The Second New Deal

Existing laws had failed to end the Depression. Conservatives roundly denounced Roosevelt, and extremists were luring away some of his supporters. Voters, heartened by the partial success of early New Deal measures, were clamoring for further reforms. But the Supreme Court had declared many key New Deal measures unconstitutional. For these many reasons, Roosevelt, in June 1935, launched what historians call the Second New Deal.

There followed the “second hundred days,” one of the most productive periods in the history of American legislation. The National Labor Relations Act—commonly known as the Wagner Act—restored the labor guarantees wiped out by the Schechter decision. It gave workers the right to bargain collectively and prohibited employers from interfering with union organizational activities in their factories. A National Labor Relations Board (NLRB) was established to supervise plant elections and designate successful unions as official bargaining agents when a majority of the workers approved. It was difficult to force some big corporations to bargain “in good faith,” as the law required, but the NLRB could conduct investigations of employer practices and issue cease and desist orders when “unfair” activities came to light.

The Social Security Act of August 1935 set up a system of old-age insurance, financed partly by a tax on wages (paid by workers) and partly by a tax on payrolls (paid by employers). It created a state-federal system of unemployment insurance, similarly financed. Liberal critics considered this Social Security system inadequate because it did not cover agricultural workers, domestics, self-employed persons, and some other groups particularly in need of its benefits. Health insurance was not included, and because the size of pensions depended on the amount earned, the lowest-paid workers could not count on much support after reaching sixty-five. Yet the law was of major significance. Over the years the pension payments were increased and the classes of workers covered expanded.

The Rural Electrification Administration (REA), created by executive order, also began to function during this remarkable period. The REA lent money at low interest rates to utility companies and to farmer cooperatives interested in bringing electricity to rural areas. When the REA went into operation, only one farm in ten had electricity; by 1950 only one in ten did not.

Another important measure was the Wealth Tax Act of August 1935, which, while not the “soak the rich” measure both its supporters and its opponents claimed, raised taxes on large incomes considerably. Estate and gift taxes were also increased. Stiffer taxes

Table 26.2 Second New Deal (1935-1938)

On corporate profits reflected the Brandeis group’s desire to penalize corporate giantism. Much of the opposition to other New Deal legislation arose from the fact that after these changes in the tax laws were made, the well-to-do had to bear a larger share of the cost of all government activities.

Whether the Second New Deal was more radical than the first depends largely on the vantage point from which it is considered. Measures like the Social Security Act had greater long-range effect on American life than the legislation of the first hundred days but were fundamentally less revolutionary than laws like the National Industrial Recovery Act and the Agricultural Adjustment Act, which attempted to establish a planned economy.

Herbert Hoover epitomized the attitude of conservatives when he called the New Deal “the most stupendous invasion of the whole spirit of Liberty that the nation has witnessed.” Undoubtedly many opponents of the New Deal sincerely believed that it was undermining the foundations of American freedom. The cost of the New Deal also alarmed them. By 1936 some members of the administration had fallen under the influence of the British economist John Maynard Keynes, who argued that the world Depression could be conquered if governments would deliberately unbalance their budgets by reducing interest rates and taxes and by increasing expenditures to stimulate consumption and investment.

Roosevelt never accepted Keynes’s theories; he conferred with the economist in 1934 but could not grasp the “rigmarole of figures” with which Keynes deluged him. Nevertheless the imperatives of the Depression forced him to spend more than the government was collecting in taxes; thus he adopted in part the Keynesian approach. Conservative businessmen considered him financially irresponsible, and the fact that deficit spending seemed to be good politics made them seethe with rage.