America's Great Depression (36 page)

The American Association for Labor Legislation of course entered the fray, and threatened Federal maximum-hour legislation if the steel industry did not succumb to its imperious demands. But the most effective blow was a stern public letter of rebuke sent to Gary by President Harding on June 18, written for the President by Hoover. Faced by Harding’s public requests and 35Also forgotten was the fact that
wages
were involved in the struggle, as well as hours. The workers wanted shorter hours with a “living wage,” or as the
Inquiry
Report
put it, “a minimum comfort wage”—in short, they wanted higher hourly wage rates. See Samuel Yellen,
American Labor Struggles
(New York: S.A. Russell, 1956), pp. 255ff.

Prelude to Depression: Mr. Hoover and Laissez-Faire
203

demands, Gary finally surrendered in July, permitting Hoover to write the notice of triumph into Harding’s Independence Day address.

The Hoover–Harding victory over U.S. Steel effectively tamed industry, which, faced by this lesson, no longer had the fight to withstand a potent combination of public and governmental pressures.36

Nor did this exhaust Hoover’s labor interventionism during the 1920s. Hoover played a major role in fostering railway unions, and in foisting upon the railroad industry the Railway Labor Act—

America’s first permanent incursion of the Federal government into labor–management relations. The railroad problem had begun in World War I, when the Federal government seized control of the nation’s rails. Run by Secretary of the Treasury McAdoo, the government’s policy was to encourage unionization.

After the war was over, the railway unions tried their best to perpetuate this bastion of socialism, and advocated the Plumb Plan, which called for joint operation of the railroads by employers, unions, and the government.

The railroads were returned to private owners in 1920, but Congress gave a dangerous sop to the unions by setting up a Railroad Labor Board, with tripartite representation, to settle all labor disputes. The Board’s decisions did not have the force of law, but they could exert an undue pressure on public opinion. The unions were happy with this arrangement, until the government representatives saw the light of economic truth during the depression of 1921, and recommended reductions in wage rates. The non-operating railway unions conducted a nationwide strike in defiance of the proposed reduction in the summer of 1922. While Attorney General 36On the twelve-hour day episode, see Frederick W. MacKenzie, “Steel Abandons the 12-Hour Day,”
American Labor Legislation Review
(September, 1923): 179ff.; Hoover,
Memoirs,
vol. 2, pp. 103–04; and Robert M. Miller,

“American Protestantism and the Twelve-Hour Day,”
Southwestern Social Science
Quarterly
(September, 1956): 137–48. In the same year, Governor Pinchot of Pennsylvania forced the anthracite coal mines of that state to adopt the eight-hour day.

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America’s Great Depression

Daugherty acted ably in support of person and property by obtaining a Federal injunction against union violence, the “horrified” Mr. Hoover, winning Secretary of State Hughes to his side, persuaded Harding to force Daugherty to remove the injunction.

Hoover also intervened privately but insistently to try to wring pro-union concessions from the railroads.

After the unions lost their strike, they determined to rewrite the law so that they could become established with the help of federal coercion. From 1923 on, the unions fought for a compulsory arbitration law. They achieved this goal with the Railway Labor Act of 1926, which, in effect, guaranteed collective bargaining to the railway unions. The bill was drafted by union lawyers Donald Richberg and David E. Lilienthal, and also by Herbert Hoover, who originated the idea of the Railway Labor Mediation Board. Seeing the growing support for such a law and lured by the promised elimination of strikes, the bulk of the railroad industry surrendered and went along with the bill. The Railway Labor Act—the first giant step toward the collectivization of labor relations—was opposed by only a few far-sighted railroads, and by the National Association of Manufacturers.37

Even more mischievous than Hoover’s pro-union attitude was his adoption of the new theory that high wage rates are an important cause of prosperity. The notion grew during the 1920s that America was more prosperous than other countries
because
her employers generously paid higher wage rates, thus insuring that workers had the requisite purchasing power to buy industry’s products. While high real wage rates are actually the
consequence
of greater productivity and capital investment, this theory put the cart before the horse by claiming that high wage rates were the
cause
of high productivity and living standards. It followed, of course, that wage rates should be maintained, or even raised, to stave off any threatening depression. Hoover began championing this theory during the Unemployment Conference of 1921.

