8.2: Democratic Reformers in the Americas - A New Deal for Who?

The Economic Policies of Franklin Delano Roosevelt

The stock market crash and the collapse of the financial system hit the United States hard. As poverty skyrocketed, Republican President Herbert Hoover had few initiatives to bring economic recovery. As a result, American voters simply changed the party in power in the 1932 elections, from the Republicans to the Democrats.  The new president, Franklin D. Roosevelt (FDR), initiated an economic recovery program known as the New Deal. For the most part, Roosevelt supported government intervention and regulation to address the ongoing Depression.  He embraced the ideas of John Keynes who established Keynesian Economics. Keynes argued that the government should spend on public works and other projects to put money in the pockets of workers. Then, these workers could buy things and businesses would hire more workers. The people who supported these reforms were part of the New Deal Coalition which consisted of farmers, industrial workers, the urban middle class, northern African Americans, academic elites, and white southerners. They all believed that the national government should provide Americans with protection against the economic hard times from the Great Depression. Unregulated capitalism was discredited. The working class (factory workers, miners, and construction workers) primarily benefited from the New Deal and the vast majority of these workers were white.  Agricultural workers were mostly non-white and included sharecroppers, tenant farmers, and agricultural wage laborers. These workers remained impoverished and did not benefit from New Deal programs.

Roosevelt’s first priority was stabilizing the economy by restoring confidence in the financial system. The government temporarily closed the banks and examined them. This “banking holiday” gave the government time to allow the healthy banks to reopen while keeping at-risk institutions closed.  Additionally, FDR established the Federal Deposit Insurance Corporation (FDIC) which is insurance paid for by banks that guarantees that depositors will receive their savings (nowadays up to $250,000), in case of a bank failure. The FDIC helped bring an end to “runs on banks” by increasing people’s confidence in the banking system. Also, the Glass-Steagall Act prevented commercial banks from dabbling in the securities and insurance industries, acting like an investment bank. Finally, the government created the Securities and Exchange Commission (SEC) which was a new agency that would oversee Wall Street. After these reforms, no major banks failed.

Another area of the economy that Roosevelt wanted to stabilize was agriculture. During the 1920s, US agriculture was in serious decline, because crop prices were too low. So, the government put in place the Agricultural Adjustment Act which raised crop prices by paying farmers not to plant more crops. This raised the incomes of property-owning farmers and land foreclosures dropped dramatically in the 1930s. However, the Agricultural Adjustment Act harmed many LatinX, Asian, and African-American families who were landless farm workers, sharecroppers, and tenant farmers.  When the government paid mostly white farmers not to grow crops, many of these families who actually worked the land were evicted. Right as the Great Depression was setting in, a drought struck the Great Plains in the early 1930s. Then, winds blew away the topsoil which resulted in over half a million people left homeless. The “Dust Bowl” displaced more than one million farmers, many who became migrant farmers relocating to California. Roosevelt’s new programs taught new farming methods in an effort to prevent a future Dust Bowl.

The New Deal sought to reduce both unemployment and poverty. The government went into debt and increased taxes on the rich to fund programs to help the workers and the poor.  The Works Progress Administration (WPA) was a massive infrastructure program which employed millions of Americans.  Wages and living standards went up dramatically for industrial workers. Union membership skyrocketed under the Wagner Act which legalized labor unions. Wages also increased for millions of Americans with the passage of the Fair Labor Standards Act which set a minimum wage and required overtime pay for hours of work exceeding the forty-hour work week. The Roosevelt administration also raised living standards with the creation of government funded welfare. The Social Security System was established in 1935 in which workers and employers contributed to the  creation of retirement pensions and unemployment insurance.

The Politics of Racial Exclusion 

The promotion of racial equality in the United States was not one of FDR’s major priorities. During the 1930s, the government did not put in place laws which banned employment discrimination, education discrimination, or residential segregation. More and more, Mexicans and Mexican Americans were being scapegoated for high levels of unemployment. As a result, US government vans drove all over the country and demanded that Mexicans and Mexican Americans show proof that they were in the USA legally. If they did not have the right documentation on the spot, they were deported to Mexico.  For this reason, hundreds of thousands of Mexicans were rounded up indiscriminately and deported. Additionally, the government did not enforce the Wagner Act or the Fair Labor Standards Act for farm workers who tended to be Asian, African American, and LatinX. Farm workers, domestic workers, and housewives were also ineligible to receive social security benefits. Millions of Americans got low interest, long term loans to buy homes, because the government created the Federal Housing Administration (FHA) which insured long-term mortgages issued by banks. However, banks would only give loans to buyers that could move into white neighborhoods and African Americans could not move into white neighborhoods. This practice is known as redlining and resulted increasingly in White suburbs and Black urban areas.

