First New Deal (1933-1934) : Brain Trust Secretary of Labor Frances Perkins

First New Deal (1933–1934)[edit]
1935 cartoon by Vaughn Shoemaker in which he parodied the New Deal as a card game with alphabetical
agencies
Roosevelt entered office without a specific set of plans for dealing with the Great Depression—so he
improvised as Congress listened to a very wide variety of voices.[25] Among Roosevelt's more famous
advisers was an informal "Brain Trust", a group that tended to view pragmatic government
intervention in the economy positively.[26] His choice for Secretary of Labor, Frances Perkins, greatly
influenced his initiatives. Her list of what her priorities would be if she took the job illustrates: "a forty-
hour workweek, a minimum wage, worker's compensation, unemployment compensation, a federal
law banning child labor, direct federal aid for unemployment relief, Social Security, a revitalized
public employment service and health insurance". [27]
The New Deal policies drew from many different ideas proposed earlier in the 20th century.
Assistant Attorney General Thurman Arnold led efforts that hearkened back to an anti-monopoly
tradition rooted in American politics by figures such as Andrew Jackson and Thomas Jefferson.
Supreme Court Justice Louis Brandeis, an influential adviser to many New Dealers, argued that
"bigness" (referring, presumably, to corporations) was a negative economic force, producing waste
and inefficiency. However, the anti-monopoly group never had a major impact on New Deal policy.
[28]
Other leaders such as Hugh S. Johnson of the NRA took ideas from the Woodrow
Wilson Administration, advocating techniques used to mobilize the economy for World War I. They
brought ideas and experience from the government controls and spending of 1917–1918. Other New
Deal planners revived experiments suggested in the 1920s, such as the TVA. The "First New Deal"
(1933–1934) encompassed the proposals offered by a wide spectrum of groups (not included was
the Socialist Party, whose influence was all but destroyed).[29] This first phase of the New Deal was
also characterized by fiscal conservatism (see Economy Act, below) and experimentation with
several different, sometimes contradictory, cures for economic ills.
Roosevelt created dozens of new agencies through Executive Orders. They are traditionally and
typically known to Americans by their alphabetical initials.
The First 100 Days (1933)[edit]

Main article: First 100 days of Franklin D. Roosevelt's presidency
The American people were generally extremely dissatisfied with the crumbling economy, mass
unemployment, declining wages and profits and especially Herbert Hoover's policies such as
the Smoot–Hawley Tariff Act and the Revenue Act of 1932. Roosevelt entered office with
enormous political capital. Americans of all political persuasions were demanding immediate action
and Roosevelt responded with a remarkable series of new programs in the "first hundred days" of
the administration, in which he met with Congress for 100 days. During those 100 days of
lawmaking, Congress granted every request Roosevelt asked and passed a few programs (such as
the Federal Deposit Insurance Corporation to insure bank accounts) that he opposed. Ever since,
presidents have been judged against Roosevelt for what they accomplished in their first 100
days. Walter Lippmann famously noted:
At the end of February we were a congeries of disorderly panic-stricken mobs and factions. In the
hundred days from March to June we became again an organized nation confident of our power to
provide for our own security and to control our own destiny. [30]
The economy had hit bottom in March 1933 and then started to expand. Economic indicators show
the economy reached its lowest point in the first days of March, then began a steady, sharp upward
recovery. Thus the Federal Reserve Index of Industrial Production sank to its lowest point of 52.8 in
July 1932 (with 1935–1939 = 100) and was practically unchanged at 54.3 in March 1933. However,
by July 1933 it reached 85.5, a dramatic rebound of 57% in four months. Recovery was steady and
strong until 1937. Except for employment, the economy by 1937 surpassed the levels of the late
1920s. The Recession of 1937 was a temporary downturn. Private sector employment, especially in
manufacturing, recovered to the level of the 1920s, but failed to advance further until the war. The
U.S. population was 124,840,471 in 1932 and 128,824,829 in 1937, an increase of 3,984,468. [31] The
ratio of these numbers, times the number of jobs in 1932, means there was a need for 938,000 more
jobs in 1937, to maintain the same employment level.
Fiscal policy[edit]
The Economy Act, drafted by Budget Director Lewis Williams Douglas, was passed on March 15,
1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the
salaries of government employees and cutting pensions to veterans by fifteen percent. It saved
$500 million per year and reassured deficit hawks, such as Douglas, that the new president was
fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget, which
he balanced; and the emergency budget, which was needed to defeat the depression. It was
imbalanced on a temporary basis.[32]
Roosevelt initially favored balancing the budget, but soon found himself running spending deficits to
fund his numerous programs. However, Douglas—rejecting the distinction between a regular and
emergency budget—resigned in 1934 and became an outspoken critic of the New Deal. Roosevelt
strenuously opposed the Bonus Bill that would give World War I veterans a cash bonus. Congress
finally passed it over his veto in 1936 and the Treasury distributed $1.5 billion in cash as bonus
welfare benefits to 4 million veterans just before the 1936 election. [33]
New Dealers never accepted the Keynesian argument for government spending as a vehicle for
recovery. Most economists of the era, along with Henry Morgenthau of the Treasury Department,
rejected Keynesian solutions and favored balanced budgets. [34]
Banking reform[edit]
Crowd at New York's American Union Bank during a bank run early in the Great Depression
Roosevelt's ebullient public personality, conveyed through his declaration that "the only thing we have to fear is
fear itself" and his "fireside chats" on the radio did a great deal to help restore the nation's confidence
Fireside Chat 1 On the

