The New Deal Era: Government Intervention and Economic Stabilization

The Depression led to a loss of confidence in the economic future and major political changes. In the 1932 presidential election, Franklin D. Roosevelt (Democrat) swept to a landslide victory over Herbert Hoover (Republican). FDR argued that the Depression was due to faults in the capitalist economy and proposed government intervention to remedy the situation. FDR had been confined to a wheelchair since an attack of polio in 1921, and his long battle to rebuild his career had deepened his empathy with human suffering. He was the first president of the radio age and understood the importance of transmitting confidence.

The New Deal programs (1933-39) aimed to stabilize the economy, regulate commercial institutions, create internal demand, and prevent social hardship. In March 1933, FDR closed the banks for 3 days in order to restructure the financial system, organizing a successful phased reopening. In order to create internal demand for American products, millions of unemployed were given jobs in public works projects, and financial aid was given to farmers who were suffering badly. Commissions were set up to regulate the activities of the stock market and public utility companies. The Social Security Act (1935) provided protection against unemployment, illness, accidents, and old age.

The measures appeared to have solved the worst problems of the Depression, but in the autumn of 1937, the economy turned down again, driving unemployment back up to around 18%. The outbreak of World War II was to reverse this latest downturn.