37For a pro-union account of the affair, see Donald R. Richberg,
Labor Union
Monopoly
(Chicago: Henry Regnery, 1957), pp. 3–28; also see Hoover,
Memoirs
, vol. 2
.

Prelude to Depression: Mr. Hoover and Laissez-Faire
205

Employers on the manufacturing committee wanted to urge lowering wage rates as a cure for unemployment, but Hoover successfully insisted on killing this recommendation.38 By the mid-1920s, Hoover was trumpeting the “new economics” and attacking the

“old economics” that resisted the new dispensation. In a speech on May 12, 1926, Secretary Hoover spread the gospel of high wage rates that was to prove so disastrous a few years later: not so many years ago—the employer considered it was in his interest to use the opportunities of unemployment and immigration to lower wages irrespective of other considerations. The lowest wages and longest hours were then conceived as the means to obtain lowest production costs and largest profits . . . . But we are a long way on the road to new conceptions. The very essence of great production is high wages and low prices, because it depends upon a widening . . . consumption, only to be obtained from the purchasing-power of high real wages and increased standards of living.39

Hoover was not alone in celebrating the “new economics.” The National Industrial Conference Board reported that, while during the 1920–1921 depression, wage rates fell by 19 percent in one year, the high wage theory had taken hold from then on. More and more people adopted the theory that wage-cutting would dry up purchasing-power and thus prolong the depression, while wage rates held high would quickly cure business doldrums. This doctrine, allied with the theory that high wage rates cause prosperity, was preached by many industrialists, economists, and labor leaders throughout the 1920s.40 The Conference Board reported that

“Much was heard of the dawn of a new era in which major business depressions could have no place.” And Professor Leo Wolman has 38See McMullen, “The President’s Unemployment Conference of 1921 and its Results,” p. 17.

39Hoover,
Memoirs,
vol. 2
,
p. 108.

40One of these industrialists was the same Charles M. Schwab, head of Bethlehem Steel, who had bitterly fought Hoover in the eight-hour day dispute.

Thus, in early 1929, Schwab opined that the way to keep prosperity permanent was to “pay labor the highest possible wages.”
Commercial and Financial Chronicle
128 (January 5, 1929): 23.

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America’s Great Depression

stated that the prevailing theory during the 1920s was that “high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business.”41

As the final outgrowth of the famous conference of 1921, Hoover’s Committee on Recent Economic Changes issued a general multi-volume report on the American economy in 1929. Once again, the basic investigations were made by the National Bureau.

The Committee did not at all foresee the great depression.

Instead, it hailed the price stability of the 1920s and the higher wages. It celebrated the boom, little realizing that this was instead its swan song: “with rising wages and relatively stable prices we have become consumers of what we produce to an extent never before realized.” In the early postwar period, the Committee opined, there were reactionary calls for the “liquidation” of labor back to prewar standards. But, soon, the “leaders of industrial thought” came to see that high wages sustained purchasing power, which in turn sustained prosperity.

They began consciously to propound the principle of high wages and low costs as a policy of enlightened industrial practice. This principle has since attracted the attention of economists all over the world—its application on a broad scale is so novel.42

This change in the industrial climate, according to the Committee, came about in a few short years, largely due to the influence of the Conference on Unemployment. By the fall of 1926, steel magnate Eugene Grace was already heralding the new dispensation in the
Saturday Evening Post
.43

41National Industrial Conference Board,
Salary and Wage Policy in the
Depression
(New York: Conference Board, 1932), p. 3; Leo Wolman,
Wages in
Relation to Economic Recovery
(Chicago: University of Chicago Press, 1931), p. 1.

