T6 Economic Flashcards
Roosevelt’s Aims (The Three R’s)
Relief- For the worst suffering
Recovery- To get farmers & industry back on its feet & find full economic recovery ending all unemployment
Reform- To make sure it never happens again, reforms are needed in banking, Trade Unions & State Welfare
Roosevelt’s First Hundred Days
-First speech to nation announced a whirlwind of economic interventionist policies
-Lived up to his promised & by 15th June 1933 he pushed through 15 new laws
-New York Exchange suspended trading on the day of his inauguration
-Began by FDR calling a special session of Congress
-Was given plenty of advice from economists & financers but did not follow it
-His instincts were intensely political & was determined to make an impact by taking bold action
-Reality his policies were not as they seemed, with many already being planned by Hoover
Emergency Banking Relief Act (March 1933)
-6th March 1933 Roosevelt closed all banks in the country for 4 days to give treasury officials time to draft emergency legislation
-Act passed by Congress after 40 mins of debate
-Aimed to restore confidence in American banking system
-Gave Treasury power to investigate banks threatened with collapse
-Reconstruction Finance Corporation was authorised to buy stock to support them & to take on their debts
-RFC became largest bank in world
-FDR appeared on the radio, fireside chats
-Explained the nature of the crisis & how they could help
-‘place your money in the bank not under your mattress’
-Solvent banks were reopened & others were reorganised by government officials
-April, $1 billion had been returned to bank deposits & crisis was over
The Glass-Stegall Act (June 1933)
-FDR drew up legislation to put banking system on a sounder long-term footing
-Commercial banks relying on small-scale depositors were banned from involvement in the type of investment banking that fuelled speculation of the 1920s
-Bank officials not allowed to take personal loans from their own bank
-Authority over open-market operations like buying & selling government securities was centralised by being transferred from Federal Reserve Banks to Federal Reserve Board in Washington
-Individual bank deposits were to be insured against bank failure up to $2,500, insurance fund administered by Federal Deposit Insurance Corporation (FDIC)
Regulation of the Stock Exchange
-Ensure excess of the 1920s were not repeated
-The Truth in Securities Act (1933): Required bankers to offer clients realistic information about securities they were selling
-The Securities Act (1934): Set up the Securities Exchange Commission (SEC), tasked to oversee stock market activities & prevent fraudulent activities
The Federal Emergency Relief Act (May1933)
-Established Federal Emergency Relief Administration (FERA)
-Given $500 million to be divided equally among states to help provide for unemployed
-Half the money spent of states for relief, other half government would pay each state $1 for every $3 it spent on relief
-Harry Hopkins ran programme
-Said each state should set up FERA office & organise relief programmes
-Raise money through borrowing, tax rises or any other means
-Many states were wedded to the idea of a balanced budget and found expenditure on relief
extremely distasteful.
-It was still felt by many that to be poor was your own fault. Those requiring relief were often not
treated well. In many places there could be interminable waits and delays.
-In the face of such opposition, FERA’s effectiveness was limited. Its workers were refused office
space in some states and often their caseloads were numbered in thousands.
-Its funds were limited, too. In 1935, it was paying about $25 per month to an average family on
relief, while the average monthly minimum wage for subsistence was estimated at $100.
-However, although its effects were disappointing, it did set the important precedent of federal
government giving direct funds for relief.
The Civilian Conservation Corps (CCC)
- Unemployment among young people was a huge problem and Roosevelt understood they needed
a special programme to afford them both the experience of work and useful training in community
service, co-operation and other skills essential to their growth as useful citizens. - Unemployed young men between the ages of 17 and 24 (later 28) were recruited by the
Department of Labor to work in the Civilian Conservation Corps (CCC) in national forests, parks
and public lands. - The Corps was organised along military lines, but its tasks were set out by the Departments of the
Interior and Agriculture. - The CCC was originally set up for two years, but Congress extended this for a further seven years
in 1935, when its strength was increased to 500,000. In the period of its life, the CCC installed
65,100 miles of telephone lines in inaccessible areas, spent 4.1 million man-hours fighting forest
fires and planted 1.3 billion trees. - The CCC gave countless young men, particularly those from the cities, a new self-respect and
valuable experience of both comradeship and life in the ‘great outdoors’.
The Agricultural Adjustment Act (May 1933)
- Overproduction had been the greatest problem of American agriculture.
- The main principle behind the Agricultural Adjustment Act was that the Government would
subsidise farmers to reduce their acreage and production voluntarily. - By producing less, the cost of food would increase, and so would farmers’ incomes.
- A new agency was set up called the Agricultural Adjustment Administration (AAA).
- It would pay farmers to reduce their production of ‘staple’ items, initially corn, cotton, milk, pork,
rice, tobacco and wheat. - The programme was to be self-financing through a tax placed on companies that processed food.
It was assumed that these companies would in turn pass on the increased cost to the consumer. - Reduction of cotton production was perhaps the most pressing need.
