Herbert Hoover: Domestic Affairs

Herbert Hoover: Domestic Affairs

Herbert Hoover took office in 1929 with a display of optimism and the promise of a "New Day." In his inaugural, he boasted that "in no nation are the fruits of accomplishment more secure" and claimed that "anyone not only can be rich, but ought to be rich." He warned his audience of the dangers of a large and activist federal government but also decried the self-serving greed of large corporations. Hoover reiterated his belief in the centrality of the individual in the American experience, the theme he had developed at some length in his 1922 book American Individualism.

Organizing the Hoover Administration

Hoover's cabinet choices were generally strong ones. The standouts, like Secretary of State Henry Stimson, Secretary of the Interior Ray Wilbur, Secretary of the Navy Charles Adams, and Attorney General William Mitchell, more than compensated for lesser lights such as Secretary of War James Good, Secretary of Labor James Davis, Secretary of Commerce Robert Lamont, and Secretary of Agriculture Arthur Hyde. Postmaster General Walter F. Brown proved valuable to Hoover as the President's chief connection to (and adviser about) the Republican Party. At the Treasury Department, Hoover retained Coolidge's appointee, Andrew Mellon, even though Mellon's economic views were much less progressive than those of the President. Hoover instead depended on Undersecretary of the Treasury Odgen Mills for economic advice. In fact, Hoover stocked the higher reaches of various executive departments with confidantes he called on regularly for advice.

Hoover's White House staff was, per contemporary custom, quite small. Walter Newton, the President's senior secretary, monitored relations with Congress and the executive departments and offered advice on executive appointments. Lawrence Richey helped manage the President's personal affairs and correspondence. George Akerson handled Hoover's relations with the press, albeit poorly. Hoover's executive clerk French Strother coordinated research projects on issues of social reform, topics that interested the President greatly. Hoover's staff was extremely loyal—Richey, Akerson, and Strother had worked on the 1928 campaign—and generally competent. While Hoover kept in place many of Coolidge's appointees at the lower levels of the federal bureaucracy, he did appoint hundreds of young technocrats and professionals trained in the new social sciences to government positions and special commissions.

Early Months of the Hoover Administration

Hoover began his presidency with a burst of energy and enthusiasm that demonstrated his progressive political leanings. He directed the Department of the Interior to improve conditions for Native Americans on government-controlled reservations. He won passage of the Boulder Canyon Project Act, which mandated the construction of a massive dam (later named the Hoover Dam) that would provide power for public utilities in California. And he appointed the conservationist Horace Albright to the National Park Service and placed nearly two million acres of federal land in the national forest reserve, demonstrating his belief in the conservation of national resources.

Underscoring his faith in the desirability of managerial expertise, the value of social science knowledge, and the benefits of private-public cooperation, Hoover convened a variety of conferences and appointed numerous commissions to study and solve vexing social problems. The White House Conference on Health and the Protection of Children of July 1929 looked at child welfare and produced an astounding 35 volumes of findings that social workers would use in the coming decades. The Wickersham Commission on Law Enforcement investigated the federal government's judicial system, including the politically dangerous issue of Prohibition enforcement. Finally, Hoover tasked the President's Committee on Recent Social Trends with assessing twenty-four aspects of American life, such as population, food, and public administration; in the final year of Hoover's presidency, the Committee provided a comprehensive statistical survey of each field. Consistent with Hoover's thinking, these commissions and committees gathered and publicized information, made recommendations, summoned voluntary efforts, and, in some cases, suggested legislation. Invariably, these groups resisted calls for an activist federal role in solving social or economic problems.

Two issues in particular took center stage during Hoover's first nine months as President: improving the economic health of the nation's agricultural sector and tariff reform. Upon entering office, Hoover called Congress into a special session to address these challenges.

American farmers suffered greatly in the 1920s as their incomes shrunk to only one-third the national average. The chief problem was overproduction. American farmers benefited from new technologies that increased their productivity, but the glut of product, along with overseas competition, caused prices at market to drop precipitously. Many farmers were demanding federal government subsidies (known as McNary-Hauganism for the congressional sponsors of such legislation) to boost farm incomes. Secretary of Commerce Hoover rejected this solution.

