FDR & The New Deal Keynesian Economics and the Preservation of Democracy

OVERVIEW “Laissez-faire” vs. Keynesian economics FDR’s “New Deal” Opposition to the New Deal Effects of the New Deal

“The invisible hand” 18 th century Scottish philosopher, Adam Smith, argued in his Wealth of Nations that a true, free market economy needed no control He believed that the natural forces of an “invisible hand” would correct the market’s up’s and down’s

Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. The Wealth of Nations, Book IV Chapter II

Keynesian Economics In the 20 th century, John Maynard Keynes, an English economist, argued that it was necessary for the state to intervene in the economy According to Keynes, governments needed to save money during strong economic times so that they could spend it during poor economic times

Keynesian ideas in effect UNCHECKED ECONOMY KEYNESIAN THEORY IN EFFECT Government saves money Government spends money HIGH ACTIVITY LOW ACTIVITY

FDR takes office Franklin Delano Roosevelt’s wanted to rebuild public trust in the American financial system through the Emergency Banking Act and the Federal Deposit Insurance Commission Roosevelt used his “fireside chats” on the radio to explain and convince Americans to deposit their money into banks

The First New Deal The purpose of the First New Deal was to create government jobs and improve work conditions in order to raise morale and generate purchasing power: CCC (Civilian Conservation Corps) projects related to forestry WPA (Works Progress Administration) projects related to roads and public works NRA (National Recovery Administration) support program to encourage employers to give more benefits to workers AAA (Agricultural Adjustment Administration) Farmer subsidy program to reduce overproduction

The Second New Deal The Second New Deal attempted to improve the living standards and work conditions for the working class: Social Security Act Pension plan for the old and disabled; basic unemployment insurance Wagner Act Trade unions had legal right to negotiate wages National Housing Act Program that limited rents and provided financial assistance for building homes

Opposition FDR was accused of being a socialist and of changing America into a communist state Businesses and corporations were against FDR’s support for unions The US Supreme Court argued that President Roosevelt’s programs were unconstitutional

Effects of the New Deal Unemployment did not significantly decrease throughout FDR’s presidency “People who are hungry and are out of a job are the stuff of which dictatorships are made.” FDR was re-elected to office 3 times

Summary Questions What is the major difference between “laissez-faire” and Keynesian economics? What was the focus of FDR’s first policies upon coming to office? What effect did the first and second New Deals have on the American economy and society? On what bases did FDR face opposition to his policies?