42Committee on Recent Economic Changes,
Recent Economic Changes in the
United States
(New York: McGraw–Hill, 1929), vol. 1, p. xi.

43Committee on Recent Economic Changes,
Recent Economic Changes in the
United States,
(New York: McGraw–Hill, 1929), vol. 2
;
Henry Dennison,

“Management,” p. 523.

Prelude to Depression: Mr. Hoover and Laissez-Faire
207

The conclusions of the Hoover-appointed economic committee were ominous in their own right. “To maintain the dynamic equilibrium” of the 1920s, it declared, leadership must be at hand to provide more and more “deliberate public attention and control.” In fact, “research and study, the orderly classification of knowledge . . . well may make complete control of the economic system a possibility.” To maintain the equilibrium, “We . . . (must) develop a technique of balance,” the technique to be supplied by economists, statisticians, and engineers, all “working in harmony together.”

And so, President Herbert Hoover, on the eve of the Great Depression, stood ready to meet any storm warnings on the business horizon.44 Hoover, the “Great Engineer,” stood now armed on many fronts with the mighty weapons and blueprints of a “new economic science.” Unfettered by outworn laissez-faire creeds, he would use his “scientific” weapons boldly, if need be, to bring the business cycle under governmental control. As we shall see, Hoover did not fail to employ promptly and vigorously his “modern” political principles, or the new “tools” provided him by “modern” economists. And, as a direct consequence, America was brought to her knees as never before. Yet, by an ironic twist of fate, the shambles that Hoover abandoned when he left office was attributed, by Democratic critics, to his devotion to the outworn tenets of laissez-faire.

44Another important foretaste of the later National Recovery Act (NRA) was Hoover’s use of the Department of Commerce during the 1920s to help trade associations form “codes,” endorsed by the Federal Trade Commission (FTC), to curtail competition in the name of eliminating “unfair” trade practices.

8

The Depression Begins:

President Hoover Takes Command

And so we see that when the Great Depression struck, heralded by the stock market crash of October 24, President Hoover stood prepared for the ordeal, ready to launch an unprecedented program of government intervention for high wage rates, public works, and bolstering of unsound positions that was later to be christened the New Deal. As Hoover recalls: the primary question at once arose as to whether the President and the Federal government should undertake to investigate and remedy the evils. . . . No President before had ever believed that there was a governmental responsibility in such cases. No matter what the urging on previous occasions, Presidents steadfastly had maintained that the Federal government was apart from such eruptions . . . therefore, we had to pioneer a new field.1

As his admiring biographers, Myers and Newton, declared, “President Hoover was the first President in our history to offer Federal leadership in mobilizing the economic resources of the people.” He was, of course, not the last. As Hoover later proudly proclaimed: It 1Hoover,
Memoirs of Herbert Hoover
(New York: MacMillan, 1937), vol. 3, pp.

29ff
.
For the sake of simplicity, any quotations from, or references based upon the
Memoirs
, Myers and Newton’s
The Hoover Administration,
Wilbur and Hyde’s
The
Hoover Policies,
or Hoover’s
The State Papers of Herbert Hoover,
will not be footnoted from this point on.

209

210

America’s Great Depression

was a “program unparalleled in the history of depressions in any country and any time.”

There was opposition within the administration, headed, surprisingly enough, considering his interventions throughout the boom, by Secretary of Treasury Mellon. Mellon headed what Hoover scornfully termed “the leave-it-alone liquidationists.” Mellon wanted to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” and so “purge the rottenness” from the economy, lower the high cost of living, and spur hard work and efficient enterprise. Mellon cited the efficient working of this process in the depression of the 1870s. While phrased somewhat luridly, this was the sound and proper course for the administration to follow. But Mellon’s advice was overruled by Hoover, who was supported by Undersecretary of the Treasury Ogden Mills, Secretary of Commerce Robert Lamont, Secretary of Agriculture Hyde, and others.

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