By the time Hoover became President in early 1929, the agricultural sector was still reeling. The President, nevertheless, still opposed subsidies; along with his congressional allies, Hoover instead supported a bill that created a Federal Farm Board. With a $500 million budget, the Federal Farm Board would loan money to farmers to create and strengthen farm cooperatives in the hope that these entities would control production and bring crops to market more efficiently. Hoover saw the Board as a shining example how voluntarism and cooperation among competitors could produce a more efficient economy without the government intervention that subsidies represented. The farm bloc in Congress, however, still vigorously supported subsidies. A political deadlock ensued, as factions in Congress battled over farm policy and Hoover did little to break the impasse. Finally, in June 1929, Congress passed the Agricultural Marketing Act, replete with a Federal Farm Board and no subsidies for farmers. Hoover got his desired agricultural program but not without significant political costs. By the fall of 1929, the Federal Farm Board was up and running.

Tariff policy, the other early challenge facing Hoover, had long been a flashpoint in American politics. Hoover was not a supporter of high tariffs but he did believe that farmers deserved some sort of protection, a position that aligned the President with progressive Republicans from the midwest, such as powerful Idaho senator William Borah. The House of Representatives largely acceded to Hoover's request for high tariffs on agricultural products alone, but senators from eastern states passed a tariff bill that raised rates on industrial and manufacturied products. Borah and his allies were understandably very angry. Hoover, privately and discretely, supported insertion of a codicil into the legislation creating a non-partisan Tariff Commission that could raise or lower rates; he reasoned that the Commission would lower excessive rates after the tariff bill passed. The proposed commission, though, had little support among either protectionists or free-traders in either party and thus was defeated in the fall of 1929. After months of discussion, tariff reform remained at a standstill.

In both the tariff and agriculture debates, President Hoover demonstrated questionable political acumen. The "Great Engineer" had proven as ineffective a politician as he was an effective organizer of exploratory commissions and committees. Instead of convincing Congress that his proposals were sound, Hoover chose to limit his involvement and let Congress legislate. The result, though, was policy stalemate and political tension between the President and Republicans, especially progressives like Borah, who might have been among Hoover's stronger supporters. It was a performance that did not bode well for the future, when Hoover's skills would be put to the test as the nation confronted its greatest crisis since the Civil War: the Great Depression.

Causes of the Great Depression

The American economy of the 1920s, while prosperous, was fundamentally unsound. The economic collapse that defined the Great Depression did not occur all at once, nor for one particular reason. Historians have identified four interwoven and reinforcing causes of the nation's most severe economic crisis: structural weaknesses in both American agriculture and industry; the frailty of the international economy in the late 1920s and the early 1930s; and the overly speculative and unstable foundations of the American financial sector.

As discussed previously, the nation's agricultural sector during the 1920s was unhealthy, a condition that was due largely to overproduction. But if the economic outlook looked bleak from the nation's fields, they appeared just as dreary from its factory floors. While industrial productivity and profits increased during the decade, wages remained stagnant. These profits, more often than not, were placed in the stock market or in speculative schemes rather than re-invested in new factories or used to fund new businesses, both of which (theoretically) would have created new jobs. The combination of agricultural woes and industrial stagnation conspired to grind America's economy to a halt.

The world economy also suffered from a general slowdown in the late 1920s. The Treaty of Versailles that ended the Great War required Germany to pay reparations to France and Britain, countries which owed money to American banks. The German economy, wrecked by the war, could not sustain these payments, and the German government looked to the United States for cash. Europe's economic health, then, was built on a web of financial arrangements and hinged on a robust American economy.

Finally, America's financial sector was a house of cards. During the 1920s, American businesses were increasingly raising capital either by soliciting private investment or by selling stock. Over two million Americans poured their savings into the stock market and many more into investment schemes. But there was little or no regulation of these companies and supposed investment opportunities, nor much oversight of the process. Too often, Americans put their money into "get rich quick" schemes which had no chance of long-term financial return, or into companies that made no real profits—and sometimes no actual products!The stock market was particularly volatile during the 1920s. It soared during the second half of the decade, with the New York Times index of industrial stocks growing from 159 points in 1925 to 452 points in September 1929. Investors bought stocks "on margin," meaning they produced only a small down-payment and borrowed the rest from their broker or bank. As long as the stock increased in value, all was well. The investor would later sell the stock, repay the broker or the bank, and pocket the profit.

