The New Deal: Government Intervention and the Banking Crisis of 1929
The Road to Ruin: Hoover, Optimism, and the 1929 Crash
In March 1929, Herbert Hoover delivered his inaugural speech with bold tones of optimism for the economy. His confident words pushed for the start of a bull market, which then empowered many people to invest in stocks, often investing heavily on margin. Due to unprecedented stock prices and the convenience of down payments, people began putting a lot of money into the market. Dangerously enough, it was mostly on speculation. When the market ran out of new investors, the downfall of stock prices provoked a market crash so daunting that it drove people to attempt withdrawing all their money from the banks. In doing so, they contributed to thousands of bank runs, causing thousands of banks to shut down and resulting in many people losing their savings.
The Banking System Collapse and Hoover’s Hesitation
This only added to the weakness of the economy because the banks had not only loaned billions to stock speculators, but also used depositors’ money to invest even more. Therefore, confidence in the banking system took a downturn when it failed to protect the money of the masses, taking the economy down with it. This triggered the Great Depression. While Hoover did not come close to a solution, he was the first president to act upon the need for a slightly more intervening government. Initially, however, he was unwilling to lean towards such an unseen method of fixing the economy.
Franklin D. Roosevelt and the New Deal Transition
It was not until November 1932 that Franklin D. Roosevelt came into the White House with a much less reluctant approach. Unlike his predecessor, he was fully willing to bring about intervening measures, and from the very start, unleash a series of progressive legislations that radically distinguished themselves from the old, laissez-faire system. Roosevelt recognized that for the drastic problem of the banking system to be solved, there had to be drastic experimentation. The New Deal was a set of programs in response to this crisis, marking the transition that allowed the government to act as a mediator. For the first time, the government was to take on the bigger role of regulation.
Opposition to Intervention: The American Liberty League
Nevertheless, not everybody was desperate for experimentation because not everybody was affected in the same way. When groups of wealthy industrialists recognized Roosevelt was not going to adhere to old methods, they became enraged at the New Deal. In criticism, they formed the American Liberty League, accusing him of being socialistic. The American Liberty League had liberty as their emblem, and they argued that government regulation meant Roosevelt intended to steal people’s freedom and take away their right to ownership—a clear scare tactic. Put in straightforward terms, they argued that the New Deal took unfair ownership and control of the major industries away from the individual and the company.
Refuting Claims of Socialism in Banking Reform
But with the programs of the New Deal in place, the federal government’s role was limited to regulating some aspects of industry for security, and not under the idea of owning the industry for control; it therefore resisted the idea of socialism. In other words, the American Liberty League’s claims of the banking programs being socialistic did not have much validity because what the New Deal provided was security. This was not achieved through ownership, let alone despotism. Instead, the range of banking programs met their purpose of bringing stability and confidence into the banking industry through:
- License surveillance
- Fraud prevention
- Deposit insurance