This article will discuss two major acts of the first New Deal: Agricultural Adjustment Act and National Industrial Recovery Act and it will try to explain why and how they failed in their goals. This effort primarily needs to carefully analyze the philosophy behind these legislations. If this philosophy is based on wrong assumptions regarding human nature and how capitalist economy works; it will naturally fail to detect the real reasons behind the economic recession; moreover the diagnosis of the problems and solutions offered to solve them by the advocates of this philosophy will eventually be wrong and inefficient. In this regard, I believe the two assumptions of the philosophy that created Agricultural Adjustment Act and National Industrial Recovery Act were responsible of the failure of these acts. The first one is disregarding the class struggle and ignoring the conflicted interests of various economic actors; and the second one is the belief that saving collapsing businesses is the same thing with saving a collapsing economy. Along with the contexts of Agricultural Adjustment Act and National Industrial Recovery Act, these assumptions will be discussed in the following parts of this paper.
In his first term`s inaugural address, F. D. Roosevelt stated that: “The nation must move as trained and loyal army willing to sacrifice for the good of a common discipline.” (Leuchtenburg, 41) It would be very difficult to find another sentence that is more explanatory for understanding the philosophy behind F.D. Roosevelt`s New Deal policy than Roosevelt’s quotation above. To really understand what it means to draw a parallel between a nation and an army, the main properties of armies should be remembered. In this sense, it is safe to say that armies exist to win wars and to this end they function in an unquestionable hierarchic order; any interests of sub-groups or individuals within them are not only ignorable but in many cases they also seem harmful for the sake of the ultimate goal; competition based on individual interests within an army is an unwanted thing; on the other hand, self-sacrifice from various groups or individuals can frequently be demanded for the common purpose and that purpose will be solely determined by the commander of the army, not by the low-ranking officials or soldiers. For an army there can`t be any difference between the interests of its member; no matter what their positions are in the organization. Last but not least, an army always needs an enemy to fight. This enemy of the F.D. Roosevelt`s army-nation was defined as the unregulated competition in its fight on the battlefields of agriculture and industry.
After dealing with the first and most urgent fight against banking crisis with measures such as Bank Holiday and Emergency Banking Act; the attention of the F.D.R. Administration was directed to the two other important sectors that were in deep recession: agriculture and industry. Both fields of economy suffered a drastic recession in 1933, and the F.D. Roosevelt and his brain trust believed that the main economic reason behind the recession in these sectors was the imbalance between economic production and demand which caused by exceeded competition stemmed from the extreme greed of businesses in unregulated markets.
For the agriculture sector, in the year 1933 before the Agricultural Adjustment Act was passed, farmers were having severe economic difficulties due to the decreased agricultural commodity prices and as a result lower real-income levels as well. Almost eight in one hundred farms were in foreclosure which was a record; more and more farmers and sharecroppers were abandoning their land and moving to big states such as California and Florida and the farmers who stayed on the land were responding circumstances with extreme politics and lawlessness. (Cohen, 110) The crisis reached a point that some farmer organizations even started to threat the government with a national farm strike. (Badger, 64) Roosevelt Administration saw this situation as a result of exceeded competition. For Roosevelt`s Secretary of the Department of Agriculture Henry Wallace the over-production appeared as the single source of the all problems the farmers had at the time; (Cohen,121) thus, the remedies presented with the Agricultural Adjustment Act primarily aimed to solve this so-called over-production problem. Specifically, with this legislation farmers were promised to be paid by the federal government if they reduce or destroy their production. In order to create the source for this spending, a new tax was imposed on processors; a relief to farmers from the foreclosure threat was granted by the creation of the Farm Credit Administration which reregulated mortgages of the farmers; and lastly authority for going off the gold standard was given to Roosevelt which was longtime demand of farmer community. (Cohen, 137-144) However, the act couldn’t create the desired outcomes neither in terms of economic growth nor economic equality till its nullification by the Supreme Court in 1936. The immediate effect of the Agricultural Adjustment Act was an increase in food prices because the new tax on processor directly reflected on prices. At the time of a very high unemployment and decreased purchasing power in urban areas, higher priced in agricultural products resulted lesser consumption of these products which naturally meant a lesser total demand. This was the exact opposite of what was needed in time recession; for the sake saving inefficient big farmers both total economic surplus and demand were force to shrink. For example, upon the government`s suggestion millions of pigs were slaughtered when people in cities were starving; which still remains an explainable policy to these days. Moreover, this act also brought about negative consequences in terms of economic equality and social justice. When big farmers suspended their production, sharecroppers working in their lands lost their jobs, this measure deepened disadvantaged position blacks in the U.S. because most of the sharecroppers of the time were blacks who were feeling the effects of the depression more deeply than other groups. Since the implementation of the regulation was largely given to big farmers especially in South, black and poor white sharecroppers were discriminated and they got economically worse off as a result. (Badger, 78) Agricultural Adjustment Act ignored the fact that the interests of the big farmers and city dwellers and also the interests of big farmers and sharecroppers were not the same and they also conflicted with each other. Thus, government’s intervention to help one of them automatically bring harm the other group, the so-called common purpose did not exist among these groups unlike the rhetoric. Furthermore, saving business and in this case big farmers didn’t mean saving the economy because the previous brought an extra burden the next in time the opposite was needed.
