Economy Act of 1933

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ECONOMY ACT OF 1933

The Economy Act was enacted on March 20, 1933, during the so-called First Hundred Days of anti-Depression activism by President Franklin D. Roosevelt's new Democratic administration. It cut $400 million from federal payments to veterans and $100 million from the payroll of federal employees. The measure reflected the fiscal conservatism of the early New Deal and Roosevelt's antipathy to deficit spending.

The legislation was drafted by budget director Lewis Douglas, who shared Roosevelt's determination to deliver on his 1932 campaign pledge that a Democratic administration would balance the budget. The president was much impressed by Douglas, whom he described as "the real head of the Roosevelt cabinet." Both found themselves at odds with those Democratic congressmen who worried that the bill would alienate the veterans' lobby and that federal retrenchment would worsen the Depression. To overcome their opposition, Roosevelt delivered a special message to Congress on March 10 that blamed the Hoover administration's deficit budgets for continued economic stagnation and for the banking collapse of early 1933. "For three long years," he warned, "the federal government has been on the road toward bankruptcy."

Although ninety Democrats broke ranks, the measure gained speedy approval in the House on March 11 under the skilled parliamentary leadership of John McDuffie of Alabama. The power of the president during this time of unprecedented economic crisis was convincingly demonstrated. As Representative John Young Brown, a Kentucky Democrat, avowed, "I had as soon start a mutiny in the face of a foreign foe as start a mutiny today against the program of the President of the United States." Routine approval later followed in the upper house. Nevertheless, the measure was instrumental in prompting the share-the-wealth campaign launched in 1934 by Senator Huey P. Long of Louisiana, who saw the Economy Act as evidence of Roosevelt's capture by big business and banking interests.

The Economy Act did not prevent the growth of the budget deficit during the early New Deal, but it diminished the expansionary effects of new spending programs. The $500 million in savings that it yielded was precisely the sum that was appropriated for federal unemployment relief in May 1933. The legislation was signal proof of the absence of influence of the new economics soon to be known as Keynesianism on the early New Deal and it reflected Roosevelt's initial belief that deficit spending was harmful to economic recovery because it impaired the restoration of business confidence.

See Also: DEFICIT SPENDING; HUNDRED DAYS.