The New Deal and American Society, 1933–1941

Kenneth J. Bindas

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367489052
• eBook ISBN: 9781000470130
• Topic: History
• Subtopic: World History
• Index: History

The New Deal and American Society, 1933–1941 explores what some have labeled the third American revolution, in one concise and accessible volume.

This book examines the emergence of modern America, beginning with the 100 Days legislation in 1933 through to the second New Deal era that began in 1935. This revolutionary period introduced sweeping social and economic legislation designed to provide the American people with a sense of hope while at the same time creating regulations designed to safeguard against future depressions. It was not without critics or failures, but even these proved significant in the ongoing discussions concerning the idea of federal power, social inclusion, and civil rights. Uncertainties concerning aggressive, nationalistic states like Italy, Germany, and Japan shifted the focus of FDR's administration, but the events of World War II solidified the ideas and policies begun during the 1930s, especially as they related to the welfare state. The legacy of the New Deal would resonate well into the current century through programs like Social Security, unemployment compensation, workers' rights, and the belief that the federal government is responsible for the economic well-being of its citizenry. The volume includes many primary documents to help situate students and bring this era to life.

The text will be of interest to students of American history, economic and social history, and, more broadly, courses that engage social change and economic upheaval.

Part I

The New Deal

DOI: 10.4324/9781003043430-1

1 The New Era and the fate of the nation, 1929–33

DOI: 10.4324/9781003043430-2

When Herbert Hoover accepted the nomination of the Republican party to be its candidate for president in 1928, he told those at the convention that the country was, based upon economic and legislative principles of his party, on the precipice of eliminating the “poorhouse” from the United States. During the campaign against the Democrat nominee, New York Governor Al Smith, Hoover, and the GOP (“Grand Old Party,” i.e. Republican party) reminded the American people that they, and perhaps Hoover himself, were the architects of the booming economy that came with first Warren G. Harding, and then continued with Calvin Coolidge. These were halcyon days and Hoover and the GOP hoped to continue to reap the benefits.

Boom years

It is certainly true that in the years leading up to Hoover’s election the American people witnessed a variety of social and economic changes, especially in the emerging consumer marketplace. For example, the number of automobiles on the road jumped from 7.5 million in 1920 to over 24 million by 1930, meaning nearly sixty percent of Americans owned automobiles. General Motors and Ford dominated the industry, representing nearly seventy percent of the automobiles sold. In 1926, Ford’s Model T represented nearly forty percent of all cars produced and sold that year. This helped stimulate the petroleum industry in the production of gasoline, helping spur the change from mere filling stations, where one acquired fuel, to oil and gas company franchise-controlled service stations with mechanics and sometimes small diners. The increase in car ownership encouraged a variety of other businesses, like Goodyear, BF Goodrich, and Firestone tires (who controlled more than fifty percent of the market), motel chains like Howard Johnson’s, or fast food restaurants like White Castle. Automobile culture challenged courtship and sexual patterns, leading one judge in Indiana to label them rolling houses of prostitution.

Central to this process of meeting consumer demand while also stimulating consumer spending fell onto the shoulders of advertisers. These copywriters and illustrators had the task of informing the public of new items to purchase lest the consumer fall behind the march of progress. The advent of the radio, which began inauspiciously as a small station in Pittsburgh in 1920 and reached only a handful of listeners on homemade sets, grew to nearly six hundred stations by 1925 spread across the country with an audience of 2.75 million listeners. By the end of the decade, more Americans had radios than telephones, making it the central source of connecting with the outside world. Driving this expansion was the development of network broadcasting, first with the National Broadcast Company in 1925 and soon after with the creation of the Columbia Broadcast Company, they linked together stations to streamline content and broaden the appeal of advertising, meaning a boon of over sixty million dollars in ad sales a year. Together they accounted for a little over three hundred stations spread across the country with and an average daily audience of more than fifty million. By the end of the decade over one hundred million radio sets had been sold and forty-five percent of American homes had at least one radio.

