Prior to 1934, Congress had the authority to impose tariffs, and did so based on the tariffs established by a trading partner. Congress established and changed tariffs unilaterally, and between 1870 and 1930 often established protectionist tariffs. Typically Republican run Congresses established tariffs higher than those of the trading partner while Democratic Congresses usually lowered them to increase trade. In 1933 Roosevelt tasked Cordell Hull with drafting the Reciprocal Tariff Agreements Act, which he then shepherded through Congress and signed in June 1934, altering the means under which tariffs were established by the United States.

The Reciprocal Tariff Agreements Act of 1934 (RTAA) established that reductions of the tariffs levied by the United States were linked to reciprocal reductions by its trading partners. It also established that the President had the authority to negotiate trade agreements and the terms of the tariffs, and allowed the Senate to confirm the agreement through a simple majority vote, unlike most treaties, which required a two-thirds majority vote for confirmation. It was an action in which Roosevelt convinced the Congress to cede a part of its Constitutional authority to the executive branch. Roosevelt immediately began lowering American tariffs, negotiating similar actions with trading partners, and world-wide trade expanded dramatically once the restraining Smoot-Hawley tariffs were dispensed with. Trade cooperation between nations replaced trade competition as a winner take all philosophy.

14. Roosevelt launches the second New Deal in 1935

In Roosevelt’s annual message to Congress in January 1935, what is now the television extravaganza known as the State of the Union Address, he announced five goals and initiatives for the nation to achieve. Newspaper columnists and radio pundits quickly labeled FDR’s plans as the Second New Deal, in many cases derisively. Roosevelt called for a national work relief program to deal with unemployment (the WPA); the rehabilitation of urban slums; a system of Social Security for the elderly and infirm, security against unemployment; and a better means of exploiting America’s natural resources. Roosevelt faced an increasingly wary Congress, which viewed the extension of the Executive Branch as an encroachment on its own power, and several setbacks in the courts to his original programs, despite the success of several in curbing the worst of the Great Depression.

He also faced the rise of Nazi Germany, the continuing aggression of the Empire of Japan, and the need to improve America’s defensive posture. Roosevelt was the head of state of the only modern nation in the world which lacked any sort of program to ensure the financial security of its elderly. In proposing the Social Security Administration, Roosevelt insisted that the program be funded through payroll taxes, rather than the general fund, (which he needed to conserve for other purposes) at a time when the United States did not yet deduct income tax withholding from pay checks. Federal income tax withholding did not begin until the United States was involved in the Second World War. But Roosevelt stuck to his guns in Social Security taxes, later stating, “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits”.

15. The Social Security Act of 1935

Possibly the most critical action, and most enduring, of Franklin Roosevelt’s long Presidency was the Social Security Act of 1935. That year poverty rates among what would at a later date be known as senior citizens exceeded 50%. Employer funded pensions were virtually non-existent. Once a person’s life savings were used up they had only family, friends, or charities to care for them. Roosevelt’s proposal faced strong opposition from conservatives, who argued that retiring workers would weaken the labor force. Others opposed it on the grounds that it was a form of socialism, threatening to the capitalistic system. Several professions and trades were excluded from the act, including farm labor and librarians, most hospital employees and nurses, and all government workers. Almost half of the labor force was excluded by the terms of the original act.

Because the Constitution prohibits the federal government from levying taxes on the governments of the states, all state employees were excluded, since the law prohibited the federal government from levying the payroll deduction. Despite the opposition from conservatives in Congress and the vast number of Americans who remained without coverage, Roosevelt managed to have the bill passed and it was signed into law in August 1935. Despite arguments by many that the new law was unconstitutional the Supreme Court upheld the law in two separate decisions in the spring of 1937. In 1939 the act was amended to create a trust fund under the Secretary of the Treasury and to add family protection, allowing widows and dependent survivors to receive benefits if the earning worker died. Social Security has remained a point of debate for over eighty years, with no end in sight.

16. The National Labor Relations Act of 1935

The National Labor Relations Act was born out of the failure of the NRA and the controversial means by which it had supported labor at the expense of management in the eyes of many businessmen and conservatives. The act ensured the right of workers to organize into labor unions of their choice, and guaranteed them the right of collective bargaining with their employers over wage increases, benefits, working conditions, and other areas of contention. At the same time the act created the National Labor Relations Board to help reduce labor stoppages and walkouts. The growth of labor unions became almost exponential following the passage of the act, and organized labor became a solid supporting bloc for the New Deal. The American Federation of Labor and the Congress of Industrial Organization, not yet affiliated with each other, competed for workers to join.

