President Hoover and the Great Depression

AFTER THE CRASH OF 1929:

PRESIDENT HOOVER AND THE GREAT DEPRESSION

HIST 321 History of the Modern U.S.

February 16, 2017

The 1920’s: An era of radical social change and unprecedented economic prosperity.  Commonly referred to as the “Roaring Twenties,” this controversial decade helped lay a foundation of what America is today.  It was a time of cultural awakenings.  Technology advancements like the automobile brought new freedoms to people like never before.  Household items like the radio, washing machine, and refrigerator sparked a trend of consumerism that boosted the economy.  Financial transactions were at an all-time high, as was buying on credit.  People could have the luxuries of life instantaneously, while the burden to pay could defer until later.  Unfortunately, the American people could only buy so many refrigerators and automobiles.  This propensity of mass consumption soon dissipated as shoppers simply reached their spending limits.  The demand for such commodities dropped, leaving a heavy imbalance against their overproduction, causing the heightened economy to take a major hit.

        During the days of prosperity, however, Americans were not only buying goods, they were buying stocks in increasing amounts.  This craze to invest was “fueled by an expansion of credit… that encouraged investors to become dangerously leveraged.”^[1] To paraphrase the article “Stock Market Crash of 1929,” those who acquired the stocks would pay a portion up front and buy the rest with borrowed funds, using the stocks as collateral for the loan.^[2] In September 1929, stock prices reached their peak, and the weeks following saw those prices fall exponentially.  This sudden violent crash combined with other factors that would include reduced consumer spending, increased unemployment, and proliferation of debt created a perfect storm of economic fragility that bottomed out and sent the country on a downward spiral into the longest and worst economic depression it had ever experienced in history.

        Herbert Hoover, a Republican, became the 31st president of the United States in 1929, just seven months before the nation fell into its Great Depression.  While the actions of previous presidents largely contributed to the country’s economic downfall, President Hoover was the commander-in-chief at the dawn of the crisis and in the eyes of many Americans he was solely to blame for its manifestation and its longevity.  Many saw President Hoover’s attitude about the Depression as distant and insensitive.  While Hoover initiated numerous programs to help stimulate the weakened economy, his conservative political views prevented him from employing federal assistance to aid impoverished Americans and his efforts failed to prevail over the American economic disaster.

        When Herbert Hoover was elected President in 1929, he had already forged an illustrious career in politics, most notably as the head of Food Administration during World War I, head of the American Relief Administration, and Secretary of Commerce during the Harding and Coolidge administrations.^[3] He won the presidency in a landslide, and due to his experience as Secretary of Commerce he could sense that the country was on the verge of economic disaster.  Early on he made attempts to calm the impending storm by urging the Federal Reserve to restrict credit and curb excessive stock speculation, which he could see was spinning out of control.  His warnings fell on deaf ears, as many believed that the market would endure and stocks would continue to rise indubitably.  Hoover’s fears came to a head on October 24, 1929 as the stock market crashed and contributed to the worst economic depression in American history.

        From the start, Hoover’s stance on the economic crisis was a “hands off” approach regarding government involvement.  He strongly believed in “constitutional restrictions on a direct federal role in economic regulations for the provision of relief”^[4] Hoover promoted self-reliance and public-private cooperation as a means to recover from the Crash, signifying that controlling business, wages, and funding welfare programs would further weaken the country’s morale, threaten individualism and the incentive to work, and draw the U.S. closer to becoming a socialist nation.  Despite the continual economic devastation, Hoover persisted in his philosophy of “rugged individualism” and relied heavily on state and local government to address the needs of Americans.  

        With the option of federal government involvement off the table, Hoover attempted to steer the public to rally under a common goal – to get people back to work.  He supported the idea that strengthening business and encouraging employment would boost the economy and overcome the calamity of the Crash.  Some of his first efforts were to meet with business leaders and request they forestall wage cuts and work stoppages.  By keeping factories running and employees paid, the economy would (hopefully) inevitably recover.   One of the major flaws in Hoover’s earlier plans was that he and many others believed the stock market crash was a minor recession – merely a hiccup in the economic condition of the nation.  His confidence in the stability of the economy was no match for the events that were to follow.

        The Crash of 1929 was just one facet of the events that led to the Great Depression.  Despite Hoover’s early efforts, the economy continued to dive.  Overproduction of goods coincided with under consumption by consumers – people simply ran out of money to spend, and those who had money were not spending it.  Businesses had no choice but to reduce employee wages, shut down manufacturing, and lay off workers.  Conditions in America worsened, prompting Hoover to find alternative programs in an attempt to rescue the American population.

        As the economy worsened and America continued to plunge into the Depression, President Hoover endeavored to initiate government funded recovery programs.  One of the first was the President's Organization for Unemployment Relief (POUR), created to assist Americans who lost their jobs as a result of the Depression.  The function of POUR was to coordinate efforts of welfare agencies and organize strategies to combat unemployment, while avoiding the expenditure of government money.  The program was short-lived, as the effects of the Depression became too much for local agencies to handle and the government was still unwilling to provide aid in the form of money.

The Reconstruction Finance Corporation was “the most significant of Hoover’s recovery measures.”^[5] Established in 1932, the program offered federal aid to failing railroads, business corporations, banks, and insurance companies. The RFC funded approximately $2 billion in an attempt to “stabilize the nation’s financial structures”^[6] and promote economic recovery.  Unfortunately, timing did not allow the RFC to have the desired effect under Hoover’s administration, and it did very little to resolve the unemployment issue.

The Emergency Relief and Construction Act granted funds to the RFC for local, state, and federal public works projects.  The money would finance projects to maintain highways and building projects, as well as construction of dams and bridges.  The program would also provide relief for the unemployed, who would be hired to work the projects.  As the name suggests, the act was intended to be a temporary, emergency function of the government.  Hoover remained devoted to his conservative standard of no long-term federal aid and enforcement of individualism and cooperation.  Subsequently, Hoover’s signing of this act “testified, at least partially, to the failure of volunteerism and private relief.”^[7] 

While the Hoover administration struggled to provide relief and promote self-reliance, much of the population suffered from the ever-increasing effects of the Depression.  Much as the “Roaring Twenties” fostered extreme social change from the onset of the decade, its ending brought equal and contrasting change.  With unemployment at an all-time high, many people could not afford the necessities in life, thus triggering an under-consumption of goods.  This sudden “decline of demand… created the paradox of poverty amidst plenty.”^[8] People across the country were starving - standing in seemingly endless breadlines and rooting through trash piles for scraps of food; while simultaneously there remained “thousands of bushels of wheat left in the fields” and “thousands of bushels of apples rotting in the orchards.”^[9] Children wore tattered rags while stores held racks of clothing.  People lost their homes, farmers lost their land, and businesses faltered.  It seemed that no one was immune, as much of the American population succumbed to the Depression.