History Milestone 3

The New Deal and Social Security Act 1935

Angela Fasoli

Southern New Hampshire University

July 14, 2017

Milestone One

The New Deal and Social Security Act 1935

On October 4 1929, the US stock market closed about 13 million shares on a single day. This amount of shares was about twice the usual amount of shares sold on a typical day. The result was a massive fall in share prices over the next several days and on October 29, the stock market crashed. This crash occasioned a biting economic depression (the Great Depression of the 1930s), which paved the way for the election of President Franklin D. Roosevelt into office, and the eventual enactment of legislations and policies that were collectively referred to as the New Deal. The Social Security Act of 1935 was part of the legislations that constituted the New Deal, whose aim was to end the Great Depression.

The New Deal and the Social Security Act were necessitated by a complex interplay of factors. Starting in 1928, the Federal Reserve raised federal fund rates and continued to do so even after signs of a recession started to manifest around August of 1929. In the wake of the stock market crash, investors shifted their attention to financial markets, putting too much pressure on the dollar. In response, the Federal Reserve increased the interest rates once again to protect the dollar. This move led to an acute dollar scarcity that occasioned numerous bankruptcies in the businesses world. Yet, the Federal Reserve still refused to release more dollars into the market. This shortage caused Americans to withdraw all their monies from banks leading to their collapse. Even at this point, the President, Herbert Hoover and his administration still failed to increase the dollar supply in the market, making the effects of the depression worse. President Hoover believed in a free economy and as such, his position was that the market upsets would self-correct after some time.

The consequences of the Great Depression manifested in several ways. Firstly, unemployment soared to 25 percent from 3 percent before the depression. Secondly, there was a series of bank failures and thirdly, wage rates reduced by close to 50 percent. These damaging changes were exacerbated further by the dust bowl droughts that ravaged the Midwest, making farming impossible. Farmers were thus forced to sell their farms and seek employment in the cities. Informal settlements known as “Hoovervilles” emerged in urban settlements because people could no longer afford decent housing. Similarly, the number of homeless people (hobos) grew unprecedentedly. Overall, America’s economic situation was in a mess.

Thus, when President Roosevelt proposed the New Deal during his campaign, Americans saw it as a welcome idea. The time was ripe for the government to step in and bring reprieve to Americans. The New Deal itself was a raft of measures that gave rise to 42 new government agencies, which sought to provide employment and facilitate other processes that would end the Great Depression. Among the agencies and laws that constituted the New Deal was the Securities Exchange Commission, set up to monitor and prevent unscrupulous behavior among players in the fiscal sector, the Federal Deposit Insurance Corporation and the Social Security Act of 1935, which are still operational to date.

The Social Security Act was conceived as a framework that would provide avenues through which a welfare system would be pursued. The idea behind the Act was to put up a mechanism through which the government would assist the unemployed via unemployment compensation and the poor and vulnerable members of society such as the elderly, the blind and dependent children. These forms of assistance were considered direct relief, which would be given without being worked for. Reports indicate that the initial version of the Social Security Act contained a work insurance program that would have assured Americans of employment opportunities from the government. However, by the time it was enacted, this part of the Act had been dropped. Explanations that exist are in large part theories formulated by those speculating on the possible reasons why the work program was eliminated from the Social Security Act. This shows that the process of putting the New Deal in place was not smooth. For Instance, Alfred Landon openly opposed the New Deal in addition to criticizing Roosevelt’s administration. It is only logical that similar views existed among other Americans even if they were not voiced openly.

Nevertheless, the legacy of the New Deal and the Social Security Act is still alive across America today. As mentioned earlier, the Securities Exchange Commission is one of the agencies that emerged from the New Deal. Its work as an agency that safeguards the financial wellbeing of Americans has prevented the recurrence of an event similar to the Great Depression. The recent recession was vicious, but it was nothing comparable to the Great Depression of the 1930s. The Social Security Act on the other hand, ushered in a welfare system that has endeavored to cater for the needs of poor Americans. The programs under this Act have evolved over time to become what they are today, but no matter how much they evolve, vulnerable Americans will always have the Social Security Act of 1935 to thank for the same.

Apparently, the New Deal and Social Security Act emerged out of necessity, with the aim of ending the Great Depression of the 1930s. However, over the years, some of the programs that were initiated at the time have proven that America’s need for them is timeless. As such, initiatives that came up as part of the New Deal such as the Securities Exchange Commission and the Social Security Act are still very much active in America’s economic landscape. In fact, the need for these programs has grown in scope and depth, signifying that they were a noble idea.

References

FDR's Speech on Signing the Social Security Act. (1935). retrieved from: https://archive.org/details/fdrbig

Helvering v. Davis, 301 U.S. 619 (1937). Helvering v. Davis No. 910

Jill, Q. (1984). Welfare Capitalism and the Social Security Act of 1935, American Sociological Review 49(5); 632–647.

Landon, A. (1936). “I Will Not Promise the Moon: Alf Landon Opposes the Social Security Act. Retrieved from: http://historymatters.gmu.edu/d/8128/

Rose, N. E. (1989). Work relief in the 1930s and the origins of the Social Security Act. Social Service Review, 63(1), 63-91.

Transcript of the Social Security Act (1935). Retrieved from: https://www.ourdocuments.gov/doc.php?flash=false&doc=68&page=transcript