Once the causes of the crisis and the depression have been analyzed, the essential features of the national policies pursued in several countries between 1930 and 1938 can be set out. The United States and Great Britain would quickly resort to devaluation and to a range of procedures intended to reactivate the economy, with results that would be more or less successful. France and Germany, remaining faithful to the gold standard, would initially implement a deflationary policy aimed at restoring equilibrium. Laval’s failure would lead to the Popular Front; the social consequences of German deflation would help Hitler come to power.
The New Deal in the United States
This New Deal sought, on the one hand, to revive consumption and investment and, on the other, to put an end to certain abuses that had lain at the root of the crisis. It should be noted that this New Deal was neither a form of socialism nor an attempt at central planning. Its primary aim was to save the capitalist system. The New Deal was, however, a reform movement insofar as it brought into effect, for the first time in the United States, a substantial set of measures involving government intervention in the economic sphere. To that end, the President surrounded himself with a “brain trust” composed largely of academics. The first objective was “deflation”: prices had to be pushed upward, investors’ confidence restored, and purchasing power distributed to consumers. It is not possible to list all the measures adopted; a few may be cited.
In the field of money and credit: on March 9, 1933 (the Emergency Banking Act), hoarding and the export of gold were prohibited; on May 12, 1933 (the Agricultural Adjustment Act), the President was granted a series of powers: (1) he could request that the Federal Reserve banks expand credit by up to 3 billion dollars and increase the issue of banknotes—also up to 3 billion—without gold backing; (2) he could devalue the dollar to as much as 50% of its gold value; (3) he could authorize the minting of silver coins in unlimited quantities. The President thus received the power to create as much “inflation” as he desired. Using these powers, he announced on October 22 that the Treasury would buy gold no longer at $20.67 an ounce but at $31.36. On January 16, 1934, this price was raised to $34.35. This devaluation of the dollar was intended to stimulate exports and raise domestic prices. In any case, prices would not rise in proportion to the devaluation of the dollar. On June 16, 1933, the Banking Act sought to remedy certain structural deficiencies of the American banking system and to protect depositors through the creation of deposit insurance (the Federal Deposit Insurance Corporation). The other measures taken in this Banking Act modified certain banking practices in order to prevent the granting of credit that might be used to finance stock-market speculation.
It was the most serious effort at reform and consolidation undertaken since the founding of the Federal Reserve System in 1913. From 1934 to 1936, a whole series of new measures was adopted to complete this important reform of the banking and financial structure of the United States. The extraordinary abuses made possible by the anarchic liberalism of American banking organization had been responsible, throughout the nineteenth century and up to 1929, for numerous panics. It was time to remedy this.
In the agricultural sphere: beginning in 1929, the Hoover administration created the Federal Farm Relief Board, a price-support body charged with buying and storing agricultural products in order to reduce their supply on the market. To this policy of storage, Roosevelt added a policy of limiting harvests. The Agricultural Adjustment Act, as its name indicates, could not contain only monetary measures. The government would compensate farmers who reduced the cultivated acreage. In January 1936, the Supreme Court declared this measure unconstitutional. In order to overcome the difficulty, the government would pay compensation not for reducing the area sown, but for leaving part of the land fallow or for growing legumes that improved soil quality. From 1932 to 1939, the agricultural labor force declined by 7%, and the acreage devoted to wheat, corn, cotton, and tobacco declined by 20%. An unexpected consequence of this “Malthusian” policy of limiting harvests was a 22% increase in productivity per agricultural worker between 1932 and 1939. For this reason, agricultural output grew by 11% over the same period, and surpluses could not be reduced. Finally, the government set minimum prices that placed American price levels above world market quotations. To ensure that exports were not excessively hampered, the government subsidized them. This agricultural policy thus proved very costly, without achieving major results, except with regard to defending farmers’ purchasing power.
In the industrial sphere, the National Industrial Recovery Act (N.I.R.A.) of June 15, 1933 introduced a series of measures that were almost revolutionary. When signing the text, President Roosevelt declared that its purpose was to “assure a reasonable profit to industry, wages that make it possible to live, and the elimination of methods and practices of piracy which not only undermine honest business, but also harmed workers.”