America's Great Depression (46 page)

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America’s Great Depression

expense of the unemployed. Wage cuts were necessary to the restoration of effective purchasing power.17

By the fall of 1931, economic reality was at last beginning to force its way through the tangle of mischievous fallacies, and the severe pressures, of the Hoover program. Wage rates, at long last, were beginning to fall. The U.S. Steel Corporation, over the opposition of its President, James A. Farrell, summoned up the courage to cut wage rates in September, whereupon William Green accused U.S. Steel of violating its 1929 pledge to the President.18 And even Henry Ford, despite his philosophic devotion to the artificial wage maintenance policy, had to cut wages in the following year.

IMMIGRATION RESTRICTIONS

Suspension of immigration also helped to keep wage rates up, and Hoover moved diligently on this front as well. In his December, 1930, message, Hoover urged Congress to enact the suspension of immigration into law, where it would be more firmly rooted than in Presidential decree. Bills to eliminate all immigration except that of relatives of American residents were criticized by Secretary of State Stimson for not going far enough. Stimson suggested instead a general 90 percent reduction.19 This new bill passed the House, but failed to reach a vote in the Senate.

17See John Oakwood, “Wage Cuts and Economic Realities,”
Barron’s
(June 29, 1931); and “How High Wages Destroy Buying Power,”
Barron’s
(February 29, 1932); Hugh Bancroft, “Wage Cuts a Cure for Depression,”
Barron’s
(October 19,1931) and “Fighting Economic Law—Wage Scales and Purchasing Power,”
Barron’s
(January 25, 1932). Also see George Putnam, “Is Wage Maintenance a Fallacy?”
Journal of the American Bankers’ Association
(January, 1932): 429ff.

18See Fred R. Fairchild, “Government Saves Us From Depression,”
Yale
Review
(Summer, 1932): 667ff; and Dorfman,
The Economic Mind in American
Civlization,
vol. 5, p. 620.

19Stimson also added a racist note, fearing that permitting relatives would allow the bringing in of too many of the “southern” as against the “Northern” and

“Nordic” races. See Robert A. Divine,
American Immigration Policy, 1924–1932

(New Haven, Conn.: Yale University Press, 1957), p. 78.

1931—“The Tragic Year”

271

VOLUNTARY RELIEF

Direct relief was just about the one sphere where President Hoover seemed wholeheartedly to prefer voluntary to governmental action. The previous fall, Hoover had refused to call a special session of Congress for unemployment relief, saying this was the responsibility of voluntary agencies. In fact, the voluntaryist tradition was still so strong in this field that the Red Cross opposed a bill, in early 1931, to grant it $25 million for relief. The Red Cross declared that its own funds were adequate, and its Chairman told a House Committee that such a Congressional appropriation would “to a large extent destroy voluntary giving.” Many local Red Cross leaders strongly opposed all federal aid, and even all public relief generally, and so the bill, after passing the Senate, was killed in the House.20 Many private charity organizations, philanthropists, and social workers had the same views, and the
New York
Times
hailed the “voluntary spirit” as opposed to public aid.21 A social worker, writing of this period, has said in obvious bewilderment that:

the theory that England’s depression, which began before the American disaster, had in some mysterious way [sic] been connected with their unemployment insurance system (or “dole”) had been accepted by many people in this country.22

State and local direct relief, however, totaled $176 million in 1931, as compared to $105 million in 1930, and $71 million in 1929. The Federal Government, while not engaging in direct relief, continued to aid the farmers. In February, it appropriated $20 million for 20On the vigorous attempts of the President’s Emergency Committee for Employment to pressure the Red Cross into giving relief to coal miners, see Bernstein,
The Lean Years: A History of the American Worker, 1920–1933,
pp. 308ff.

21By June, however, the American Association of Public Welfare Relief was calling for a federal relief program.

22Edith Abbott,
Public Assistance
(Chicago: University of Chicago Press, 1940), vol. 1, pp. 657–58, and 509–70. Even voluntary relief, if given indiscriminately, will prolong unemployment by preventing downward pressure on wage rates from clearing the labor market.

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America’s Great Depression

loans to assist local agricultural credit corporations and granted $2

million for loans to various farmers.