The NLRA led to another piece of legislation three years later, which would be the last legislation enacted as part of the New Deal. In 1938 Congress passed the Fair Labor Standards Act, which forbade the employment of children under the age of sixteen (except in certain categories, such as on farms), established a national minimum wage ($.25 per hour), and a work week of 44 hours. The act, unlike most of the New Deal, was strongly supported by northern business interests and manufacturers as a defense against jobs being taken away by southern interests, where wages were often lower. The establishment of a national minimum wage leveled the playing field in their view and they successfully lobbied the conservative members of Congress to pass the bill.

17. The recession of 1937 damaged the economy again

It is an often repeated myth that the Great Depression did not end until the United States military production ended it during the Second World War. In fact, by 1937 production and wages had been restored to the levels of 1929. Profits by industry had also recovered to their pre-depression levels. Farm profits had stabilized, and in many cases improved to levels never before seen by the agricultural industry. Unemployment remained higher than in 1929, but had dropped to just below 15% by the spring of 1937 (from a high of 25%). Then it shot up again. By late 1937 the economy again fell into a recession which lasted through much of 1938. Although neither as devastating nor as severe as the Great Depression (average personal income grew throughout the recession), it was nonetheless an economic setback which was quickly politicized.

The New Deal was blamed for the recession by conservatives, who argued that Roosevelt’s policies had been damaging to business. Social Security was resurrected as a contributing cause, with conservatives claiming the program had removed too much cash from the money supply. Roosevelt argued that the recession was caused by big business which wanted to remove the worker’s safeguards the New Deal had installed. Franklin Roosevelt opposed deficit spending throughout his Presidency (which was one reason for the Social Security payroll deduction), but in early 1938 he authorized a $5 billion dollar program to stimulate the economy through government investment, ensuring that the budget for that year would be in deficit. By mid-1938 the economy had for the most part recovered. The causes of the recession of 1937 are still debated among historians and economists.

18. The Great Depression was over before America entered the war

In 1940 the United States economy received another shot in the arm as Great Britain, at war with Nazi Germany, became dependent on the United States for non-warlike supplies such as heating oil, food, and raw materials (many of which were also useful to make war, such as steel and rubber). Unemployment in the United States dropped steadily, and after America entered the war it reached full employment rapidly. Despite the American people finally achieving full employment and with jobs paying well, the goods which were produced were frequently rationed, including foodstuffs, rubber, gasoline, and many others. Travel was restricted as wartime priorities were enforced. Detroit quit making new cars and instead concentrated on the weapons of war. Piano factories made components of Norden bombsight. Radio manufacturers made anti-aircraft shell fuses. Consumer goods, which Americans could finally afford, were unavailable.

During the three years between the Recession of 1937 and the entry of American into the war the national economy grew steadily. When the war began and the privations imposed on the home front took hold, it was linked with the Depression of the early 1930s. Following the war the American economy was again boosted by the GI Bill, the expanding housing market, the availability of new automobiles, and the government-funded boom in road building. Because prosperity wasn’t really felt by the American public until the war ended, the belief that the war ended the Great Depression emerged. It didn’t and in fact a brief recession followed the war as industry retooled for consumer goods and unemployed returning veterans clogged the labor market. The Great Depression still marks the American psyche, its landscape altered by programs such as the CCC and its federal budget by many of the agencies created by the New Deal and subsequent federal programs which continue to affect the American economy and lifestyle.

Where do we find this stuff? Here are our sources:

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“Repeal of Prohibition”. David J. Hanson, Sociology Department, State University of New York. Online

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“The Making of the TVA”. Arthur E. Morgan. 1974

“The Farm Bill: From Charitable Start to Prime Budget Target”. Kathleen Masterson, National Public Radio (transcript). September 26, 2011

“Supreme Power: Franklin Roosevelt vs The Supreme Court”. Jeff Shesol. 2010

“America’s Protectionist Past: The Hidden History of Trade”. Spencer P. Morrison, National Economics Editorial. December 23, 2016

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“The Wagner Act: Its Origin and Current Significance”. Leon H. Keyeserling, George Washington University Law Review. 1961

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