Most historians state that President Hoover did little while the Great Depression decimated the U.S. However Hoover actually initiated more government involvement in the economy than any other peacetime president up to that time. In fact, Hoover’s interventionist policies not only failed to stop the downward economic spiral following the stock market crash of 1929, but they made the spiral worse.
Government Intervention
One of Hoover’s first acts was to implore business leaders not to cut wages during the crisis. Hoover believed that if workers had higher wages, they would have more purchasing power to stimulate the economy. However when consumer demand decreases (as is often the case in a recession), businesses must either cut wages or cut workers to stay afloat. If wages are not cut, the result is unemployment. By the time Hoover left office in 1933, unemployment was near a staggering 25 percent.
Hoover saw the federal government as a central planner that could improve the lives of people through regulation. This view was applied to farming. Farming had suffered greatly in the 1920s, mainly because the enormous demand for farm products during World War I the previous decade had dropped when the war ended. What was needed to correct this was not more government regulation but less farmers.
Because of the overabundance of farm products, prices declined sharply. Thus a Federal Farm Board was created to ensure that farmers kept their products off the market until prices rose. However once prices rose, farmers tried to capitalize by producing more, which only made the overabundance problem worse.
Eventually the federal government began buying surplus farm products to keep them off the market, believing that world demand would cause prices to rise again. However this only prompted many countries to look elsewhere for their products, thus drying up the U.S. market.
Protectionism
In keeping with Republican Party tradition, Hoover advocated high tariffs (i.e., taxes) on goods imported from other countries. In 1930 he signed the Smoot-Hawley Tariff into law despite the objections of over 1,000 economists. Hoover believed that this would stimulate production of U.S. products.
The new tariff raised rates an average of 59 percent on 25,000 items, the highest in history up to that time. World leaders hoping to stimulate their own economies through relaxed trade were shocked. Many retaliated with high tariffs of their own, thus sparking an international trade war that dramatically shrunk world trade and made the Depression much worse.
The new tariffs had another unintended consequence: Japanese interests were badly damaged, prompting the rise of the militant nationalist movement in Japan that led in part to World War II.
Taxing and Spending
Government spending was needed for the massive programs that Hoover initiated. Among these was a public works program which took billions of dollars out of the private sector that could have otherwise been used to revive the economy.
Another program was the Reconstruction Finance Corporation, which bailed out failing businesses, mainly railroads and banks—the Republicans’ two most important special-interest groups. To receive bailout money, a business had to be on the verge of failure. Thus the RFC propped up failure instead of allowing these businesses to liquidate so their resources could be redirected to more successful enterprises.
In addition, the RFC funds often went not to businesses most in need, but to businesses with the best political connections. Thus government corruption and special-interest lobbying ensured that the RFC would have a minimal impact on combating the Depression.
By 1931, excessive government spending on these programs created a deficit that could only be remedied by higher taxes. So Hoover approved the largest peacetime tax increase up to that time. Taxes were raised on virtually everything, including individuals and businesses. Raising taxes deterred many from private investment, thus stunting economic growth and preventing job creation even further.
Conclusion
President Hoover’s policies of maintaining high wages, setting price and production controls, implementing protectionism, and increasing spending and taxing essentially destroyed any chance for the economy to correct itself following the stock market crash.
In light of these facts, it can be argued that the true failure of the Hoover administration was not that it did too little to combat the Great Depression, but that it did too much and actually made the crisis worse. In fact, Hoover turned a recession into the Great Depression.
Sources
DiLorenzo, Thomas J.: How Capitalism Saved America (New York, NY: Three Rivers Press, 2004)
Wallechinsky, David and Wallace, Irving: The People’s Almanac (Garden City, NY: Doubleday and Company, Inc., 1975)
Woods Jr., Thomas E.: The Politically Incorrect Guide to American History (Washington, DC: Regnery Publishing, Inc., 2004)
Walter Coffey - Walter Coffey is a freelance writer who resides in Houston, Texas. Walter has written several works of historical fiction and non-fiction, ...
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