Nevertheless, there were some advances toward greater social justice at this time. Roosevelt appointed more African Americans to mid-level government positions than any other president before him. About forty-five African Americans in cabinet departments and New Deal Agencies came together to form the Black Cabinet. These leaders worked with civil rights activists to fight racism. The most important civil rights organization in the USA was the National Association for the Advancement of Colored People (NAACP), founded in the early 1900s. Together with the Black Cabinet, civil rights leaders sought to pressure the government to end Jim Crow, enforce voting rights, and put in place anti-lynching legislation. However, FDR believed that he needed the support of the southern Democrats so he did not challenge the racism in the South. The New Deal was not designed to benefit African Americans but was created to help those experiencing economic hard times and a lot of African Americans were experiencing poverty. So, some African Americans, particularly in the north, benefited from the New Deal. Eleanor Roosevelt was one of the first national figures in the Democratic Party to come out in favor of racial equality.  She was an advocate for anti-lynching measures and also criticized segregation. Eleanor Roosevelt was a very visible first lady, because she traveled throughout the country to see the New Deal in action and made public speeches. Her husband was less mobile, because he had been stricken with polio years earlier.  Eleanor Roosevelt is shown in figure 8.2.1 visiting African Americans at a nursery school funded by the national government. How was she different from other first ladies?

Figure \(\PageIndex{1}\): Eleanor Roosevelt at WPA Nursery School, FDR Presidential Library and Museum, is licensed under CC BY

After mounting pressure from civil rights activists and a major war on the horizon, in 1941 FDR created the Fair Employment Practices Committee which was a government agency designed to ensure that the defense industry would not discriminate based on race. This was the first major civil rights initiative by the US government since Reconstruction and the first time a Democratic president ever supported civil rights policies. Additionally, FDR signed into law the Indian Reorganization Act which allowed for communal ownership of land, tribal self-government, and government assistance. More natives were hired to oversee native communities in the Bureau of Indian Affairs. The New Deal encouraged natives to revive their arts and culture. So, the government abandoned the policy of forcing natives to give up their culture. Nevertheless, living conditions for Native Americans did not improve. The government did not make the reservations economically prosperous with things like irrigation or the modernization of agriculture.

By the late 1930s, southern Democratic congressmen, who initially supported the New Deal grew increasingly opposed to it. In particular, White southerners feared that African American sharecroppers would try to unionize. Roosevelt was concerned about growing government debt, resulting in cuts to program spending and worker layoffs.  Unemployment then increased dramatically in 1938 while Democrats in the north lost seats in Congress to the Republicans. The Republicans in the North made some gains and worked with the Southern Democrats to block any New Deal legislation. This “Conservative Coalition” would continue to dominate Congress until 1965.

Primary Sources: Franklin D. Roosevelt, Speech to the Democratic National Convention (1936) 

By 1936, the New Deal was in full swing and President Roosevelt marshaled support for initiatives that would raise incomes for millions of Americans.

Discussion Questions

• What problems are people facing?
• What is the role of government in this speech?

For out of this modern civilization economic royalists carved new dynasties. It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over government itself…The hours men and women worked, the wages they received, the conditions of their labor these had passed beyond the control of the people and were imposed by this new industrial dictatorship… Private enterprise, indeed, became too private...A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor­ other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness. Against economic tyranny such as this, the American citizen could appeal only to the organized power of government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was then people's mandate to end it. Under that mandate it is being ended.

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power

The Public Papers and Addresses of Franklin D. Roosevelt, edited by Samuel I. Rosenman, Random House, in the Public Domain.

Review Questions

• How were FDR’s policies based on racial exclusion?
• What were some of the successes and shortcomings of the New Deal?