Cameron Miranda
Franklin D. Roosevelt (FDR) was inaugurated as U.S. President in March 1933, at a time when the country was in the depths of the Great Depression. Crippling economic woes, including a crisis in the banking system, high unemployment, and declining wages, salaries and production, prompted Roosevelt to take swift action. In the first three months of his presidency, FDR signed a flurry of laws and acts, collectively known as the New Deal, aimed at providing immediate economic relief and reforming industry, agriculture, finance, waterpower, labour, and housing.
| Characteristics | Values |
|---|---|
| Years in operation | 1933-1939 |
| Objective | To provide immediate economic relief and bring about reforms to stabilize the economy |
| Agencies established | Works Progress Administration (WPA), Civilian Conservation Corps (CCC), Federal Art Project, Federal Writers' Project, Federal Theatre Project, National Recovery Administration (NRA), Securities and Exchange Commission (SEC), Agricultural Adjustment Administration (AAA), Public Works Administration (PWA) |
| Legislation | Emergency Banking Act, 1933 Banking Act, Wealth Tax Act (Revenue Act of 1935), National Housing Act, Federal Farm Bankruptcy Act, Adjusted Compensation Act |
| Other notable acts | Neutrality Acts (1935, 1937, 1939) |
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What You'll Learn
The Emergency Banking Act
The Act was an amendment to the Trading with the Enemy Act of 1917. It allowed the twelve Federal Reserve Banks to issue additional currency on good assets so that banks that reopened would be able to meet every legitimate call. The Federal Reserve committed to supplying unlimited amounts of currency to reopened banks, creating 100% deposit insurance. The Act also provided for the reopening of banks as soon as examiners found them to be financially secure.
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Wealth Tax Act
In 1935, Franklin D. Roosevelt persuaded Congress to pass the Wealth Tax Act (officially the Revenue Act of 1935), a tax program to redistribute wealth. The Act imposed a progressive tax of up to 75% on incomes over $1 million per year, though some sources state the threshold was $5 million. This rate applied to an extraordinarily high income in the 1930s, so the highest tax rate only applied to one individual—John D.
The Wealth Tax Act was part of Roosevelt's New Deal, a series of programs and reforms to provide immediate economic relief and stabilise the economy in the wake of the Great Depression. The New Deal also included the creation of agencies such as the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) to provide jobs and aid to the unemployed, as well as the Agricultural Adjustment Administration (AAA) to support farmers, and the National Recovery Administration (NRA) to establish fair practices, minimum wages, maximum hours, and collective bargaining rights.
The Revenue Act of 1935 was signed into law by Roosevelt despite strong opposition from businesses, wealthy individuals, and conservatives from both parties. The Act was also known as the ""Soak the Rich" tax, and it aimed to address the problem of tax evasion through loopholes. Roosevelt acknowledged the hostility created by the tax, stating:
> "The forces of organized money... are unanimous in their hate for me - and I welcome their hatred. I should like to have it said of my first administration that in it, the forces of selfishness and of lust for power met their match."
Despite the progressive nature of the Wealth Tax Act, some critics argued that Roosevelt's tax program was overall regressive, with payroll levies to finance social security impacting low-income groups, and stimulating the spread of regressive sales taxes. However, the Act was expected to increase annual revenue by approximately $250 million when it came into effect.
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Agricultural Adjustment Administration
The Agricultural Adjustment Administration (AAA) was an agency of the U.S. Department of Agriculture, created in 1933 to oversee the distribution of subsidies to farmers. The AAA was formed as a result of the Agricultural Adjustment Act (also known as AAA) , which was a
The Agricultural Adjustment Act was designed to provide immediate economic relief to farmers during the Great Depression. The Act aimed to increase farmers' purchasing power by reducing surpluses of agricultural products and encouraging prices to rise to sustainable levels. This was to be achieved by offering farmers subsidies in exchange for limiting their production of certain crops. The government bought livestock for slaughter and paid farmers not to plant on a portion of their land. The money for these subsidies was generated through a tax on companies that processed farm products.
The Act targeted commodities such as wheat, corn, hogs, cotton, tobacco, rice, and milk, as changes in the prices of these goods had a strong effect on the prices of other important commodities. The Act also dealt with regulating exports and foreign trade, and a processing tax was introduced.
The Agricultural Adjustment Administration was given a budget of $100 million (roughly $2.3 billion in 2023) for subsidy and benefit payments made directly to farmers. The administration also had the power to enforce the act and assemble local committees to administer its provisions.
