Decisions and Impacts of Key Government Leaders During the New Deal Policies.pdf

Decisions and Impacts of Key Government Leaders During the New Deal Policies

The Gold Standard

“There was a time when paper money was backed by gold — the era of the gold

standard.” (Goldstein, 2011) The gold standard promised that if you had money, you could trade

it for a certain amount of gold. In the early twentieth century, many countries operated by this

standard. Starting in 1931, England was the first country to drop the gold standard. “When the

Great Depression hit, the people in England panicked, and started trading in their paper money

for gold. It got to the point where the Bank of England was in danger of running out of gold.”

(Goldstein, 2011) Ultimately, England felt they had no other choice but to get rid of the gold

standard.

Roosevelt recognized that the gold standard was a problem. However, his economic

advisors encouraged him to maintain the gold standard as they felt it was the one thing that held

the economy together. There was one advisor that felt that leaving the gold standard was a good

decision, which led Roosevelt to abandon the gold standard. When Roosevelt made the

announcement it caused outrage from his economists saying it was a bad idea and everything

will fall. The exact opposite happened. "Most economists now agree 90% of the reason why the

U.S. got out of the Great Depression was the break with gold.” (Goldstein, 2011) Getting rid of

the gold standard, allowed the government to use new ways to guide the economy. It enabled the

government to be able to adjust the amount of money in the economy and interest rates. Many

people agree that the economy has changed for the better since abandoning the gold standard.

the most important driving force in an economy.” (Jahan, et al., 2014) He also explained that

there was no way to self-balance the market when it came to employment. “Keynesian

economists justify government intervention through public policies that aim to achieve full

employment and price stability.” (Jahan, et al., 2014)

“While the Keynesian view indicates that market economies will tend to adjust between

recessions caused by weak and excessive demand, there is a positive side to Keynesian analysis.

There is a remedy for the fluctuations: Fiscal policy can be used to control aggregate demand and

smooth the ups and downs of the business cycle.” (Gwartney, et al., 2017) One example would

be cutting spending on a labor-intensive infrastructure project to maintain employment and

wages when there are decreases in the economy. If there was an overflow of demand growth,

they would suggest raising taxes to prevent inflation. “Monetary policy could also be used to

stimulate the economy—for example, by reducing interest rates to encourage investment.”

( Jahan, et al., 2014) This is similar to some of the decisions I will bring up in the rest of the

paper. Keynes argued that governments should solve problems rather than wait for the market to

work itself out. It can be argued that more government influence in the market could have a

negative effect.

Roosevelt enacted 15 major laws during his first 100 days. The first bill to be passed during the

Roosevelt administration was the Emergency Banking Act. Roosevelt temporarily closed all the

banks in the United States. “Rushed to Congress on March 9, the Emergency Banking Act was

approved within hours. It gave the government authority to examine bank finances and determine

which banks were stable enough to reopen.” (FDR Presidential Library & Museum. n.d.) This

was the first step in Roosevelt's plan to save the nation's economy.

“The Glass-Steagall Banking Act further stabilized the banks, reducing bank failures

from over 5000 in 1933 to just 57 in 1934.” (FDR Presidential Library & Museum. n.d.) With

this act, Federal Deposit Insurance was established to protect depositors. After the stock market

crashed, it was clear that there was no directive when it came to the United States financial

market. The market was filled with fraud and credit risks and Roosevelt enacted the Securities

Act. “. The Securities Act aimed to curb such abuses and encourage investment. For the first

time, the federal government became directly involved in policing the securities markets. The

Act required companies that issued stock to file detailed information about new securities with

the Federal Trade Commission.” (FDR Presidential Library & Museum. n.d.)

President Roosevelt also focused on relief and jobs. When Roosevelt came into office the

The Public Works Administration provided jobs such as constructing infrastructures. This

program also provided jobs to many Americans and built monumental highways.

Not only did Roosevelt create jobs, but he also regulated prices and income to improve

employment conditions. “The National Industrial Recovery Administration (NRA) sought to end

cut-throat competition brought on by the Depression that was reducing wages and prices to

disastrous levels. It encouraged businesses in hundreds of industries to create codes of “fair

competition.” (FDR Presidential Library & Museum. n.d.) Unfortunately, this policy backfired as

it favored big businesses and encouraged monopolies. This was a setback for the goal of

recovering the economy and in 1935 was deemed unconstitutional.