When it came to the industry, a similar diagnosis was made Roosevelt Administration to explain the recession in the sector and high rates of unemployment. According to Roosevelt the excessive competition in the market was the reason of the destructive recession and only a new partnership between government and industry could help the nation to get over the depression. (Badger, 94) In line with this assessment, the National Industrial Recovery Act was firstly designed to eliminate the competition among companies. The elements of the National Industrial Recovery Act were regulation of maximum hours and minimum wages in various industries which also guarantees the right of collective bargaining; a government supported and supervised cartelization that includes the suspension of the anti-trust laws in some sectors; and creating the Public Works Administration that was going to conduct several public construction programs to decrease the unemployment. (Kennedy, 151) This act also created National Recovery Administration (NRA) which released licenses for business in determined sectors and published codes of fair competition for businesses which were mandatory to obey. In 1933 NRA published 546 codes which usually favored big companies and created a unbearable burden on small businessmen, as a result more than ten thousand complaints of code violation were made in that year. (Badger, 104) The regulations on price, production, distribution that these fair competition codes brought made it very difficult if not impossible for small businesses to compete with monopolistic corporations. Consequently, as Barton Bernstein points “the NRA injured small businesses and contributed to the concentration of American industry.” (239) The so-called government-business cooperation quickly turned into big businesses domination in markets with the permission of government. Just like what Agricultural Adjustment Act did in agriculture, National Industrial Recovery Act worked for the welfare of those with greater political and economic power in expense of the small businesses and consumers. (Bernstein, 239) Small businesses that were capable to produce in more innovative and efficient ways than inefficient big corporations were blocked from the area of production at a time when job creation was most needed. Hence, the right to collective bargaining for workers meant little when a great deal of population was suffering from unemployment. One again the Roosevelt administration falsely assumed that saving businesses -and of course big and powerful ones- would help to save economy. The conflict between the interest of small business and big business and the conflict between the interests of consumers who needed cheaper products in an economic decline and the interests of monopolies that needed to protect their profits were ignored.
As a result, the failure of these two acts demonstrated that a nation especially in its economic life is profoundly different than an army. Mixing up these two and assuming the methods that lead one to victory can bring the same success to the other are profound mistakes. Economic recovery can not be secured by saving inefficient big private entities with the help of government, neither it can be achieved by reducing purchasing power of masses in order to balance so-called over-production. On the contrary, the recovery is depended on growing demand which triggers growth in production and job creation. Thusly, Roosevelt launched the second New Deal after the failure of these initial policies which aimed to increase demand with expanded relief programs and highly publicized tax on concentrated wealth (Foner, 201) instead of uselessly trying to save failed businesses. This lesson was probably the biggest contribution of the failed Agricultural Adjustment Act and National Industrial Recovery Act of the first New Deal.
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Bernstein, Barton J. “FDR: Savior of Capitalism” in Major Problems in American History
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Foner, Eric. The Story of American Freedom. W. W. Norton &Company, New York, USA, 1999
Kennedy, David M. Freedom From Fear The American People in Depression and War. Oxford University Press. New York, USA, 1999
Leuchtenburg, William E. Franklin D. Roosevelt And The New Deal. Harper Torchbooks, , New York, USA, 1963