Each of these factors helped create and sustain a severely unequal distribution of wealth in the United States, where a tiny minority possessed incredible riches. In 1929, five percent of the populace held nearly a third of the money and property; over 80 percent of Americans held no savings at all. In addition, the stagnation in wages, the collapse of agricultural markets, and rising unemployment (all of which led to the growing gap between rich and poor), meant that most Americans could not buy the products that made the economy hum. Wealthier Americans, moreover, failed to spend their money, choosing instead to invest it. In short, the American economy was a consumer economy in which few consumed.

As the economy began to slow in 1929—with fewer purchases, creeping unemployment, and higher interest rates—stock owners tried to sell but found no buyers; the market tumbled. Two days in particular, October 24 ("Black Thursday") and October 29 ("Black Tuesday"), saw investors desperately trying to dump stocks. On that Tuesday alone, brokers sold over 16 million shares. The market slide continued for more than two years, with one estimate claiming that investors lost nearly $75 billion. "The Great Crash," as it came to be known, was only one cause of the economic Depression that followed, but it brought home to many Americans in stunning fashion the harsh reality of the American economic landscape.

The nation's economic woes deepened considerably in the months and years after the stock market crash. With American farmers earning less, they could not pay their bills and mortgages. Rural banks failed without these payments, placing more pressure on a banking system already shaky from the shocks that hit Wall Street. After 1932, drought conditions plagued the midwest, further compounding existing agricultural problems. As industries failed, factories closed and stores shuttered. Between 1929 and 1933, 5,000 American banks collapsed, one in four farms went into foreclosure, and an average of 100,000 jobs vanished each week. By 1932, over 12 million Americans—nearly one-quarter of the workforce—were unemployed. Statistics alone, however, do not tell the story of the "Great Depression." For tens of millions, it was a time of panic and poverty, hunger and hopelessness. The national will sagged and its future seemed, at least to some, in doubt.

Hoover and the Great Depression

The collapse of the stock market and the Great Depression did not catch Hoover completely unaware, although he surely—like the vast majority of Americans—was utterly surprised by the severity of these developments. As secretary of commerce, Hoover had worried about speculation in the stock market, even asking for new government regulation of banks and stock exchanges to prevent "insider trading" and the dangerous practice of "margin buying." He had also called on the Federal Reserve Board to raise interest rates, but the board lowered them instead, thus fueling a stock market boom in the two years prior to his presidency.

During his first eight months in the White House, Hoover and his advisers continued to voice their concerns about the shape and future of the economy. Hoover supported the Agricultural Marketing Act because he believed it would shore up a weak agricultural sector. Suspicious of stock speculation, he approved of efforts by the Federal Reserve System to convince the New York Federal Reserve Bank to halt the practice of giving discounts to smaller banks, a practice that many experts believed fueled stock speculation. Hoover was dubious, however, of the wisdom of the Federal Reserve Board asking its member banks to tighten the money supply to halt speculative loans. Moreover, as the historian Martin Fausold explains, no one in government or the financial sector could agree upon the exact role that the Federal Reserve should play in monitoring and overseeing the financial sector.

Hoover reacted to the October 24 ("Black Thursday") stock market crash by stating that "the fundamental business of the country, that is production and distribution, is on a sound and prosperous basis." But shielded from public view, he and his administration worked hard to counter what they worried might be the beginning of a cyclical economic downturn. Hoover's advisers drew up proposals to stimulate the economy with reductions in taxes, a plan for the Federal Reserve to loosen its credit policies, and more public works spending. Hoover also called openly for local and state governments to expand public works projects, and organized a series of conferences in November 1929 which brought together leaders of industry, labor, and government to discuss the economy. Hoover asked for and received pledges from industry not to cut jobs or wages, and from labor not to press for higher wages.

