Herbert Hoover's failed response to the Great Depression

Herbert Hoover

When Herbert Hoover became president in 1929, the foundations of economic stability were already beginning to crumble. The demand for mass produced items had peaked, and new areas of spending that would recover the downturn were leveling off. Investors were not hurrying to build new areas of growth since market creation was troublesome. Hoover, or the Great Engineer as he called himself, had many plans for large studies of social trends and corresponding services for child welfare, housing, recreation, education and public health. In fact, he came into office pledging "a chicken in every pot and a car in every garage" and "a final triumph over poverty." In his view, the marriage of private enterprise with science and technology would end poverty and welcome in a new humane social order. However, it did not take long before Hoover found that his attention would be diverted toward much more pressing economic concerns. Unfortunately, he failed time and time again to minimize these problems and the country went from bad to worse. By the time his term ended in 1932, he was being recognized as one of the most ineffectual presidents in the history of the United States.

There is much debate between historians about the role that Hoover played in causing and/or extending the Great Depression. The pendulum on his abilities swings from those who feel he was completely incompetent to run the country, especially in such dire times, to those who believe that he did all that was possible and was the one who actually set the stage for Roosevelt, who ironically received all the credit. It is difficult to find, however, anyone who believed that Hoover did not want the best for the country. Even his most extreme detractors depict him as a man of great vision who tried with his entire mind and heart to do what he thought was right. He is remembered by many as a president who set out to do the correct thing, but who tragically failed to obtain the confidence of the people due to his style of leadership, ignorance of the fundamental economic problems at work, and the limitations posed on his actions by the confines of his personal philosophy of government.

For example, in her book about Herbert Hoover, Susan Clinton explains that Hoover was one of the best men ever to go into the White House. She points out that even Franklin D. Roosevelt wrote about Hoover in 1920, "He is certainly a wonder and I wish we could make him President. There couldn't be a better one," and Harry Truman once said, that the Great Depression was created "for" Herbert Hoover, not "by" him. She also details some of the memorable aspects of Hoover's early presidency, such as the establishment of farm co-ops, that have been blotted out by his involvement with the Great Depression. She concludes that Hoover did try to make some sound moves against what was happening, but was thwarted by circumstances. By the time re-election came in 1932, there was nothing he could have done to turn around the situation.

The First Years

In his campaign speech in 1928, Hoover praised the American form of government and all that it had achieved. He recognized that during WWI, it was necessary to rely on the government for "the preservation of state." However, it was time for these socialistic times to come to an end. As he noted:

When the war closed, the most vital of all issues both in our own country and throughout the world was whether governments should continue their wartime ownership and operation of many instrumentalities of production and distribution. We were challenged with a peacetime choice between the American system of rugged individualism and a European philosophy of diametrically opposed doctrines -- doctrines of paternalism and state socialism. The acceptance of these ideas would have meant the destruction of self-government through centralization of government. It would have meant the undermining of the individual initiative and enterprise through which our people have grown to unparalleled greatness.

In his speech, Hoover decried the thrust of government into business as impairing very life and freedom. As a positive example, he stressed what had happened to the railroad industry since it went from a government to privately run enterprise. During and for some time after the war, the U.S. Department of Transportation found it necessary to operate the railways. However, the federal government handled its responsibilities so poorly, that the railroads were not able to meet transportation demands. Hoover noted that in comparison "eight years later, we find them under private enterprise transporting 15% more goods and meeting every demand for service. Rates have been reduced by 15% and net earnings increased from less than one percent on their valuation to about 5%. Wages of employees have improved by thirteen percent."

As historians Peter Carroll and David Noble note, Hoover feared that the collapse of the large corporations would bring down the entire U.S. capitalist system. After all, one percent of the banks held 50% of banking assets. Three corporations -- Ford, Chrysler and General Motors -- manufactured 85% of the automobiles sold in the U.S. And chain stores dominated retail sales. Any difficulties in these sectors would have national repercussions.

