The New Deal and the Wartime Economy

Ing. Tomáš Dudáš, PhD.

1933 – situation reportEvery bank in the nation had closed its doors

and no one could cash a check or get at their savings

The unemployment rate was 25% and higher in major industrial and mining centers

Farm prices had fallen by 50%

Thousands of mortgages closed down

The New DealFranklin Delano Roosevelt - 1933Two main goals – help the troubled economy

and introduce major reforms into capitalism3 Rs

giving Relief to the unemployed and badly hurt farmers

Reform of business and financial practicespromoting Recovery of the economy during

the Great Depression

"First New Deal“ – 1933/34Banking acts

On March 6, 1933, two days after becoming president, Roosevelt declared a five-day national bank holiday to close banks temporarily.

On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's Administration; 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

Congress created the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $5,000

The government suspended the gold standard for United States currency

"First New Deal“ – 1933/34Economy Act

Improving the budget balanceNIRA – National Industrial Recovery Act

"Code of Fair Competition„NLRA - National Labor Relations ActFarm and rural programs

The Federal Emergency Relief Administration (FERA) – 500 million USD

The Civil Works Administration (CWA)The Public Works Administration (PWA)The Agricultural Adjustment Act: stabilized prices on

farm produce through paying farmers to reduce their acreage under cultivation

Repeal of Prohibition

The Civil Works Administration (CWA)• Built 800,000 km of roads.• Built 40,000 schools• Built 500 airports & rebuilt 500 more• Built 150,000 public toilets• Paid people to sweep up leaves in the parks.• Paid unemployed actors to give free shows.• Hired 100 people to scare pigeons away with

balloons from public buildings in Washington DC.

The Public Works Administration (PWA)

• Built 70% of USA Schools.• Built 35% of USA Hospitals.• Built for river dams.• Electrified the New York Washington railway.• Built 50 military airports.• Built two aircraft carriers.• Built four cruisers & destroyers for the US

Navy.

Social security - 1935Anglo-American society – minimal security net

Local level and not very generous

The Social Security Act provided:An income for the agedA scheme for unemployment compensationRelief aids to the aged, blind and dependent

children

USA was the last major industrial nation to adopt some form of comprehensive social insurance

New Deal - conclusionFederal government directly provided

services to the American people -- “welfare state”

Vast centralization of national powerIncrease in power of the presidencyCreation of a mixed economy – market

economy with government interventions

Did the new deal stop the depression?

“Prosperity” of WartimeThe American GDP doubled between 1941 and 1945World War II produced demand for American products

as early as 1940It became clear that the US must supply war goods for

Great BritainLend-Lease Act – 1941

By august 1945 the US was supplying war materials in value around 50 billion USD to its partners under this act

Lend-Lease deliveries were greater than the sum of all federal expenditures between 1933 to 1939

Financing the WarIncreased taxesDebt financing

Rising government deficits (-29,1 billion USD in 1945)

Rising public debt (271 billion in 1945)The US government was selling bonds to the

public (157 billion USD) and to the Federal ReserveIncrease of the money-supply

Change to command economyNew “war powers” to the president1940 – National Defense Advisory Commission1940 – National Defense Research Council1942 – War Production Board and Office of

Price Administration1943 – Office of War Mobilization

Huge power of FDRIn 1942 he sent 115 000 persons with Japanese

ancestry into internment camps by an executive order

Labor and materialsThe armed forces had 12 million soldiers by

1945250 billion USD has been spent on these

soldiers between 1941 and 1945The civilian nonagriculture labor force

expanded by 30 %Unemployment vanished (1,2 % in 1944)New people in the labor force – women,

teenagers, disabled, aged people