The President's actions in the wake of the stock market crash were premised on his belief that the economy faced a mere downturn rather than the prospect of complete collapse. Likewise, Hoover's actions accorded with his faith in voluntarism, cooperation, the value of expertise and statistics, and the effectiveness of limited government measures to counteract economic cycles. He urged cooperation among and between industry and labor. He also ordered the Departments of Labor and Commerce to compile precise and accurate economic statistics. Unfortunately for Hoover, those statistics showed that in the week-and-a-half before Christmas 1929, one million Americans lost their jobs. The nation's economic slide would only continue.

Battles over the Tariff and the Supreme Court

Nonetheless, during the first half of 1930, issues other than the nation's economic problems consumed much of Hoover's time. The death of Supreme Court Justice Edward Sanford left a vacancy on the Court that Hoover needed to fill. The President chose John J. Parker, a highly regarded judge on the Fourth Circuit Court of Appeals. Parker's nomination initially won wide support, but labor groups and the National Association for the Advancement of Colored People (NAACP) argued that the judge's record was hostile toward unions and African-Americans. At Parker's Senate confirmation hearings, organized labor and the NAACP attacked the nomination; Progressive Republicans like Senator Borah, who already had a testy relationship with the President because of farm policy and the tariff, took the criticisms seriously. As a vote neared in the full Senate, some rank-and-file Republicans began to rethink their support for Parker. Hoover compounded the problem by failing to give Parker a strong public show of support and by refusing to let the judge appear before Senators to explain his civil rights and labor positions. The Senate killed the Parker nomination in early May 1930 by a tally of 41 to 39, with ten Republicans voting "nay."The other domestic issue Hoover addressed in the first half of 1930 was the tariff, which lay unresolved after the failure of legislation one year earlier. As the Seventy-first Congress convened in December 1929, Borah and other progressive Republicans still opposed both higher tariffs on industrial products and a tariff commission that could adjust rates; instead, they supported a plan—called export debenture—in which the government would compensate farmers who sold their products overseas at a loss. Politicians from industrial states unsurprisingly favored higher tariffs on industrial and manufacturing imports. Hoover, meanwhile, still supported the commission and opposed export debentures just as strongly. The President, however, refused to interfere in the congressional deliberations, though he did finally make his preferences known. Six months of legislative wrangling produced the Smoot-Hawley tariff bill in June 1930 that raised rates on both agricultural and industrial products to historic levels, provided for a commission, and rejected export debentures. Hoover quickly signed the legislation.

In subsequent years, some Democrats argued that the tariff caused the Great Depression. This charge was politically motivated and historically inaccurate; the Depression was well underway by time of Smoot-Hawley's passage. Nonetheless, higher tariff rates, most economists and historians agree, did little to help the American economy as it swooned in the early 1930s. Instead, protectionism further weakened the international economy by suffocating world trade, which in turn made it more difficult for the U.S. economy to recover. Just as important, the battles over Judge Parker's nomination and the tariff worsened Hoover's relations with the more progressive elements of the Republican Party.

The Hoover administration continued throughout 1930 to battle the nation's economic problems. To a remarkable degree, state and local governments, as well as leading industries, followed through on Hoover's requests. The President's proposals for increased government and private-sector spending were outlined at conferences that brought together business, labor, and political leaders in the wake of the market crash. Hoover pressed Congress in 1930 to pass bills that would spur infrastructure construction, even while he asked executive departments to hold the line on spending so as not to increase the federal budget deficit.

By March 1930, the Labor and Commerce Departments told Hoover that the worst of the crisis had passed, news that the President happily passed on to the public. Other observers—both in and out of government—were not so sure. Hoover ignored these pessimistic forecasts and rejected calls for more aggressive government actions (like relief bills or bond sales to fund unemployment benefits) to combat the nation's economic problems. Instead, he formed the President's Emergency Committee on Employment (PECE) in the fall of 1930 to coordinate private organizations' efforts to help the unemployed. Even Hoover's own appointee to head PECE, though, warned the President that greater government spending was needed to combat unemployment.

Hoover dismissed this suggestion, although unemployment had climbed to 8.7 percent of the workforce by the end of 1930, meaning that more than 4 million Americans were out of a job. Other indicators were just as dreary. Industrial production in 1930 fell by one-quarter; roughly 1,350 banks failed that year as well, more than twice as many as in 1929. As American economic problems grew—and his anti-Depression efforts floundered—Hoover frequently advanced the argument that a global economic slowdown was primarily to blame for the dismal economic circumstances at home. This assessment indicated that Hoover would likely pair his domestic anti-Depression measures with increased efforts in the international arena.

