The first twitches of the economic disaster that would become The Great Depression began in 1929, earlier in the agricultural economy, but the full force was not felt until after the Crash of 1929 in October, which burst the illusion of easy wealth that had sustained high consumption in an unsustainably high proportion of the population. As the economy contracted, unemployment grew.
Governmental response to the unemployment crisis was slow for two reasons. The first was the philosophical attachment to rugged individualism, the view that Americans did not need government help to be successful in the country`s dynamic economy. The second was a lack of statistics on unemployment, or even a standard definition, so that the magnitude of the problem could be concealed -- deliberately concealed in the minds of Hoover`s opposition.
By 1931, it was impossible to deny that millions were unemployed. The governor of New York, Franklin D. Roosevelt, sponsored the Temporary Emergency Relief Administration in his state, which was the first of its kind in the country.
Hoover, however, did not see an appropriate role for the federal government in the problem even in 1932, and instead introduced the Reconstruction Finance Corporation to alleviate unemployment by assisting big business. Not until July 1932 did Hoover approve the Emergency Relief and Construction Act, but its appropriation was inadequate to meet the challenge and Hoover took pains to point in his statement when he signed the bill that he had accepted it only because it was smaller than earlier proposals:
The obnoxious features which had been injected into the legislation from time to time by Members of the House of Representatives and had so long delayed action, have been eliminated.
In fact, Hoover devoted his statement entirely to his role in limiting its scope. Fortune commented in its September 1932 issue that although inadequate, the bill was significant:
The difference will be made by the Emergency Relief Act. Or rather by the fact that the Emergency Relief Act exists. For the act itself with its $300 million for direct loans to the states is neither an adequate nor an impressive piece of legislation. ... It constitutes an open and legible acknowledgement of governmental responsibility for the welfare of the victims of industrial unemployment.
By 1933, there was no longer any question that the federal government would assume a greater role, but there were still differences regarding scope and method. At a Congressional hearing in January, Professor Sumner Schlicter expressed his concern that the states would use the terms of the bill then being proposed to leave the problem to the local governments below it and the federal government above, thereby shirking their responsibilities. He was also concerned that employers would choose to increase the hours of existing employees rather than hire new ones, a system that would not alleviate unemployment.
Donald Richberg, who would later become an assistant under Hugh Johnson in Roosevelt`s National Recovery Administration, expressed the view of the railroad unions he was representing that the primary threat was the lowering of wages paid to workers, through the competition of the desperate and increasingly available unemployed. Simply paying the unemployed enough to avoid starvation was not a solution.
In his third Fireside Chat in July, FDR made the case for spreading work around:
The proposition is simply this: If all employers will act together to shorten hours and raise wages we can put people back to work. No employer will suffer, because the relative level of competitive cost will advance by the same amount for all. But if any considerable group should lag or shirk, this great opportunity will pass us by and we shall go into another desperate winter. This must not happen.It is interesting, in an era when a single logging project on a piece of national forest can be tied up for years in litigation, to look back at this statement: "We have sent out to all employers an agreement which is the result of weeks of consultation. ... Naturally, it takes a good deal of organizing and a great many hearings and many months, to get these codes perfected and signed, and we cannot wait for all of them to go through. The blanket agreements, however, which I am sending to every employer will start the wheels turning now, and not six months from now."
While Republican advocated "trickle down" responses like the RFC and Democrats supported ad hoc projects to directly employ the unemployed during periods of economic dislocation, Norman Thomas presented the Socialist view in his 1936 book, "After the New Deal, What?" To Thomas, the very idea of unemployment indicated a breakdown in sound economics. Relying on national planning of the economy, he suggested that there should be "no income for any able-bodied adult without work; no long search for work in vain; ..." The encouragement of unemployment insurance by the Social Security Act of 1936 has led to a completely different system, in which the impact of unemployment is mitigated without direct government creation of jobs.