Despite his initial voluntaryism in this field, however, Hoover appointed an Emergency Committee for Employment the previous fall. He had appointed the committee reluctantly, and warned the members that unemployment was strictly a local responsibility.23

The chairman, Colonel Woods, however, kept urging upon Hoover a highly interventionist program, including greater public works, as well as Senator Wagner’s bills for public works planning and a national employment service. Woods finally resigned in April, 1931, and was replaced by Fred Croxton. In contrast to Woods, many business leaders, understanding the role of the British governmental unemployment “dole” in creating and perpetuating unemployment, attacked any idea of governmental relief. These included Henry Ford, the leaders of the National Association of Manufacturers and the Chamber of Commerce, and former President Coolidge.

HOOVER IN THE LAST QUARTER OF 1931

How, specifically, did President Hoover rise to the challenge of crisis in the latter part of 1931? In the first place, ominous signs began to appear that he was getting ready to weaken or abandon his devotion to the principle of voluntary relief. As early as June, 1930, the Conference of Governors had petitioned Hoover for a one billion dollar emergency federal relief appropriation. Hoover did not agree, but on February 3, he declared: I am willing to pledge myself that if the time should ever come that the voluntary agencies of the country, together with the local and state governments, are unable to find resources with which to prevent hunger and suffering in my country, I will ask aid of every resource of the Federal Government.24

23See Arthur M. Schlesinger, Jr.,
The Crisis of the Old Order, 1919–1933

(Boston: Houghton Mifflin, 1957), pp. 169, 507.

24Daniel R. Fusfeld,
The Economic Thought of Franklin D. Roosevelt and the
Origins of the New Deal
(New York: Columbia University Press, 1956), p. 267.

1931—“The Tragic Year”

273

In mid-August, Hoover abolished the old Woods–Croxton Emergency Committee for Employment, and replaced it by a larger President’s Organization on Unemployment Relief. Head of the new committee was Walter S. Gifford, President of American Telephone and Telegraph Company. Others connected with the new committee were: Newton D. Baker, Bernard M. Baruch, Fred C. Croxton, John W. Davis, Pierre DuPont, John Edgerton, William Green, Will Hays, Jacob Hollander, Alexander Legge, Wesley C. Mitchell, William S. Paley, Rabbi Abba Hillel Silver, Walter Teagle, William Allen White, Matthew Woll, and Owen D.

Young. While Gifford was personally opposed to governmental unemployment relief, a subcommittee of the Organization on Unemployment recommended, at the end of October, encouraging everyone to buy, spurring confidence and combating hoarding, urging banks to lend liberally and employers to spread available work, increasing public works, and transferring surplus urban labor to the farms.25

As early as mid-July, Hoover returned to a favorite theme: attacking short-selling, this time the wheat market. The short-selling speculators were denounced for depressing prices and destroying confidence; their unpatriotic “intent is to take a profit from the losses of other people”—a curious charge, since for every short seller there is necessarily a long buyer speculating on a rise. When the crisis came in the fall, the Stock Exchange authorities, undoubtedly influenced by Hoover’s long-standing campaign against such sales, restricted short selling. These restrictions helped drive stock prices lower than they would have been otherwise, since the short-seller’s profit-taking is one of the main supports for stock prices during a decline. As soon as the crisis struck in the fall, Hoover reverted to his favorite technique of holding conferences. On September 15, he laid plans for a Conference on Home Building and Home Ownership to be held in December, to promote the widening of home ownership and to lower interest rates on second mortgages. The resolutions of the December conference originated many of the key features of later New Deal 25
Monthly Labor Review
33 (1931): 1341–42.

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America’s Great Depression

housing policy, including heavy long-term credit at low rates of interest and government aid to blighted, low-income housing.26

By October, as Britain left the gold standard and gold reserves dwindled, Hoover was subjected to contradictory pressures. On the one hand, Hoover recalls with distaste that he was advised by

“bitter-end liquidationists” and “reactionary economists” to let

“the liquidation take its course until we found bottom.” On the other hand, Governor Eugene Meyer, Jr., of the Federal Reserve Board, had been agitating since summer to reenact a form of the old War Finance Corporation for government loans to the private economy, and now urged upon Hoover a special session of Congress for this purpose. The former was the type of wise advice that Hoover, devoid of laissez-faire principles or sound economic knowledge, was incapable of understanding. Instead, he could only worry about the immediate hardships that would arise from foreclosures, declines in security prices, and bankruptcies. Staunchly rejecting this “reactionary” advice, and yet reluctant to launch a government lending program, Hoover resolved on a “broad program of defense and offense” by mobilizing a quasi-“voluntary” lending agency to be financed by the nation’s leading bankers. The first step was to call a secret conference of 40 leading New York bankers and insurance executives at Secretary Mellon’s apartment on October 4. Such men as Thomas W. Lamont and George Whitney of J.P. Morgan and Company, Albert H. Wiggin of Chase National Bank, and Charles E. Mitchell of National City Bank, met with Secretary Mellon, Governor Meyer, Undersecretary Mills, and Hoover. Hoover presented his plan—to create a National Credit Corporation (NCC) with capitalization of $500

