26.2 The First New Deal

The First New Deal: Legislation, Impact, and Roosevelt's Approach

The First New Deal was FDR's rapid-fire legislative response to the Great Depression, launched during his famous "Hundred Days" in office (March–June 1933). It introduced sweeping legislation to stabilize banks, provide relief to the unemployed, and stimulate economic recovery. Programs like the CCC and PWA created jobs, while agencies like the FDIC restored confidence in the financial system.

Roosevelt's approach emphasized "bold, persistent experimentation" and dramatically expanded the federal government's role in the economy. While the First New Deal didn't fully resolve the Depression, it provided immediate relief, laid the groundwork for future reforms, and permanently reshaped the relationship between government and the economy.

Major Legislation of the First New Deal

The First New Deal's legislation falls into several categories. Understanding these groupings helps you see how FDR attacked the Depression on multiple fronts simultaneously.

Banking and Finance

• Emergency Banking Act (1933) closed all banks for a four-day "bank holiday." Federal inspectors examined each bank's books, and only solvent banks were allowed to reopen. This simple move restored public confidence and stopped the wave of bank runs that had been destroying the financial system.
• Glass-Steagall Act (1933) separated commercial banking (where ordinary people deposit money) from investment banking (where firms make risky speculative bets). It also created the Federal Deposit Insurance Corporation (FDIC), which insured individual bank deposits up to $2,500. Knowing their money was guaranteed, depositors stopped panicking.
• Securities Act (1933) required companies selling stocks to fully disclose financial information and prohibited fraud in securities sales. This targeted deceptive practices like pump-and-dump schemes that had fueled the 1929 crash.

Relief and Welfare

• Federal Emergency Relief Administration (FERA) provided direct relief to the unemployed through grants to states and localities. At its peak, roughly 20% of American families received some form of FERA assistance.
• Civil Works Administration (CWA) was a short-term emergency program that employed about 4 million people in public works projects during the harsh winter of 1933–1934, constructing or repairing roads, bridges, and schools.
• Civilian Conservation Corps (CCC) employed young men aged 18–25 in conservation projects like planting trees, building parks, and fighting soil erosion. Over its lifetime, the CCC provided work for roughly 3 million young men, who sent much of their pay home to their families.

Agriculture

• Agricultural Adjustment Act (AAA) paid farmers to reduce crop production in order to raise prices. Farm incomes had collapsed because overproduction drove prices to rock bottom. The AAA's subsidies helped, but the program drew sharp criticism for destroying crops and slaughtering livestock while millions of Americans went hungry.
• The AAA also attempted to address the devastating effects of the Dust Bowl, which was displacing thousands of farming families across the Great Plains.

Industry and Labor

• National Industrial Recovery Act (NIRA) created the National Recovery Administration (NRA), which set industry-wide codes of fair competition, established minimum wages, and guaranteed workers the right to organize unions (Section 7a). Compliance was voluntary, and the NRA struggled with enforcement. The Supreme Court struck it down as unconstitutional in Schechter Poultry Corp. v. United States (1935).
• Public Works Administration (PWA), run by Harold Ickes, funded large-scale infrastructure projects to create jobs and stimulate the economy. PWA projects included major construction like the Triborough Bridge in New York and Grand Coulee Dam in Washington.

Regional Development

• Tennessee Valley Authority (TVA) was a government-owned corporation that built dams and power plants across the Tennessee Valley, one of the poorest regions in the country. It provided flood control, cheap electricity, and economic development to parts of seven states. The TVA was unique because it represented direct government competition with private enterprise, which made it especially controversial among business leaders.

Impact of First New Deal Recovery

The First New Deal produced real but incomplete results. GDP rose and unemployment fell between 1933 and 1937, but the economy didn't return to 1929 levels of output until around 1936, and unemployment remained stubbornly high (still above 14% in 1937).

Programs like the CCC and CWA provided immediate relief and put money in people's pockets, which boosted consumer demand. Agricultural and industrial policies had more limited success: overproduction persisted, and labor unrest continued in many industries.

Criticisms came from both sides:

• Critics on the left (like Senator Huey Long and Dr. Francis Townsend) argued the New Deal didn't go far enough in addressing income inequality and underconsumption.
• Critics on the right (like the American Liberty League) saw the expanded federal role as a dangerous threat to free enterprise and individual liberty.
• The Supreme Court struck down key programs, including the NRA (1935) and the AAA (1936), limiting Roosevelt's ability to implement his agenda.

Long-term significance:

• Established the precedent that the federal government bears responsibility for economic stability and citizens' welfare
• Introduced the concept of a social safety net (though Social Security itself came during the Second New Deal in 1935)
• Laid the foundation for future regulations like the Fair Labor Standards Act (1938), which set a national minimum wage and banned child labor

Roosevelt's Economic Reform Approach

"Bold, persistent experimentation" was more than a slogan. FDR was willing to try unconventional solutions, and when something didn't work, he adjusted or scrapped it. The CWA, for example, lasted only a few months before being replaced by other programs. This flexibility set FDR apart from Hoover, who had been far more cautious about federal intervention.

The Three Rs provide a useful framework for understanding First New Deal priorities:

1. Relief: Immediate aid to those suffering most, through direct payments (FERA) and employment programs (CCC, CWA)
2. Recovery: Short-term economic stimulus through public works spending (PWA) and agricultural/industrial price stabilization (AAA, NRA)
3. Reform: Long-term structural changes to prevent future crises, including banking regulations (Glass-Steagall, FDIC) and securities oversight

FDR also expanded the power of the executive branch significantly through the creation of dozens of new federal agencies, often called the "Alphabet Agencies" because of their acronyms. This concentration of power in the presidency was itself a lasting change in American government.

Communication and coalition-building were central to FDR's success. His fireside chats, broadcast by radio directly into Americans' living rooms, explained complex policies in plain language and built enormous public trust. He also assembled a broad political coalition of Southern Democrats, urban workers, African Americans, and progressive reformers that would dominate American politics for decades.

Roosevelt's Advisors and Economic Theory

• Brain Trust: An informal group of academic advisors, including Raymond Moley, Rexford Tugwell, and Adolf Berle, who helped shape early New Deal policies. They brought expertise in economics, law, and agriculture that FDR's administration otherwise lacked.
• Keynesian influence: The British economist John Maynard Keynes argued that during a depression, government should spend heavily to stimulate demand, even if it means running a deficit. FDR adopted some Keynesian ideas (like public works spending), though he never fully embraced deficit spending and actually tried to balance the budget in 1937, which triggered a sharp recession.
• Second New Deal: The later phase (1935–1936) shifted emphasis toward social welfare and labor rights, producing landmark legislation like Social Security and the Wagner Act. You'll likely cover this in a separate section.
• Court-packing plan (1937): Frustrated by the Supreme Court striking down New Deal programs, FDR proposed adding up to six new justices to the Court. The plan failed in Congress and damaged FDR's political standing, though the Court soon began upholding New Deal legislation anyway (sometimes called "the switch in time that saved nine").