Since the US was on the gold standard in the 1930s, FDR could not finance his New Deal programs by unlimited borrowing and printing money as President Obama does. If people saw that inflation was rising, they could exchange their paper dollars for gold. One way that avoided this problem was by amending the Trading with the Enemy Act of 1917 to be effective in times of national emergency. Under the authority of this law, FDR issued an executive order (EO 6102) forcing people to turn in all but a small amount of gold to the government. After seizing the gold, FDR increased the price of gold from the free market price of $20 to $35 per ounce [http://bit.ly/armmAj].
Another intervention in private contracts was the Wagner Act (chapter 14), which established closed shops and banned company (in-house) unions. The Frazier Lemke Farm Bankruptcy Act of 1934 (chapter 15) limited the rights of creditors in an attempt to stem the tide of farm foreclosures. The Supreme Court ruled in West Coast Hotel v. Parrish (1937) that the government could impose limits on the freedom of contract, such as establishing minimum wage laws. The assault on business was so intense that a 1941 Fortune magazine poll showed that 91% of respondents believed that a dictatorship and a loss of many property rights was imminent (pp. 86).
The New Deal also made use of vast public works projects to stem unemployment. The Civilian Conservation Corps (CCC) and the Public Works Administration (PWA) hired large numbers of Americans for make-work projects. According to Powell (chapter 7), these agencies concentrated their efforts on western swing states where FDR stood to gain the most politically. He also points out that many of the jobs that the government created were for skilled workers. Unskilled workers, who would have had a harder time finding employment, were left out. Additionally, government competition for workers kept wages artificially high, which prevented the market from reaching an equilibrium in which workers could have real jobs.
Another upward pressure on wages came in the National Industrial Recovery Act of 1933 (chapter 9). This law contained a host of centralized economic planning measures. The law set minimum wages and minimum prices as well as production quotas. The law also made it easier for workers to unionize.
The effect of the NIRA was to push wages above market rates. Higher labor costs in a tight economy led many businesses to become more automated, which means that the price and wage controls actually cost many workers their jobs. Blacks were especially hurt because, at the time, they were excluded by many unions. If the company was a closed shop, where employees were required to be union members, blacks were effectively barred from employment.
Eventually, the NIRA was ruled unconstitutional by the Supreme Court [http://bit.ly/duFC5K]. The Supreme Court viewed the NIRA as an unconstitutional delegation of legislative authority to the president and industrial groups. The Court also pointed out that while the constitution grants congress the power to regulate interstate commerce, the NIRA’s codes attempted to regulate and control intrastate and local commerce as well.
There were other New Deal laws that attempted to fix prices and reduce competition as well (chapter 17). The Robinson-Patman Act of 1936 foreshadowed modern demonization of Wal-mart by making it illegal for wholesalers to give large chain stores cheaper prices than small retailers. The Miller-Tydings Retail Price Maintenance Act of 1937 also meant to protect small stores against chains by setting minimum prices. The Civil Aeronautics Act prevented new airline competition requiring licenses for airlines to operate. No new licenses were issued until 1978. The war against competition ultimately hurt consumers by keeping prices higher.
More price controls were found in FDR’s farm policy (chapter 10). The Agricultural Adjustment Act of 1936 included price controls as well as output limits designed to reduce food supplies and prop up prices. Under the Agricultural Adjustment Act, the federal government was responsible for literally destroying perfectly good food at a time when hundreds of thousands of Americans were going hungry.
Ultimately, the AAA was also ruled unconstitutional in 1936, but it was replaced by the Soil Conservation and Preservation Act which reduced the acreage for food crops by paying farmers to grow grasses and legumes. Market orders (quotas) for farmers were revived by the Agricultural Market Agreement Act of 1937.
Another attempt to bail out farmers was the Commodity Credit Corporation, which made loans to farmers using their crops as collateral. If the price of their crops fell, the farmers had the option of keeping their money and forfeiting their crops. This arrangement chiefly benefitted wealthy farmers who owned more land. The Farm Security Administration also made loans to farmers. Powell notes that the FSA concentrated its loans, not in poor areas, but in swing states. Powell also points out that in spite of these programs, farm foreclosures remained high throughout the depression. There were simply too many farmers in the post-WWI period.
Eventually FDR was so angered by the Supreme Court decisions ruling his pet programs unconstitutional that he tried to remake the court (chapter 15). The court-packing scheme, formally known as the Judiciary Reorganization Bill of 1937, would have allowed FDR to add more (friendly) justices to the Supreme Court. The bill ultimately failed, but the justices, particularly Hughes and Roberts, were apparently so intimidated that they stopped opposing New Deal laws. Many New Deal programs were blatant violation of the commerce and general welfare clauses of the Constitution, as well as the 9th and 10th amendments.
One of the most celebrated organizations of the New Deal era was the Tennessee Valley Authority (chapter 11). The mission of the TVA was build dams and bring electricity to rural communities. While it was long considered successful, the TVA had its down side. For example, the TVA took property from private utilities and individuals through eminent domain. Powell also found that TVA states were slower to exchange agricultural economies for more profitable manufacturing jobs. The lower wages found in farm states reduced the demand for electricity.
Another perceived benefit of the TVA was flood control. The dams built by the TVA were supposed to help control the natural cycle of flooding by rivers. However, Powell points out that areas permanently flooded by TVA lakes covered an even larger area than that typically flooded by the rivers.
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