The radio’s popularity as a household item was inexorably tied to the expansion of electricity. At the start of the decade, thirty-five percent of American homes were hooked up to the electric grid; by the time Hoover took office that number had risen to sixty-eight percent, leaving farmers and other more rural citizens outside the circuit. The electric connection introduced consumers to a wide variety of consumer items that promised to make their life easier, like the Maytag washing machine, the Hoover vacuum cleaner, or the Frigidaire refrigerator, not to mention the basic General Electric and Westinghouse light bulb. Electrification also transformed the workplace leading to changes in factory design, lighting, machinery, and the nature of work. Nearly seventy percent of the nation’s factories were connected to the grid which helped factories run their machines more efficiently and increased the tendency toward the adoption of more modern factory management techniques tied to the assembly line. This reduced the skill necessary for the production of goods and made factory work more dependent on machines rather than on the people who ran them. In the coal industry, for example, new technologies utilizing electricity reduced the need for manpower by nearly fifty percent, even as the total number of mines declined as industries switched over from coal, leading to even less demand for workers.

However, after a brief recession at the start of the decade and stimulated by the expansion of the consumer marketplace, most workers found regular employment during the era, with the unemployment rate often below five percent. This boom was in part aided by legislation restricting immigration, thus reducing surplus labor which affected employment and wages. In 1921 Congress passed the Emergency Quota Act, setting the limit of immigrants to three percent based upon the 1910 census; in 1924 Congress passed more restrictive immigration law, the Johnson–Reed, or National Origins Act, which pushed the census back to 1890 and allowed only two percent, which effectively limited the number of southern and eastern Europeans as the peak of their immigration came after that date. The new law further restricted Asians, Africans, and Latin Americans from emigrating to the US.

Despite these changes, those working in the factories or mills faced constant job insecurity. Robert and Helen Lynd’s sociological/ethnographic examination of Muncie, Indiana as a typical American city during the area, which they called Middletown, revealed that many worried from one week to the next if they would have work, or that there were very few opportunities for advancement. This meant that while wages and opportunity seemed abundant during the 1920s—there were fewer labor strikes and violence than in earlier years driven primarily through the adoption of the American Plan and welfare capitalism within factories—generally, there was little actual growth in wages compared to inflation or the cost of necessities. Seventy-eight percent of working people made less than three thousand dollars a year, and more than forty percent made under fifteen hundred. This averaged out to about fifteen hundred dollars a year, with less going to those employed as unskilled laborers and more for those in the skilled trades. Women, who represented more than twenty percent of the workforce, earned about thirty-five percent less than comparable male workers and overall only saw an increase of nearly two percent in their real wages compared to nearly nine percent for male workers during the 1920s. Black workers’ wages were even more sluggish, earning less than fifty percent of their white counterparts.

The New Era

Many other factors led Hoover and others within American society to believe that the New Era, where government creates an atmosphere conducive for business growth, would ensure domestic economic and social stability for the foreseeable future. However, there were many flaws within the system especially regarding workers, wages, and consumption. The agricultural sector, for example, experienced tremendous contraction during this boom period. Farm income fell over seventy-two percent by 1921 after the boom years caused by World War I bottomed out. Farmers never recovered during the remainder of the decade and mortgages and foreclosures hit record highs. Hoover’s predecessor, President Coolidge was unmoved by their plight, saying at one point that historically farmers never made money and the government could little to help them. For his part, Hoover worked to get Congress to pass the Agricultural Marketing Act in 1929, which created the Federal Farm Board designed to stabilize farm prices through the creation of cooperatives to better control supply and price, but it had little effect as farm prices continued to tumble and would only get worse as the decade ended.

Another area of concern was the stock market, whose expansion served, like the skyscrapers that were being built in most major cities across the country, as signifiers of prosperity. Playing the market became a national phenomenon as more and more Americans invested hoping to reap the economic rewards of prosperity. But there were unseen dangers in their quest for a reward. Stock Pools, where a few speculators joined together to manipulate the price of particular stocks by buying large amounts to artificially drive up the price, enticed unsuspecting investors. When the price reached an agreed-upon number, the pool would start selling off, garnering a profit for them but leaving many individual investors out in the cold. This practice would later be made illegal under the New Deal’s 1934 Securities and Exchange Act. The proliferation of margin buying, which allowed the investor to buy stock with only ten or fifteen percent of the total cost upfront and the rest to be paid as the stock value increased, was a minor concern as long as the market boomed. When the market began its decline in the fall of 1929 and the banks or investment houses began calling in these, in essence, loans, many were unable to make up the difference causing bankruptcies, foreclosures, and a tremendous financial loss that would only get worse.