Ironically, the year Hoover was giving his 1928 speech, the economy was already on its downward rollercoaster ride, which was entirely unexpected by most people -- even many a financial specialist. Until 1925, increases in installment buying by a growing number of white-collar workers consumed the scores of products pouring off assembly lines. The use of automobiles went from 9,000,000 to 20,000,000 between 1920 and 1925 -- a tremendous 122%! Likewise, in 1929, cars used 20% of the steel, 75% of the glass and 80% of the rubber produced in the United States. In addition, businesses such as gasoline filling stations, repair garages, auto dealers, highway restaurants, and vacation hotels relied heavily on the automobile.

Yet the sponge can only take so much water. By 1930, the increase in automobile use stood only at 27,000,000 or 35%. Sadly, the country's economy depended significantly on this car buying, and the domino effect began. As the automobile business slumped, so too did other areas of manufacturing and production. The decline in car sales was joined by decreases in the construction of new housing, which caused unemployment in the building trades. Fewer suburban houses meant fewer markets for appliances, wall coverings, and other activities related to home building.

The economy may have been having its difficulties, but these were either being ignored or not acknowledged by those in the know because of the consumptive stock market, which was being fed by wealthy financiers who did not mind speculating. What was forgotten -- or overlooked -- was the fact that the market climb meant nothing if consumer demand and consumption were not increasing as well. Instead, the consumer economy was slowing as incomes skewed to the rich. In 1929, the richest 10% of families received 39% of disposable personal income while the bottom 10% only obtained 2%.

Actions by the Federal Reserve did not help the situation. Several times, it choked off the money supply and raised interest rates. For example, the Fed increased the discount rate, or the amount it charged member banks for loans, four times, from 3.5% to 6%, between January 1928 and August 1929. For the next three years, the Reserve presided over a money supply that actually shrank by 30%. This deflation, which was followed by inflation, pushed the economy from a tremendous boom to a colossal bust. The Great Depression had begun.

Hoover reacted to the Depression as the previous leaders before him. He believed that the government need not help the individual, rather everyone should help themselves. Legislative action or legal decrees cannot end economic depression. Only the producers or consumers can accomplish this feat. Hoover immediately asked that industry avoid layoffs and wage cuts, banks expand credit, and local communities, instead of federal government, provide aid to unemployment.

By spring of 1929, the president clearly recognized that the speculative market was not going to respond to his efforts to persuade warnings from key public and private figures or to his severe requests to the bankers and securities to assume greater responsibility. The prices of stock continued upward at a feverish pace and investment brokers had no problems finding those gullible individuals who were ready to add their money to the growing pool of funds. In September, the bubble burst and Hoover's big test was about to begin.

Hoover summoned industrialists to the White House on November 21 as part of a round robin of conferences with business, labor, and farm leaders, and secured a promise to hold the line on wages. Henry Ford even agreed to increase workers' daily pay from six to seven dollars. From the nation's utilities, Hoover won commitments of $1.8 billion in new construction and repairs for 1930. Railroad executives made a similar pledge. Organized labor agreed to withdraw its latest wage demands.

In other words, Hoover began applying the economic formulae planned over the past nine years. He felt the potential for economic growth was still feasible, not via liquidation or statist measures, but cooperative programs that would counteract the negative psychological impact of the panic and enhance compensatory spending. By 1930 three new programs were in operation." The National Business Survey Conference, a task force of 400 leading businessmen, was designated to enforce the voluntary agreements and dispel doom and gloom; the National Building Survey Conference of trade organizations was called on to pledge renewed building; and the Division of Public Construction in the Commerce Department was asked to speed up federal building projects.

Construction contracts for public works and public utilities in 37 states surpassed all previous records during the first five months of 1930 with a gain of 21 per cent over last year and 35 per cent over the average for the past five years, according to analysis by the Division of Public Construction, Department of Commerce.