- At the beginning of 1933, unsold cotton in the USA already exceeded the total average annual
world consumption of American cotton. - Moreover, farmers had planted 400,000 acres more than in 1932.
- They were, quite simply, paid to destroy much of this. A total of 10.5 million acres were ploughed
under, and the price of cotton accordingly rose from 6.5 cents per pound in 1932 to 10 cents in
1933. - However, it was one thing to destroy cotton but it was far more contentious to destroy food when
so many Americans were hungry. - Six million piglets were bought and slaughtered. Although many of the carcasses were
subsequently processed and fed to the unemployed, the public outcry was enormous. - In fact, the AAA destroyed only cotton and piglets.
- Drought helped to make the 1933 wheat crop the poorest since 1896, and agreements were
reached to limit acreage in other crops in subsequent years. - Total farm income rose from $4.5 billion in 1932 to $6.9 billion in 1935.
- The percentage of farmers signing up for AAA agreements was high at first – 95 per cent of
tobacco growers, for example – and the Act was very popular with farmers. - Faced by drought, Western ranchers sought to bring beef cattle under the protection of the AAA
in 1934. - By January 1935, the Government had purchased 8.3 million head of cattle, in return for which
ranchers agreed to reduce breeding cows by twenty per cent in 1937. - Overall, it would appear that the AAA worked effectively to deal with the crisis of overproduction,
although there were problems.
The Tennessee Valley Authority (TVA May 1933)
- The TVA was set up to deal with the underdevelopment and poverty in the Tennessee Valley.
- The TVA was one of the most grandiose schemes of the New Deal.
- It was created to harness the power of the River Tennessee, which ran through seven of the
poorest states in the USA. - It was hoped that by so doing this region of 80,000 square miles with a population of 2 million
people would become more prosperous. - To construct twenty huge dams to control the floods that periodically affected the region.
- To develop ecological schemes such as tree planting to stop soil erosion.
- To encourage farmers to use more efficient means of cultivation, such as contour ploughing.
- To provide jobs by setting up fertiliser manufacture factories.
- To develop welfare and educational programmes.
- Most significantly, perhaps, to produce hydro-electric power for an area whose existing supplies
of electricity were limited to two out of every 100 farms. - The TVA effectively became a central planning authority for the region.
- It was largely responsible for the modernisation and improved living standards that saw its
residents increase their average income by 200 per cent in the period from 1929 to 1949.
The National Recovery Administration – (NRA June 1933)
- The NRA was set up to oversee industrial recovery.
- Headed by General Hugh Johnson, it seemed to offer something to all groups involved in industry.
- Powerful businessmen, for example, benefited from the suspension of anti-trust legislation for
two years.
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- The argument behind this was that if industrial expansion was to be promoted, it was crazy to
maintain laws that restricted it. - Firms were encouraged to agree to codes of practice to regulate unfair competition such as price
cutting, and to agree on such matters as working conditions and minimum wages in their industry. - Ultimately the codes did not help economic recovery.
- This led Johnson to attempt a ‘Buy Now’ campaign in October 1933 to encourage people to spend
and therefore stimulate production. - He also advocated an overall ten per cent wage increase and ten-hour cut in the working week.
Neither was successful. - In reality, the NRA codes looked impressive, but they could not bring about an economic recovery.
- Many critics argued that, in practice, they did little except give large firms the opportunity to
indulge in unfair practices – the very opposite of what had been intended. - The Supreme Court dealt the death blow in May 1935 when it declared the NRA unconstitutional.
The Public Works Administration (PWA – June 1933)
- The second part of NIRA set up an emergency Public Works Administration (PWA) to be headed
by the Secretary of the Interior, Harold Ickes. - It was funded with $3.3 billion, and its purpose was ‘pump-priming’.
- It was hoped that expenditure on public works such as roads, dams, hospitals and schools would
stimulate the economy. - Road building would lead to increased demand for concrete, for example, which would lead the
concrete companies to employ more workers, who would therefore have more money to spend,
and so on. - Eventually the PWA put hundreds of thousands of people to work, building, among other things,
nearly 13,000 schools and 50,000 miles of roads. - It pumped billions of dollars into the economy and was responsible for massive public works
schemes, particularly in the West, where it enabled dams to be built to help irrigate former semi
desert land, electricity to be produced and four vast National Parks to be created.
The Civil Works Administration (CWA – November 1933)
- A further measure to create employment was the Civil Works Administration (CWA).
- This agency was created in November 1933, with a $400 million grant from the PWA, primarily to
provide emergency relief to the unemployed during the hard winter of 1933 – 1934. - Although it put 4 million people to work on public works projects, it was closed down in March
when the winter was over. However, FERA agreed to fund more public works projects itself. - Despite the fact that many jobs’ agencies such as the PWA were created, unemployment and
attendant social problems persisted, and the Federal Government had to turn to relief measure.
