The Great Depression led to reform in the form of the New Deal with the election of Franklin Delano Roosevelt. However, the New Deal possibly prolonged the Great Depression. Examples of this were the closing of the strongest banks and the tripling of the taxes, trying to break the rich. When asked about the presidency of Franklin Delano Roosevelt, today’s society only had high regards for him, so much so that most people would rank Roosevelt higher than George Washington or Abraham Lincoln on the “greatest president” scale. These people do not take into account that during Roosevelt’s presidency, America was going through a very rough time. Most people are not sure if the government gets the money for its programs from independent sources or from the taxpayers. In reality, the government gets the money for its programs through the taxpayers. (Folsom) This is what happened with the New Deal and why it possibly prolonged the Great Depression.
Franklin Delano Roosevelt grew up privileged. He was the son of James Roosevelt and Sara Delano, born in Hyde Park, New York in 1882. The family had homes in New York City and Canada, and like many children who come from old money, Roosevelt was educated at home, first by a governess, then by a private tutor. Roosevelt attended a prestigious boy’s boarding school when he was fourteen years old, then went to Harvard, then to Columbia University Law School. (“FDR Biography”)
The Great Depression squashed the euphoria of the 1920s and reform was demanded and needed. When Roosevelt took office, American economic life had been destroyed. Millions were unemployed, and people were panicked. Roosevelt took the reins and did the best he could. (Hofstadter, 300, 302)
When Roosevelt became president during the Great Depression, he had his work cut out for him. At this time, more than 4,000 banks had already failed. The United States was definitely in a crisis. Roosevelt declared a four-day bank holiday before Congress even met. This was to examine banks’ records to see which banks could reopen, and which could not. (Feinberg, 43-45)
After he did this, Roosevelt urged Congress to pass Title I of the Emergency Banking Act. Because of this, banks needed permission of the Secretary of the Treasury to do anything. This made life hard on everyone. Soon after, Roosevelt pushed for Title II of the Act. This authorized the printing of federal reserve notes backed by government bonds. This meant that the government could print as much money as it wanted. Title III of the Act authorized the Reconstruction Finance Corporation to lend as much as one billion dollars to banks that were considered sound. This amended the Reconstruction Finance Corporation Act.
When this was done, Roosevelt went on the radio to deliver his “fireside chats” to the American public. These radio broadcasts were to reassure the people. Roosevelt explained what he was doing about the banks, causing a sense of relief that at least something was being done.
The big banks were not responsible for many bank failures, the smaller banks were. The small banks were responsible for ninety percent of the failures, and therefore asked for federal deposit insurance. The big banks did not ask for this because they were financially sound. This federal deposit insurance was implemented, but it did not stop bank closings. (Powell, 53-55) The federal deposit insurance made it so that if a bank failed, the government would repay the depositors up to $2,500. (Feinberg, 46) In essence, the public would get their money back if their bank closed.
Because of money, commercial and investment banking were separated. This broke up the biggest banks into separate companies. For example, J.P. Morgan & Company split into J.P. Morgan & Company and Morgan Stanley. This might have been done because commercial banks posed a threat to investment firms because of commercial banks’ increasing presence in the securities business in the late 1920s.
While breaking up big banks, the Glass-Steagall Act has no impact on the small banks that failed all the time. The Act did not change what needed to be changed, the most important weakness of the banking system, which was the prohibition of nationwide banking. This is considered the main reason for so many bank closings. (Powell, 56-64)
The banking system was not the only thing to change during the policies of the New Deal. Taxes were tripled. Roosevelt blamed employers and investors for the Great Depression. He wanted more power over the economy. People needed permanent employment. The New Deal began to sound like ideas of Fascism, such as the statement, “Economic initiatives cannot be left to the arbitrary decisions of private, individual interests. Open competition, if not wisely directed and restricted, actually destroys wealth instead of creating it.” (Powell, 76-77)
Roosevelt pushed for higher tax rates, first on alcohol, then on gasoline and tobacco. These taxes are still with us. The wealthy were hit the hardest. Roosevelt wanted to share in the public’s gains, not their losses. (Powell, 78) In order to “save capitalism”, Roosevelt said that it might “be necessary to throw to the wolves the forty-six men who are reported to have incomes in excess of one million dollars a year.” (McElvaine, 260) This was an effort to “soak the rich” that caused Roosevelt to make enemies with the wealthy. Roosevelt attacked his own class, his own people. In theory, this was supposed to help the poorer people, but this possibly prolonged the Depression.