From January 1 to May 31 awards for this type of construction have totaled $588,000,000, a gain of $152,000,000 over the average of 436,000,000 for the years 1925-1929 and an increase of $101,000,000 over the total of $487,000,000 for 1929.

More major public works were started in Hoover's four years than in the previous thirty. Many of them are still in use and have become household names: Boulder Dam (now Hoover Dam), the Los Angeles Aqueduct, and the San Francisco Bay Bridge, to name a few. The largest bridge of the era, the George Washington, spanned the Hudson River between New York and New Jersey. After four years of work, it ran 3,500 feet in length. The Hoover Dam took five years to build and became the largest works of its kind -- 726 feet high and 1,244 feet long. It created Lake Mead that is 115 miles in length.

Hoover also added a tax cut, a $400 million increase in public works. appropriations, a labor-peace pledge from union workers, and monetary expansion promises from the Federal Reserve. The new Farm Board formed government corporations to purchase surplus wheat and cotton. However, all these took place with no impact on the country's financial situation, despite Hoover's hopes and remarks to the contrary.

It was back to the drawing board. As a result, Hoover implemented the National Drought Committee, hoping that it would act to mobilize the country as a similar program did for flood relief in 1927. If matters were not bad enough, over a million farm families and 20 million animals in the United States were impacted by this drought -- one of the worst of its kind in history. Hoover's foes were even close to blaming this calamity on him. Once again, the efforts were for naught.

Next, congress passed the Hawley-Smoot Tariff Act in 1930 to protect domestic industries from foreign competitors. However, these tariffs backfired. A few nations countered the bill by increasing their tariffs on American goods. As a result, prices were raised for American consumers, and manufacturers and farmers had an even more difficult time selling their products overseas. Within two years, 25 countries in all had raised their rates against U.S. imports. Over 1,000 members of the American Economic Association asked President Hoover to veto the bill, but he refused and signed it into law.

In his year-end message in December 1930, Hoover noted his concern about the rising problems offshore in Europe. His worst fears were confirmed as first Austria and then Germany and other currencies plummeted. He thus requested a moratorium on all intergovernmental debts, which was greatly accepted throughout the world. The immediate reaction was very positive as securities and farm prices rose and thousands of people went back to work. The rosy picture did not last long.

The Good and the Bad

Historians agree to disagree about Hoover. There are few presidents, in fact, that have registered so many mixed comments by scholars, politicians and voters alike.

Says historian Stephen Goode in "Herbert Hoover - An Uncommon Man Brought Down by the Great Depression."

For all this Hoover was blamed -- which wasn't fair, even to contemporary observers. The great political commentator and observer Will Rogers, a Democrat and no great fan of Republicans, saw that it wasn't and pointed this out. 'Nobody ever asked Coolidge to fix a thing' when things were going well and people were getting rich, Rogers said. 'We just let everything go and everybody grabbed off what he could get and all, [and] never fixed anything. But now everyone wanted Hoover to fix everything.'

It was with this in mind that William Allen White, editor of the Emporia Gazette and one of America's best-known journalists in the first half of the twentieth century, wrote that Hoover "will be known as the greatest innocent bystander in history. But history will also write him down as an earnest, honest, intelligent man, full of courage and patriotism, undaunted to the last."

If nothing else good or bad can be said of President Hoover, he was not inactive. Far from a president who sat on the sidelines, hoping that the economic slump would right itself on its own, he was an activist president, in keeping with the role he had played as Secretary of Commerce, willing to bring the powers of government to bear on the problems that faced the country.

Hoover initiated big-government programs that offered vast sums of money to provide credit to those hurt by the Depression so that they could pay mortgages, buy farm machinery, and the like. What he could not bring himself to do was offer welfare directly to people who believed they needed it. That, he believed, would make Americans dependent on government largesse and turn them into parasites.

Hoover firmly believed that he was doing all that he morally could do to relieve the Depression. He could have opened the government vaults and handed out cash to the needy. However, he felt that would have been turning his back on the American traditions of self-reliance and individualism. He thought it was not wise or moral to create a class that looked permanently toward government handouts in order to survive, which he saw himself and government as doing, if he went too far to satisfy the demands that much of the public were making upon him.