Banking Crisis
MENU
0:00
Roosevelt's
first Fireside Chat on
the Banking Crisis
(March 12, 1933)
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help.
At the beginning of the Great Depression, the economy was destabilized by bank failures followed
by credit crunches. The initial reasons were substantial losses in investment banking, followed
by bank runs. Bank runs occurred when a large number of customers withdrew their deposits
because they believed the bank might become insolvent. As the bank run progressed, it generated a
self-fulfilling prophecy: as more people withdrew their deposits, the likelihood of default increased
and this encouraged further withdrawals.
Milton Friedman and Anna Schwartz have argued that the drain of money out of the banking system
caused the monetary supply to shrink, forcing the economy to likewise shrink. As credit and
economic activity diminished, price deflation followed, causing further economic contraction with
disastrous impact on banks.[35] Between 1929 and 1933, 40% of all banks (9,490 out of 23,697
banks) failed.[36] Much of the Great Depression's economic damage was caused directly by bank
runs.[37]
Herbert Hoover had already considered a bank holiday to prevent further bank runs, but rejected the
idea because he was afraid to incite a panic. However, Roosevelt gave a radio address, held in the
atmosphere of a Fireside Chat. He explained to the public in simple terms the causes of the banking
crisis, what the government would do, and how the population could help. He closed all the banks in
the country, and kept them all closed until new legislation could be passed. [38]
On March 9, 1933, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by
Hoover's top advisors. The act was passed and signed into law the same day. It provided for a
system of reopening sound banks under Treasury supervision, with federal loans available if
needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three
days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus
stabilizing the banking system.[39] By the end of 1933, 4,004 small local banks were permanently
closed and merged into larger banks. Their deposits totaled $3.6 billion. Depositors lost $540 million
(equivalent to $10,665,347,044 in 2019) and eventually received on average 85 cents on the dollar
of their deposits.[40]
The Glass–Steagall Act limited commercial bank securities activities and affiliations between
commercial banks and securities firms to regulate speculations. It also established the Federal
Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500, ending the risk of
runs on banks.[41] This banking reform offered unprecedented stability as while throughout the 1920s
more than five hundred banks failed per year, it was less than ten banks per year after 1933. [42]
Monetary reform[edit]
Under the gold standard, the United States kept the dollar convertible to gold. The Federal
Reserve would have had to execute an expansionary monetary policy to fight the deflation and to
inject liquidity into the banking system to prevent it from crumbling—but lower interest rates would
have led to a gold outflow.[43] Under the gold standards, price–specie flow mechanism countries that
lost gold, but nevertheless wanted to maintain the gold standard, had to permit their money supply to
decrease and the domestic price level to decline (deflation).[44] As long as the Federal Reserve had to
defend the gold parity of the dollar it had to sit idle while the banking system crumbled. [43]
In March and April in a series of laws and executive orders, the government suspended the gold
standard. Roosevelt stopped the outflow of gold by forbidding the export of gold except under
license from the Treasury. Anyone holding significant amounts of gold coinage was mandated to
exchange it for the existing fixed price of U.S. dollars. The Treasury no longer paid out gold for
dollars and gold would no longer be considered valid legal tender for debts in private and public
contracts.[45]
The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold.
With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from
$20.67 per troy ounce to $35. These measures enabled the Federal Reserve to increase the amount
of money in circulation to the level the economy needed. Markets immediately responded well to the
suspension in the hope that the decline in prices would finally end. [45] In her essay "What ended the
Great Depression?" (1992), Christina Romer argued that this policy raised industrial production by
25% until 1937 and by 50% until 1942. [46]
Securities Act of 1933[edit]
Before the Wall Street Crash of 1929, securities were unregulated at the federal level. Even firms
whose securities were publicly traded published no regular reports or even worse rather misleading
reports based on arbitrarily selected data. To avoid another Wall Street Crash, the Securities Act of
1933 was enacted. It required the disclosure of the balance sheet, profit and loss statement, and the
names and compensations of corporate officers for firms whose securities were traded. Additionally,
the reports had to be verified by independent auditors. In 1934, the U.S. Securities and Exchange
Commission was established to regulate the stock market and prevent corporate abuses relating to
corporate reporting and the sale of securities.[47]
Repeal of Prohibition[edit]
In a measure that garnered substantial popular support for his New Deal, Roosevelt moved to put to
rest one of the most divisive cultural issues of the 1920s. He signed the bill to legalize the
manufacture and sale of alcohol, an interim measure pending the repeal of prohibition, for which a
constitutional amendment of repeal (the 21st) was already in process. The repeal amendment was
ratified later in 1933. States and cities gained additional new revenue and Roosevelt secured his
popularity especially in the cities and ethnic area

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First New Deal (1933–1934)[edit]

The First 100 Days (1933)[edit]

Fireside Chat 1 On the

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