At this time, the Social Security program was proposed. It was a “$200-a-month government-run retirement scheme funded by a national sales tax.” This was supposed to cure unemployment, depression, and other social problems. (Powell, 79) In reality, this meant that the Social Security program was to make people believe that when they got too old to work, they would still be able to eat and live reasonably comfortable lives. However, the dark side of this program was that this increased tax, making it harder for people to eat in the present.
On July 19, 1935, Roosevelt demanded new taxes in a message to Congress. He wanted a “wider distribution of wealth” through higher taxes on corporations and individuals. This message appealed to Congress through envy. Roosevelt raised taxes. The top rate rose to seventy-five percent. When Hoover was in office, the top rate was sixty-three percent. (Powell, 80)
In turn, these new taxes discouraged employers from making investments. The taxes also did not make as much money for the government that the high rates suggested. For example, only around five percent of Americans paid these new taxes. After a while, people began to think that the New Deal was a bad idea. In Congress, there was support to repeal the capital gains tax and the undistributed profits tax. (Powell, 84)
Some intellectuals, including Dorothy Thompson, an influential columnist for the New York Herald Tribune, expressed critical views. Thompson stated that “the undistributed profits tax was making it harder for the economy to recover from the depression.” (Powell, 85) This tax was one of the many taxes that kept unemployment high. These taxes were meant to get money to the government so it could recover, but it did the exact opposite. It failed.
By the beginning of 1934, Roosevelt had many critics. Some felt that he was not doing enough to help the economy recover and others believed that he was doing too much. Many of Roosevelt’s critics were wealthy businessmen, the same people Roosevelt burned with high taxes. They believed that Roosevelt was turning into a socialist; they believed he was too controlling and he was hurting the cause. Roosevelt tried to make both sides happy. He promised to not get in the way of profit-making opportunities and promised more programs. (Fitzgerald, 70, 72)
Social welfare programs such as unemployment security and Social Security, implemented during the New Deal era, are still with us today. (Alter, 166) The New Deal’s banking policies have helped America in times of crisis since the Great Depression. For example, without the federal deposit insurance, a major banking collapse would have occurred in the early 1980s. (McElvaine, 163) The reality is that the Great Depression was prolonged by the New Deal, however, the New Deal era policies and programs have helped America for many years since.
– Alter, Jonathan. The Defining Moment: FDR’s Hundred Days and the Triumph of Hope. New York: Simon ; Schuster. 2006.
– “FDR Biography – Childhood and Youth.” Franklin ; Eleanor Roosevelt Institute. 2009. 12 May 2009. http://www.feri.org/archives/fdrbio/default.cfm
– Feinberg, Barbara Silberdick. Franklin D. Roosevelt. New York: Children’s Press. 2005.
– Fitzgerald, Stephanie. The New Deal: Rebuilding America. Minneapolis, Minnesota: Compass Point Books. 2007.
– Folsom, Burt. “Why the New Deal Failed.” Accuracy in Academia. 2002. 12 May 2009. http://www.academia.org/campus_reports/2002/summer_2002_3.html
– Hofstadter, Richard. The Age of Reform: From Bryan to F.D.R. New York: Alfred A. Knopf. 1972.
– McElvaine, Robert S. The Great Depression. New York: Times Books. 1984.
– Powell, Jim. FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression. New York: Crown Forum. 2003.