Financially, the situation with foreign debt and the instability of the gold standard suggested weaknesses within the New Era’s prosperity. World War I had transformed the United States from a debtor to a creditor nation, loaning hundreds of millions to our Allies during the war with the expectation of repayment. However, these monies, in the form of trade balances and deficits based upon gold, were shifted by the Allies to Germany whose economy was in shambles. The new democracy found itself unable to meet the payment demands leading France to occupy the Ruhr valley in 1923. The US responded by proposing the Dawes Plan in 1924 which restructured the German war debt in the payment of gold Marks over the remainder of the decade. Along with several changes in how the gold standard operated among the western nations, especially as gold transfers were used to offset trade imbalances, the hope was that as the deficit country’s gold flowed out, prices for goods would decline to attract more trade which would see the gold return. However, the New Era’s prosperity, to a large degree, was built upon making certain US industries were protected from cheap foreign goods and competition with the passage of the Fordney–McCumber Tariff in 1922. While good for American business and industry, and one of the key factors driving the bull stock market, it also meant that more gold flowed into the country. By the late 1920s, the US would control the majority of the world’s gold supply, leading other countries to adopt deflationary strategies to stem the loss of capital. However, these tactics failed to slow the slide and many countries found themselves in the early stages of economic depression by 1928.

By the time Hoover was inaugurated in 1929, these and other signs pointed to cracks in the prosperity of the New Era. Building contracts declined by over a billion dollars, purchases by consumers declined by nearly six percent, and, perhaps most significant, weaknesses within the banking system led to more than three hundred and forty-six banks shuttering their doors at a loss of over $115 million. The banking crisis to a large degree was a barometer of things to come, as it was tied to market speculation and consumer demand. During the halcyon days of the New Era, businesses and industries that were the traditional primary customer of banks found it easier to use the market to finance their expansion or increase the flow of money to its investors. Subsequently, banks altered their business practices by offering credit payment plans to consumers for the purchase of cars, homes, appliances, and other items that helped stimulate the economy. Banks also became heavily invested in the booming market both by floating margin loans and by direct investment using the equity of these outstanding loans to buy on margin. The system worked fine as long as the economy expanded, but as it began to contract somewhat by the end of the decade—business inventories had risen to over $1.8 billion by 1929 helping lead to a decline in industrial production—banks faced increased defaults and foreclosures which weakened their economic position.

When Hoover addressed his inaugural audience in March 1929 all of these issues seemed far off. On that day he announced with enthusiasm that Americans had arrived at a place the rest of the world envied, where material comforts and security were near guarantees. It’s almost too easy to mine his early speeches for ironic statements, for he enunciated what many people, both in the US and abroad, believed. The US in the 1920s dominated economically, leading the world in electrification and the myriad of consumer items like radios, washing machines, light bulbs, and so many more. These came to the consumer through an efficient system of networks, both in delivering the electricity and the consumer items driven by it. The country also led the world in the production of automobiles and made significant inroads in the global marketplace. Fordism, or the process by which Ford produced his cars, was the envy of the world and his company consulted and helped to organize and reorganize not only the auto industry but virtually all production of commodities. Many American workers now had paid vacations and traveled the country, creating real estate booms in Florida and the southwest. For the first time, the US had a trade surplus with Europe, amounting to nearly $1.8 billion throughout the 1920s. The country also loaned out more than $7 million to world trade partners after 1924. In other words, Hoover’s optimism in March 1929 was not misplaced. Every indicator seemed to verify his comments; which will make it very difficult for him to recognize the reality of the economic Depression that would inevitably define his administration.

The Crash

The Crash and subsequent ups and downs in the American economy for the next year or so were as real as they were symbolic. How could such a thing happen? How would democracy respond? Was the fact that democracy and government were married to capital signal that both were also on the verge of collapse? How and by what policies could the federal government change both the reality and mindset of the Depression? These were questions that Hoover faced, and how he handled them defined his term as president.