1931: Into the Vortex

By 1931, members of Congress—especially Democrats and midwestern progressive Republicans—began to call even more vociferously for decisive government action to combat the effects of the Depression. They were particularly desirous of relief bills for farmers and the unemployed. Most of these bills failed, largely because progressives and liberals were a distinct minority in Congress. Increasingly, however, other members of Congress gave credence to these requests. While not a relief measure per se, Congress did pass (over Hoover's veto) the Bonus Bill in the winter of 1931. The bill allowed veterans to borrow up to one-half the value of life insurance policies that Congress had purchased in 1924; with the policies set to mature in 1945, early access to these funds came to be regarded as a "bonus." Likewise, Senator Robert Wagner of New York, perhaps the Senate's most prominent liberal, won passage of bills providing for the collection of unemployment statistics and the systematic planning of public works. A third Wagner bill related to unemployment, which would have set up a system of employment agencies at the state level, was vetoed by Hoover.

By the spring of 1931, as he had a year earlier, Hoover still clung to the notion that the worst had passed. The President had not taken leave of his senses; other respected observers offered similar prognostications. Unfortunately, those assumptions proved wrong. By June, more than one-quarter of the factory work force was unemployed, along with 15 percent (more than eight million people) of the total work force. Bank failures continued to rise, with more than 2,200 banks folding in 1931 alone. Personal income, industrial production, and stock prices all began precipitous slides in the spring of 1931 after showing a burst of recovery in the preceding months. Social workers and labor leaders, who worked closely with communities bearing the brunt of the Depression, called attention to the inability of private relief to ameliorate the suffering and pleaded for more substantive government action.

Even as the crisis deepened in 1931, Hoover held fast to his course. He reiterated that the nation's economic woes were largely the result of depressed world economic conditions. He also made clear that he opposed federal intervention in the economy or the construction of a welfare state. Instead, Hoover maintained that voluntarism and individual effort would solve the country's economic woes. His administration's policies throughout 1931 reflected these approaches. To stabilize the international financial and economic situation, Hoover called in June 1931 for a one-year moratorium on intergovernmental debts. In August, PECE morphed into a new agency, the President's Organization for Unemployment Relief (POUR), which essentially carried on its predecessor's mission of mobilizing private assistance. POUR did assume more of an advisory role than PECE, suggesting federal public works programs and strategies to fight unemployment; it did not, however, push for federal relief programs. In the early fall of 1931, Hoover convinced leading bankers to voluntarily organize the National Credit Corporation, which would use a $500 million reserve to aid small, insolvent banks. Bankers, though, extracted a pledge from the President that if the non-governmental, voluntary effort failed, he would support a similar federal effort. Despite these maneuvers, the economy showed no signs of recovery. Indeed, the crisis only deepened.

Hoover's New Approach

In late 1931, Hoover changed his approach to fighting the Depression. He justified his call for more federal assistance by noting that "We used such emergency powers to win the war; we can use them to fight the Depression, the misery, and suffering from which are equally great." This new approach embraced a number of initiatives. Unfortunately for the President, none proved especially effective. Just as important, with the presidential election approaching, the political heat generated by the Great Depression and the failure of Hoover's policies grew only more withering.

The National Credit Corporation quickly proved insufficient, largely because its private-sector leaders were too tight-fisted and reluctant to bail-out smaller banks. As the NCC floundered, the Hoover administration drafted legislation for the Reconstruction Finance Corporation (RFC). The RFC, which would be government-run and funded, was designed to stabilize the nation's financial structures by providing credit to banks weak and strong, as well as to other entities like railroads and agricultural organizations; Hoover hoped that by improving the nation's financial health, public confidence would grow and that both employment opportunities and international trade would expand. Congress created the RFC in early 1932. While the RFC, like the NCC, often failed to help smaller banks, historians and economists now sing its praises for saving many of the nation's larger financial institutions from ruin. The RFC, however, did not fulfill Hoover's hopes by cutting into unemployment.