million to extend credit to banks in need and to permit banks to extend credit to needy industrial firms. The banks were to finance the capital for the NCC, and the NCC would be allowed to borrow up to $1 billion, with Federal Reserve assistance. The idea was that the strong banks would pool their resources to bail out the weak banks; with Federal help, the NCC was to rediscount bank 26See Paul F. Wendt,
The Role of the Federal Government in Housing
(Washington, D.C.: American Enterprise Association, 1956), pp. 8–9.

1931—“The Tragic Year”

275

assets not legally eligible to be rediscounted with the Federal Reserve. Insurance companies were asked not to foreclose mortgages and, in return, they would be helped by aid from the Federal Farm Loan Banks. Although both Mills and Meyer enthusiastically backed this program, the banks and the insurance companies balked at the shoring up of unsound positions. At this point, the iron fist became evident in the velvet glove of “voluntary industry–government cooperation” in the Hoover scheme of things. If the banks did not agree, Hoover threatened, he would obtain legislation to force their cooperation. The banks then agreed to set up the NCC, and the insurance companies agreed not to press foreclosure of mortgages. In return, Hoover promised that the NCC

would be temporary, for the duration of the year, and that he would soon ask Congress to recreate a new and broader War Finance Corporation (WFC) for emergency loans (the old WFC

had lapsed in the spring of 1929), to broaden eligibility requirements for bank rediscounts with the Federal Reserve System, and to expand the Federal Farm Loan Banks.27

In addition, Hoover induced Paul Bestor, head of the Federal Farm Loan Board, to promise to refuse foreclosing any mortgages unless the debtor wanted to leave his farm, and the President decided he would recommend an increased appropriation of $125

million for these land banks. Hoover also induced the Federal Reserve Board to encourage banks to lend to depositors on the latter’s frozen assets in bankrupt banks.

The NCC quickly aided faltering banks in South Carolina and Louisiana, and, over a three-month period, loaned $153 million to 575 banks; but this hardly stemmed the tide of weakness and failure. Strengthening Hoover’s aim to establish a government lending corporation—which was soon established as the Reconstruction 27Nash maintains that it was Meyer who made the promise to the bankers after Hoover and Mellon had left. Meyer and Senator Joseph Robinson, Democratic Senate leader, urged a special session to enact a new WFC, but Hoover still held back. At this point, Meyer secretly put a staff together, headed by Walter Wyatt, counsel of the FRB, to draft what was later to become the RFC.

Gerald D. Nash, “Herbert Hoover and the Origins of the RFC,”
Mississippi Valley
Historical Review
(December, 1959): 461ff.

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America’s Great Depression

Finance Corporation—was the advice of Eugene Meyer, Ogden Mills, Louis Wehle, formerly counsel of the old WFC, and Chicago banker Melvin A. Traylor. Meyer, in particular, put pressure upon the President, to the extent of preparing his own bill for Congress. Hoover was finally completely persuaded to push for an RFC by Meyer in early December.28

On October 7, Hoover called another White House Conference of the leading insurance, mortgage company, and building-and-loan executives. He proposed to them a grandiose program—a national system of Federal mortgage discount banks, with one central bank, like the Federal Reserve System, and with the capital subscribed by the government. The regional banks would discount mortgages and the central mortgage banks would stand behind the branches; all could issue debentures to raise more capital. This system would then stand behind all the mortgages of savings banks, insurance companies, and commercial banks. This grandiose statist and inflationist scheme was flatly rejected by the insurance companies and by most of the savings banks, although it was supported by the building-and-loan associations. Hoover therefore had to modify his plan, and to settle for a Home Loan Bank system, which Congress would later ratify, as a compulsory central mortgage bank for the building-and-loan (now “saving-and-loan”) associations, and a voluntary bank for savings banks and insurance companies.