But in the spring of 1929 it was impossible to predict the economic, and then social and political, catastrophe that would begin just seven months later. The stock market slide began in earnest on October 21, 1929, and continued to tumble that week, with almost thirteen million shares being traded on Thursday, October 24. While this represented the most stocks traded and resulted in a decline of the overall value of the market, investors were not alarmed as many saw this as a corrective to an overly bull market. There had been ups and downs in the stock market all through the late spring and summer, but the market had bounced back. The Dow Jones Industrial Average reached an all-time high in early September. There was some instability in the market, however, as the London Stock Exchange collapsed in late September as a result of investor fraud which had many American financiers concerned. But the market adjusted. But on Black Monday, October 28 the Dow began to slide and nothing anyone could do could stop the rapid decline. By the end of the day, the Dow index fell by thirty-eight points with over nine million shares being traded, many at a great loss. The slide continued into Tuesday and investment firms, manufacturers, and banks began calling in margins, and what became Black Tuesday had the Dow falling another thirty points with over sixteen and a half million shares being traded. The week had just begun but the effect was catastrophic—entire fortunes had been wiped out in less than five days.

The next few weeks brought some respite, primarily as leading financiers bought up stocks to show faith in the market, but stock prices continued to decline, forcing more margin calls on investments, straining personal incomes, and bank lending policies. It seemed to some people that some stability had been achieved, although, by the end of November 1929, the market lost over thirty billion dollars in stocks. The next several months saw the market fluctuate, but by the spring of 1930, it began a free fall that could not be contained. By the time Hoover began his reelection campaign in the summer of 1932, the market stood at its nadir of 41.22. The remainder of the 1930s would not see the return of the halcyon days of the 1920s, as the market slowly recovered, in fits and starts and never rising above 195 until after World War II.

The effects were worldwide, pushing already weak economies in Europe to the breaking point. When the market began to tumble in the Fall, some banks found it difficult to meet their margin call responsibility causing them to close. This would only spiral downward within the industry, leading to more than fifteen hundred banks shuttering their doors in 1930, losing over $1 billion in deposits. When Great Britain abandoned the gold standard in 1931, foreign investors, believing the US would soon follow suit, began to buy large amounts of gold reducing the US supply. This caused another run on American banks as depositors worried about the soundness of the financial system which only served to exacerbate an already weakened economy. Another thirty-seven hundred banks closed in the next two years, losing almost $3 billion. Many businesses were also shuttered, as some lost everything in the crash and others simply because the demand for products dried up or banks were unwilling to float operating loans to get through the difficult time. Some estimates suggest that nearly thirty-thousand businesses closed in 1931 alone, with even more to come as the depth of economic collapse came in the following year. The gross national product fell to 1907–11 levels while farm prices, already low, fell by sixty-one percent by the end of 1932. For some farmers, it was cheaper to burn their corn as fuel than to sell it on the market. Unemployment rose steadily, from 3.1 percent or 1.4 million when the market began its slide in 1929, to more than 12 million, or over 25 percent by the start of 1933. Some areas were hit harder than others of course, with the industrial and manufacturing regions of the Northeast, Great Lakes, and Midwest taking the hardest hit. Toledo, Ohio for example, had an unemployment rate of nearly 70 percent by the end of 1932; Detroit and Chicago’s rate hovered near 50 percent; Pittsburgh’s steel mills were running at fifty percent capacity with nearly 40 percent total unemployment; Boston saw 30 percent of its tradesmen out of work, and 25 percent of workers in New York City and Philadelphia were without work. The situation was the same throughout the rest of these regions and the numbers were even higher for African American workers. Out west, most urban areas matched Seattle and San Francisco’s rate near 24 percent. These percentages reflect not just numbers, but people—millions of urban residents’ dependent upon their work for their necessities. Of those laborers fortunate enough to have employment, their wages fell by nearly forty-three percent, while white-collar or salaried employees saw their wages reduced by forty percent.

Stay the course

It had to be difficult for most Americans, and certainly, Hoover, to come to some understanding as to how quickly...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Chronology
• Who’s who
• PART I: The New Deal
• PART II: Documents
• Index