Reforms of Franklin Delano Roosevelt, as well as the Great Depression that gave rise to them , forever entered the history of the world economy. What is the New Deal so famous for and could it really conquer the economic crisis?
Background
In the 1920s, there were no signs of trouble. On the contrary, in the United States after the First World War, the economy began to rise. Production volumes increased, and with them, confidence grew that America was a place where there were no crises. But reality seemed deceiving.
Along with the pace of industrial production, the value of the shares of enterprises increased. Stock speculation has become a craze for Americans. Everyone dreamed of earning at least a penny on the exchange, not being afraid to take a loan from a bank for this. As a result, the value of shares was increasingly moving away from real indicators. Towards the end of the 1920s, the economy began to decline. To smooth out its effects, the Federal Reserve turned on a printing press and increased the number of loans. But the bulk of the money went not to industry, but to the stock exchange. This contributed to the fact that the stock market turned into a financial pyramid, which simply collapsed, burying the entire economy under its rubble. In October 1929, a collapse occurred on the New York Stock Exchange: the value of shares fell, and their mass sales began. And then - a chain reaction: along with the shareholders, their enterprises went bankrupt. Thousands of people in an instant became unemployed.
The crisis quickly spread throughout the economy: industry, banks, and agriculture. From 1929 to 1933 the number of unemployed rose from 3 to 25%, that is, one in four Americans did not have a job. The crisis hit especially small towns, many of which simply became extinct.
It is not surprising that after the next election, it was not the Republican, but the Democratic Party that came to power. On March 4, 1933, her candidate Franklin Delano Roosevelt took office as President of the United States. Unlike his predecessors, he held rather left-wing views and believed that the state should actively intervene in economic processes and help its citizens cope with the crisis, and not wait until the economy "wakes up." These beliefs are reflected in his reforms, known as Roosevelt's new course.
Industry
In mid-1933, a law was passed according to which so-called “codes of fair competition” were introduced at enterprises. These documents were compiled by entrepreneurs themselves, and the president claimed. They indicated the volume of production, its price, sales order, as well as the conditions for hiring workers (minimum wage, maximum duration of the working week). So the new Roosevelt course did not allow large businessmen to artificially lower prices or reduce production volumes. At the same time, the interests of the workers were respected. After the adoption of the codes, the role of trade unions, which were recognized as legal representatives of the employees of the enterprise, intensified.
Within two years after the adoption of the law, all industries were under the strict control of the state. The specially created National Administration for Industrial Restoration received the right to even close enterprises.
Employment
Roosevelt's course was not limited to reforms in industry. The president sought to reduce unemployment, which has reached impressive proportions. For this purpose, mass public works were organized, for the payment of which funds were allocated from the budget. One of the largest projects of the time was the construction of hydropower plants on the Tennessee River. Particular attention was paid to youth employment - camps were created for young unemployed Americans in which they could work for six months for $ 30 a month. Of course, these measures did not eliminate unemployment, but were able to at least slightly reduce it.
Agriculture
The fall in agricultural prices led to the mass ruin of farmers, poverty and hunger, which in America at that time was no less than in collectivized Soviet villages. Therefore, Roosevelt's new course provided for measures to revive agriculture. State bodies regulating this sphere of the economy were also created here. At first, measures to save the farm looked rather barbaric - products were purchased and immediately destroyed. Farms stimulated the reduction of sown areas and paid bonuses for this. These measures were beneficial primarily to large farmers. To the small owners, the state issued financial assistance for resettlement to better land, the purchase of farms. The development of cooperatives was also stimulated. Farmers' debt problems were resolved as follows: federal land banks issued loans to them, through which farmers paid off debts to private banks.
Banks
Economic reforms have affected them. First of all, the government conducted a mass audit of banks, transferring the bankrupt to state control. New rules for working in this market have been adopted. From now on, banks could not work with securities. In addition, the rules for providing exchange loans were clearly established. But the most important measure that Roosevelt introduced a new exchange rate in the banking sector was deposit insurance. Each bank deducted part of its income to a special insurance fund, and in case of bankruptcy money was paid to depositors from there. This law helped to stop the “flight of depositors” and increase confidence in banks, which always staggers during a crisis.
Summary
So, what did the New Deal give to the American economy? Unfortunately, the adopted reforms were not able to prevent a new crisis that erupted in 1937. But they were able to prevent a social explosion, which could very well have happened in the 1930s: all the conditions for that existed in then America. Roosevelt reforms had a broader meaning: they showed that the state can and should take care of its citizens. The foundations of state regulation of the economy, which is carried out in all modern capitalist countries, were laid. The adopted system of measures made it possible to smooth out the destructive consequences of economic crises.