The final focus of Roosevelt's first 100ndays in office was rural reform. He felt that

helping the farmers was an important step in ending the Depression. During this time, most

families relied on agriculture to live and work. During the Depression; agricultural products were

decreasing, farmers were behind on loans, and lost their property. Roosevelt's response to the

crisis was the Agricultural Adjustment Administration (AAA). This program was established to

help farmers out of debt and increase their earnings, which would then be used to buy supplies

from the cities and boost the economy overall. Roosevelt also founded the Emergency Farm

This started the growth of the economy and enhanced the standards of living.

Did the New Deal Work?

In the Great Deformation: The Corruption of Capitalism, Stockman argues, “ The New

Deal was fundamentally a grab bag of statist experiments which didn’t work, and even FDR

abandoned much of it along the way. The New Deal did not end the Great Depression and was

irrelevant to the current crisis.” (Stockman, 2013) Stockman even goes on to say that the New

Deal may have elongated the Depression. “What did survive is a destructive legacy of fiscal

profligacy and crony capitalist abuse of state power.” (Stockman, 2013) Many of the policies

were set up for crony capitalists to use the resources that were meant to help the market, for their

own personal gains.

Fannie Mae loans were an example of this crony capitalism. Fannie Mae made it so that

low-rate thirty-year home mortgages were made accessible to those who did not always have the

means to pay them back. “Fannie Mae would thus override the market’s veto by turning local

enacted during the First Hundred Days., Americans were glad to see someone taking action. I

believe that Roosevelt had good intentions from a statesmanship point of view, however, it was

not as efficient as necessary. Some loopholes allowed for exploitation from those that were

supposed to help.

A Balanced Budget

“President Eisenhower, despite the weakness of the economy in the aftermath of the

recession of 1957–1958, took great pains to propose a balanced budget in the fiscal year 1960.”

(Penner, 2014) Eisenhower believed that it was important to balance spending, especially

military spending so that there would not be wasteful spending and those funds could be

allocated to meet the needs of the economy. Eisenhower said, “Every gun that is made, every

warship launched, every rocket fired signifies in the final sense, a theft from those who hunger

and are not fed, those who are cold and are not clothed” (Penner, 2014) He felt that economic

establishing small tax increases. Eisenhower recommended the following for the budget of 1959:

of $2.5 billion to be applied to accelerate missile procurement, strengthen our nuclear

retaliatory power, and to spur military research and development programs;

research and development, science and education, a $0.5 billion increase for defense

purposes, and an authority to transfer up to $2 billion between military appropriations, in

order to take prompt advantage of new developments;

declining importance, in favor of the newer weapons;

of previously recommended new programs, in order to restrain nonmilitary spending in

1959 and to provide the basis for budgetary savings of several billion dollars annually

within a few years;

American Presidency Project, 1958)

statesmanship in making sure that every area, whether defense or civil programs, was getting

adequate funding in order to advance the economy without some areas being neglected.

Starting with the shift from the golden standard, it allowed the government to be able to

steer the economy in the way it needed. As we can see, it was not a bad idea to deter from the

gold standard, but it did open the doors for crony capitalism. Overall, in the view of

statesmanship, Roosevelt’s decisions were made with good intentions and did provide relief

programs. However, he left the room that allowed there to be too much room for abuses of power

and money. Eisenhower had a more effective approach to cutting spending during the financial

rebuild. This was similar to the Keynesian view, however, Eisenhower was able to use that

money and build support for the citizens in the form of programs. Both presidents were justified

seemed to be more efficient.

from https://www.npr.org/sections/money/2011/04/27/135604828/why-we-left-the-gold-

standard

Gwartney, J. D., Stroup, R. L., & Sobel, R. S. (2017). eBook: Economics: Private and Public

Choice (16th Edition). Cengage Learning US.

https://mbsdirect.vitalsource.com/books/9781337515153

Home - FDR presidential library & museum. Home - FDR Presidential Library & Museum.

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