Hoovering Up the Mess

Many of us probably remember learning that Herbert Hoover was a laissez-faire conservative whose inaction in the face of economic depression paved the way for FDR’s New Deal.  Michael Barone’s speculation about whether we are at a similar bend in the road is based on something like this version of history.  One problem with this view, however, is that it is directly contradicted by Hoover himself.  Here he is in 1932, accepting the Republican nomination to run for re-election:

Two courses were open to us. We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action.

This can be called many things, but laissez-faire is not one of them.  And in this rejection of doing “nothing,” President Hoover was not simply contradicting his critics without any supporting evidence, the way a modern campaign might.  He followed up with an impressive list of specifics:

We have not feared boldly to adopt unprecedented measures to meet unprecedented violences of the storm. . . .

It was in accordance with these principles that at the first stage of the depression I called upon the leaders of business and of labor and of agriculture to meet with me and induced them, by their own initiative, to organize against the panic with all its devastating destruction; to uphold wages until the cost of living was adjusted; to spread existing employment through shortened hours; and to advance construction work against future need.

It was in pursuance of that same policy that I have each winter thereafter assumed the leadership in mobilizing all of the voluntary and official organizations throughout the country to prevent suffering from hunger and cold, and to protect millions of families stricken by drought. And when it became advisable to strengthen the States who could no longer carry the full burden of relief to distress, it was in accordance with these principles that we held that the Federal Government should do so through loans to the States and thus maintain the fundamental responsibility of the States themselves. . . .

It was in accordance with these principles that, in aid to unemployment, we expend some $600 millions in Federal construction of such public works as can be justified as bringing early and definite returns. We have opposed the distortion of these needed works into pork-barrel nonproductive works which impoverish the Nation.

It is in accord with these principles and these purposes that we have made provision for $1,500 millions of loans to self-supporting works so that we may increase employment in productive labor. We rejected projects of wasteful nonproductive work allocated for purposes of attracting votes instead of affording relief. Thereby, instead of wasteful drain upon the taxpayer, we secured the return of their cost to Government agencies and at the same time we increased the wealth of the Nation.

It was in accordance with these principles that we have strengthened the capital of the Federal land banks–that, on the one hand, confidence in their securities should not be impaired, and that on the other, the farmers indebted to them should not be unduly deprived of their homes. It was in accordance with these purposes that the Farm Board by emergency loan to farmers’ cooperatives served to stem panics in agricultural prices and saved hundreds of thousands of farmers and their creditors from bankruptcy. It was in accord with these ideas that we have created agencies to prevent bankruptcy and failure in their cooperative organizations; that we are erecting new instrumentalities to give credit facilities for their livestock growers and their orderly marketing of their farm products.

It is in accordance with these principles that in the face of the looming European crises we sought to change the trend of European economic degeneration by our proposals of the German moratorium and the standstill agreements on German private debts. We stemmed the tide of collapse in Germany and the consequent ruin of its people. In furtherance of world stability we have made proposals to reduce the cost of world armaments by $1 billion a year.

It was in accordance with these principles that I first secured the creation by private initiative of the National Credit Association, whose efforts prevented the failure of hundreds of banks, and the loss to countless thousands of depositors who had loaned all of their savings to them.

It was in accord with these ideas that as the storm grew in intensity we created the Reconstruction Finance Corporation with a capital of 2 billions more to uphold the credit structure of the Nation, and by thus raising the shield of Government credit we prevented the wholesale failure of banks, of insurance companies, of building and loan associations, of farm mortgage associations, and of railroads in all of which the public interest is paramount. This disaster has been averted through the saving of more than 5,000 institutions and the knowledge that adequate assistance was available to tide others over the stress. This has been done not to save a few stockholders, but to save 25 millions of American families, every one of whose very savings and employment might have been wiped out and whose whole future would have been blighted had these institutions gone down.

It was in accordance with these principles that we expanded the functions and the powers of the Federal Reserve banks that they might counteract the stupendous shrinkage of credit due to fear and to hoarding and the foreign withdrawal of our resources.

It was in accordance with these principles that we are now in process of establishing a new system of home loan banks so that through added strength and through cooperation between the building and loan associations, the savings banks and other institutes we may relax the pressures on forfeiture of homes and procure the release of new resources for the construction of more homes and the employment of more men.

It was in accordance with these principles that we have insisted upon a reduction of governmental expenses, for no country can squander itself to prosperity on the ruins of its taxpayers. And it was in accordance with these purposes that we have sought new revenues to equalize the diminishing income of the Government in order that the power of the Federal Government to meet the emergency should be impregnable.

It was in accordance with these principles that we have joined in the development of a world economic conference to bulwark the whole international fabric of finance, of monetary values, and the expansion of world commerce.

It was in accordance with these principles and these policies that I am today organizing the private industrial and financial resources of the country to cooperate effectively with the vast governmental instrumentalities which we have in motion, so that through their united and coordinated efforts we may move from defense to a powerful attack upon the depression along the whole national front.

These programs, unparalleled in the history of depressions of any country and in any time, to care for distress, to provide employment, to aid agriculture, to maintain the financial stability of the country, to safeguard the savings of the people, to protect their homes, are not in the past tense–they are in action. I shall propose such other measures, public and private, as may be necessary from time to time to meet the changing situations that may occur and to further speed our economic recovery. That recovery may be slow, but we shall succeed.

And come what may, I shall maintain through all these measures the sanctity of the great principles under which the Republic over a period of 150 years has grown to be the greatest Nation of the Earth.

I should like to digress a second for an observation on the last 3 years which should exhilarate the faith of every American–and that is the profound growth of the sense of social responsibility in our Nation which this depression has demonstrated.

No Government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. Despite hardships, the devotion of our men and women to those in distress is demonstrated by the national averages of infant mortality, general mortality, and sickness, which are less today than in times even of prosperity. For the first time in the history of depressions, dividends and profits and the cost of living have been reduced before wages have been sacrificed. We have been more free from industrial conflict through strikes and lockouts and all forms of social disorder than even in normal times. The Nation is building the initiative of men and of women toward new fields of social cooperation and new fields of endeavor.

Economic historian Murray Rothbard concludes that President Hoover’s self-understanding was not wrong.  According to Rothbard’s history of the era, “America’s Great Depression” (1963), Hoover’s interventionist response included many of the same tools later used by FDR and currently proposed by interventionists in the current crisis:  easy credit, attempts to keep wages and prices artificially high, and even attacks on short-selling.  An excerpt from Chapter 7 of the book is available here. In general, I think it is fair to say that we failed to respond effectively to the depression because government consistently exerted itself in pursuit of a pain-free recovery, instead of letting the market provide us with a sharp but speedy one.  The result, of course, was more pain.

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One Response to “Hoovering Up the Mess”

  1. The Back-Door Bailout « Reasonable Minds Says:

    […] Back-Door Bailout September 30, 2008 — Mark Grannis In a nearby thread, I argue that the quest for a pain-free correction to the current economic crisis, through […]


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