Hoover also bowed to growing public and congressional pressure for emergency federal relief. In the summer of 1932, he signed the Emergency Relief Construction Act, which provided $2 billion for public works projects and $300 million for direct relief programs run by state governments. While the bill only appropriated a pittance for direct relief and placed many restrictions on how the $300 million could be used, its endorsement by Hoover testified, at least partially, to the failure of voluntarism and private relief. Hoover, however, saw the act as a temporary measure to provide emergency relief; he remained resolutely opposed to large-scale and permanent government expenditures on relief and welfare.

Finally, in March 1932, Hoover signed the Norris-La Guardia Anti-injunction Act. The law accomplished three important objectives supported by organized labor. First, it severely curbed the use of "yellow dog" contracts in which employers hired replacement workers to break strikes. Second, it strongly curtailed the ability of federal judges to issue sweeping injunctions against strikes. Finally, it encouraged and confirmed the right of laborers to organize. Norris-LaGuardia was an important forerunner of pro-labor legislation, like the 1935 Wagner Act, and a personal victory for Hoover, who had made clear since the 1920s his opposition to the use of injunctions.

Despite the creation of the RFC and the passage of the Emergency Relief and Construction Act, Hoover (and those under his command) committed two blunders in 1932 that greatly damaged his political standing. First, the President became embroiled in a political spat with Congress over taxes. Committed to keeping the United States on the gold standard, Hoover wanted to close the federal government's budget deficit, which had grown during his presidency, by raising taxes. The key issue was how to allocate the increased tax burden among Americans. Hoover and his advisers did not want to raise taxes so much that wealthy Americans and businesses were discouraged from investing--an activity that, theoretically, created jobs. Hoover's original tax plan, then, was to spread tax increases among different economic sectors and between rich and poor Americans. In Congress, conservative southern Democrats countered with a plan in which half of the new tax revenues would come from a sales tax on manufactured goods.

Hoover agreed to support the sales tax—after receiving assurances that it would not affect the prices of "staple food or cheaper clothing"—but progressive Republicans and liberal Democrats rebelled at what they saw as an attempt to pass the tax burden on to those who could least afford to pay it. The issue became a political firestorm. Opponents of the sales tax aggressively attacked Hoover, portraying him as a retrograde conservative. Meanwhile, each party's leaders tried to keep the maverick sales tax opponents in line. They failed, however, and the Revenue Act of 1932 passed in the late spring of 1932 without a sales tax. Hoover signed the measure, but the political damage had been done.

In late July 1932, the President's political fortunes took another precipitous dip, only a few weeks after Republicans had re-nominated Hoover as their candidate for that year's presidential election. Unemployed American veterans of World War I, suffering from the hardships of the Depression, marched along with their families to Washington, D.C., to demand immediate full payment of their bonuses, which, by law, were payable in 1945. Hoover joined Congress in rejecting the demands of the "Bonus Army" marchers, though he did support their right to demonstrate and quietly made available to them shelter and supplies. While in Washington, some in the Bonus Army took up quarters in unoccupied federal building scheduled for demolition. After Congress refused to grant the Bonus Army's demands, most of the protesters left Washington. Some, however, remained in the abandoned buildings, in nearby camps, and in hovels on the shores of the Anacostia River.

The administration decided to remove the members of the Bonus Army occupying the condemned buildings. Hoover gave precise instructions to the military to peacefully escort the protestors to nearby camps. Secretary of War Patrick Hurley, who feared the Bonus Army might riot, exceeded Hoover's instructions and ordered General Douglas MacArthur to relocate the marchers from Washington's political and business district to the Anacostia River flats. MacArthur, in turn, exceeded his orders and decided to drive the Bonus Army from Washington, D.C., altogether. The military attacked the veterans with tanks, tear gas, bayonets, and guns, burned the camps in Anacostia, and killed one Bonus Army member; MacArthur repeatedly ignored orders from superiors to halt the rampage. Americans from around the nation saw the horrific images of the attack in their newspapers. When MacArthur and Hurley obstinately refused to take responsibility for the melee, Hoover did so. The President's standing with the public only sank further. With the 1932 election fast approaching, Hoover's chance of winning another four years in the White House were nearly extinct.