Could he have brought an end to the Depression had he chosen to do things differently? Heated debates continue to rage on this question. Liberal scholars tend to believe that Roosevelt's New Deal helped bring the Great Depression to an end;

conservatives say that the Depression was not over until industry and the economy got a major push when the United States entered World War II.

Walter Lippmann of all people came to the same conclusion as early as 1935 in an article in the Yale Review, "The Permanence of the New Deal." "The policy initiated by President Hoover in the autumn of 1929 was something utterly unprecedented in American history." How so? Because, Lippmann argued, "The national government undertook to make the whole economic order operate prosperously," which it had never before tried to do. "The Roosevelt measures are a continuous evolution of the Hoover measures," he concluded.

On the other hand, there are many people who, even now, feel that Hoover caused the Depression. When the Democrats campaigned for the election in 1932, a lot of negative information was disseminated to the press and public. In his book on Hoover, Polikoff stated it was one of the most despicable episodes in American political history. The effects of that campaign are still being felt today. Whenever Hoover's name is mentioned, particularly among senior citizens, people not usually given to extreme opinions flatly condemn him as cold, evil man who was personally responsible for the misery of millions of Americans." comedy radio show during Hoover's administration poked fun at the president:

There's a rise in the stock market," said one comic to another. "Oh," comes the answer, "is Hoover dead?" A similar jab had Hoover asking Secretary of the Treasury Andrew Mellon for a nickel with which to call a friend. "Here," Mellon answered, "take a dime and call all your friends." Will Rogers, summed up the country's antagonism toward Hoover by commenting that if a man bit into an apple and found a worm, he would say, "Damn Hoover!"

Normally Hoover would ignore his critics, feeling comfortable with the decisions he had made and ever confident that that the country would turn itself around. However, when the press and the politicians came down so hard on him, he reached his point of tolerance and complained that he should not be made the fall guy for the Depression. He felt that he had done everything possible to turn the tide with little support from anyone, especially Congress.

Hoover once compared the presidency to a three-ring circus with a lot of bad actors. Despite this, Hoover agreed to run again for president. Till the very end, he thought that the country would soon get on its feet with him as engineer.

Hoover's staid personality was another problem, for it did not sit well with the average person on the street. In Liberalism and its Challenges, Hamby said that the populace at that time had different expectations for the New Deal than what they would have today. They were desperate for any assistance and would contrast FDR with the seemingly cold and indifferent Hoover. Roosevelt encouraged this comparison, calling the latter administration cold and indifferent and playing up his sympathy and concern for the average person.

In an essay about Hoover, Hawley stressed the fact that modern-day thoughts on Hoover are multi-dimensional. He stated that none of his colleagues see Hoovers as entirely laissez-faire or a powerful tool of big business. Instead, he becomes a "corporate liberal" (Rothbard), an inept champion of "cooperative capitalism" (Nash), or "a man resisting both bureaucratic and business domination and operating in the New Freedom tradition of regulated competition" (Himmelberg). For himself, Hawley saw Hoover's actions as a dual effort of managing the country scientifically through collective action and to conserve the basics of individualism, local initiative and rural heritage.

Anyone who studied Hoover's impact while Secretary of Commerce, would see him as keen in public relations, leadership and the concern for the betterment of the U.S. And its people. However, as a leader of the Depression,

Hoover was a failure in the White House, one who could neither maintain his political base nor fulfill his avowed goals...His vision was a noble one. In essence, he was trying to solve one of the central problems of 20th century-America, that of reconciling modern industrialization and the organizational revolution with individualistic and libertarian values. But his method of solving it, the approach that he had erected into 'laws' of progress, had serious defects, and by failure to consider other methods, he not only helped to destroy himself politically, but failed to achieve either coordinated economic expansion or the traditions that he held dear.

Bibiliography

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