The New Deal

New Deal

The Great Crash of 1929 and the Depression that followed paved the way to the American Presidency for Franklin D. Roosevelt, who won the elections in 1932 pledging "...to a new deal for the American people" 1. The Deal's application began in March 1933 and consisted of a series of banking reforms, work relief programs, emergency relief programs and agricultural programs.

The Agricultural Adjustment Act (AAA) was drafted in 1933 and was designed to relieve the farmers of the financial difficulties they were encountering due to the short demand and the continuous fall in product prices. The Act paid farmers not to raise pigs and lambs, not to grow crops and to cut production by about 30%. Its hopes were that lower production thus generated would help raise prices for the respective programs. In 1936, it was declared unconstitutional by the Supreme Court, however, in 1938, another AAA was passed on and was financed from general taxation funds, thus making it acceptable by the Supreme Court.

The Federal Securities Act was passed in 1934 and led to the creation of the Securities and Exchange Commission (SEC). Its main role was to provide regulations for the stock market and to restrict the ability of margin purchase (that is, of acquiring stock by short buying, without actually having the money to pay for them). More than this, the securities had to be accompanied by full information before being offered for sale. Even if it was not pleasing for most businesses, it offered additional protection against margin buying and speculation that had led to the crisis of 1929.

The National Industrial Recovery Act (NIRA) was a direct response to decline in industrial products prices in the 1930s and was meant as a measure against unemployment and wage regulator. It allowed trade unions and associations to negotiate a collective wage, working conditions, production and prices. Even if it was effective in the beginning, the increase in wages led to an increase of product prices that did not encourage consumption. As consumption failed to achieve the level of production, the actual phenomenon of overproduction remained in question. NIRA was declared unconstitutional later on in the 1930s.

The Federal Emergency Relief Act led to the creation of the Federal Emergency Relief Administration (FERA), its main mission being the allocation of funds to local relief agencies. The fund distributed millions of dollars to unemployed workers and revitalized many relief programs. However, it was a mean of direct aid rather than a solution to overproduction and low demand. It worked together with the Civil Works Administration (CWA) that provided public jobs for four million unemployed workers for $15/week.