Hoover and the Depression

THE GREAT DEPRESSION: NATURE AND EFFICACY OF SOLUTIONS IN THE UNITED STATES

HOOVER: March 1929 – March 1933

Historical context

-          The Crash on October 29, 1929 was the first clear symptom of the Great Depression.

-          Recklessness and laissez-faire policies of the 1920s set the stage for an impending depression.

-          Hoover was elected into office in 1928 and had proven himself effective as Secretary of Commerce under Harding. He had a firm belief in success of self-reliance and hard work, and therefore believed that these principles could be used to solve the problems of the depression.  

Inaction

Hoover relied on ‘optimism’ and did not intervene into the economy where it was necessary.

1.       Hoover appointed an Emergency Committee for Employment in 1930 to stimulate voluntary and local charity to help the unemployed.

a.        It was based on ‘volunteerism’ and avoided government spending for unemployment. The program ended in 1932, a failure.

1.        “Never before,” Hoover declared when vetoing a relief bill for farmers in 1931, “has so dangerous a suggestion been seriously made in this country.”

b.       Hoover forbade the board from imposing production controls; farmers continued overproduction of cotton and wheat as a result.

2.       The National Credit Corporation (NCC) was formed in 1931 to encourage larger banks to provide loans to smaller banks with the risk of collapse.

a.        It was an example of Hoover’s support of voluntarism, but was unsuccessful because larger banks were reluctant to provide sufficient loans.

3.       In November 1932, Hoover declared that “any lack of confidence in the economy future or the basic strength of business, is foolish.”

a.        Hoover understood the seriousness of the Depression, but publically he exuded confidence.

Poor policies
Actions taken to address the depression were insufficient and ineffective.

4.       In 1929, a Federal Farm Board with $500 million was established to create marketing co-operatives that would buy, store, and dispose of farming surpluses. It was established to stop prices from falling.

a.        It failed because farmers were given artificially high prices which could not continue in the long run; by 1932 wheat was 30-39 cents per bushel, which was less than production costs.

b.       Agriculture was treated as a domestic issue, and foreign factors (such as high tariffs to justify the need for a high domestic price) were not taken into account

c.        The Board was abandoned in 1931.

5.       The Hawley-Smoot Tariff of 1930 increased duties on agricultural and industrial imports. It was not vetoed by Hoover.

a.        It was the highest tariff in US history with average duties of 40%, and led most European nations to abandon free trade and reduced exportation of American goods.

6.       Hoover increased the national debt from slightly over $16 billion in 1930 to $19.5 billion in 1932. To counter the deficit, Hoover slashed plans for public works in order to avoid throwing the budget further out of balance. 

a.        Hoover did not understand that the economy could be stimulated through ‘pump priming’ in public works.

                                                   i.      Ultimately, FDR would ‘prime the pump’ in his New Deal.

7.       An Emergency Relief Act was established in 1932, authorized to lend $300 million in funds to struggling states.

a.        Less than $30 million was given out in the end.  

b.       The funds were inadequate and the shortage was a result of Hoover’s reinforcement of self-help.

8.       The Reconstruction Finance Corporation, established in 1932, held $2 billion for lending towards mainly financial institutions to restore confidence in those areas.

a.        In terms of loan sizes 50% of loans went to 7% of the biggest banks, demonstrating the administration’s willingness to favour big business.

b.       Yet this is seen as Hoover’s most radical measure.

9.       1932: Hoover raised income tax rates from 1.125% to 4%. This was for the lowest tax bracket.

a.        By reducing households’ disposable income, especially on those making the least amount of money, it led to a reduction in household spending and a further contraction in economic activity.

10.    Hoover’s response to the ‘Bonus Army’ incident of June 1932 was the final blow to his administration. When  20 000 WWI veterans marched to Washington to claim their war bonuses, they were met with military force and Hoover commented with: “Thank God you have a government that knows how to deal with a mob”.

a.        This shattered Hoover’s public image, which was worsened when he said “Thank God you have a government that knows how to deal with a mob”.

Extent of failure

11.    Small shanty towns were called ‘Hoovervilles’ and the phrase “In Hoover we trusted, and now we are busted” was popular.

a.        This showed the lack of faith, integrity and promise held in Hoover’s government. He lost credibility.

12.    In November 1932, Hoover declared that “any lack of confidence in the economy future or the basic strength of business is foolish.”

a.        Hoover understood the seriousness of the Depression, but publically he exuded confidence. He simply was not willing to take the necessary actions—large-scale government intervention—that the situation called for.

13.    Unemployment was 24% by 1932. Hoover’s government had allocated a total of $47 million in funds for UE relief by this point.

a.        Hoover’s efforts fell short because of his insistence on self-help and volunteerism. Consequently, he did not deliver relief to the parts of society that needed it most.

14.    On March 4 1932, FDR replaced Hoover in the Presidency.

a.        His loss was attributed to his complete lack of success in addressing the depression, a lack-lustre campaign and continued bad publicity by the end of his term.  He lost with only 15% support.

 “I never worry about action, but only inaction.” Winston Churchill

Ellis W. Hawley, Herbert Hoover as Secretary of Commerce. 1981
Hoover believed that “the spirit of American individualism… had provided this nation with unsurpassed abundance.”

“The only thing we have to fear is fear itself.” FDR in 1932, contrast to Hoover’s approach/attitude

“If a free society cannot help the many who are poor, it cannot save the few who are rich” JFK

JM Keynes, The Means to Prosperity. 1933. “multiplier effect”
When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spending, which creates further increases in the demand for business output.