The Agricultural Adjustment Act was largely successful at raising crop prices, but it disproportionately benefited large landowners over sharecroppers and tenant farmers. In 1936, the Supreme Court struck down the AAA, finding that it was illegal to tax processors to pay farmers. However, the Act set the stage for nearly a century of federal crop subsidies and crop insurance.
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National Recovery Administration
The National Recovery Administration (NRA) was established by Franklin D. Roosevelt in 1933 to supervise fair trade codes and guarantee laborers collective bargaining rights. The NRA was created by the National Industrial Recovery Act (NIRA), which was enacted by Congress in June 1933 as part of Roosevelt's New Deal. The NIRA sanctioned, supported, and in some cases, enforced an alliance of industries, suspending antitrust laws and requiring companies to write industry-wide "codes of fair competition" that fixed prices and wages, set production quotas, and imposed restrictions on other companies entering the alliances.
The NRA reflected divergent goals and was criticised from the beginning. Business people who dominated the code drafting wanted guaranteed profits and insisted on security for their investments and future production. Labor union representatives fought with little success for the collective bargaining promised by the NIRA, and the codes did little to help recovery, with prices raised by the codes making the economic situation worse.
The NRA established 557 basic codes and 208 supplementary codes that affected about 22 million workers. The codes aimed to eliminate unfair trade practices, reduce unemployment, establish minimum wages and maximum hours, and guarantee the right of labour to bargain collectively. Companies that subscribed to the NRA codes were allowed to display a Blue Eagle emblem, symbolic of cooperation with the NRA, in their shop windows and on their packages. President Roosevelt's goal was for consumers to shop only at stores that displayed the Blue Eagle, and to avoid those that did not, thereby pressuring non-compliant stores to adopt the policies of the NRA.
The NRA did not last long enough to fully implement its policies. In May 1935, the U.S. Supreme Court invalidated the compulsory-code system on the grounds that the NIRA improperly delegated legislative powers to the executive.
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Federal Housing Administration
The Federal Housing Administration (FHA), also known as the Office of Housing within the Department of Housing and Urban Development (HUD), was established by President Franklin D. Roosevelt in 1934. It was created as a permanent agency with a mandate to insure "economically sound" loans, requiring private lenders to offer lower interest rates and longer durations than were typically available. The FHA's primary function is to provide insurance for mortgages originated by private lenders for various types of properties, including single-family homes, multifamily rental properties, hospitals, and residential care facilities.
The FHA's insurance serves to protect private lenders from financial losses. In the event of a borrower defaulting on their mortgage, the FHA compensates the lender for the outstanding principal balance. This arrangement reduces the risk assumed by lenders, allowing them to offer a larger number of mortgages. Within four years of its inception, prospective homeowners could purchase a house with just a 10% down payment, financing the remaining 90% through a 25-year, self-amortizing, FHA-insured mortgage loan.
The establishment of the FHA had a significant impact on the housing market in the United States. Homeownership rates experienced a notable increase, rising from 40% in the 1930s to 61-65% by 1995, with a peak of nearly 69% in 2005. The FHA played a pivotal role in financing homes for returning white veterans and their families after World War II, extending to both single-family and multifamily homes. During the 1950s to 1970s, the FHA was crucial in catalysing the construction of millions of privately-owned apartments for the elderly, handicapped, and lower-income Americans.
It is important to note that the FHA has been criticised for institutionalising redlining, a practice that resulted in racial segregation in lending and housing. The FHA's underwriting criteria often excluded core urban neighbourhoods or those with a racially diverse population, contributing to the legacy of discriminatory lending practices in the United States.
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Frequently asked questions
The New Deal was a domestic program enacted by Franklin D. Roosevelt (FDR) between 1933 and 1939. It aimed to provide immediate economic relief and bring about reforms to stabilize the economy.
The New Deal led to the creation of the National Recovery Administration (NRA), which allowed industries to create "codes of fair competition"; the Securities and Exchange Commission (SEC), which protected investors from abusive stock market practices; and the Agricultural Adjustment Administration (AAA), which raised rural incomes by controlling production. Other agencies included the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC), which provided jobs and governmental aid.
FDR also signed the Emergency Banking Act of 1933, which authorized the Federal Reserve to insure deposits and restore confidence in banks. The Federal Housing Administration was also created by the National Housing Act, and the Wealth Tax Act (Revenue Act of 1935) was introduced to redistribute wealth. FDR also signed the Neutrality Acts of the 1930s, which aimed to keep the US out of foreign wars.
FDR's New Deal laws helped reduce unemployment and provided jobs for millions. They also helped to narrow the gap between rich and poor, with price controls and food rationing providing a reasonably priced diet for all. The New Deal increased the scope of the federal government's activities and helped alleviate the suffering of the nation's unemployed workers.
