Modern Times: The World From the Twenties to the Nineties (48 page)

Hoover, born in 1874, not only believed in a kind of social
engineering; he actually was an engineer. An orphan from a desperately poor Iowa farming background, his was a classical American success-story. He worked his way through Stanford University with an engineering degree and then, from 1900 to 1915, made $4 million in mining all over the world.
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Recruited to Wilson’s war-team, he became its outstanding member, absorbed its philosophy of forceful government direction and planning, and then as head of America’s post-war Commission of Relief (an adumbration of the later Marshall Aid and Point Four programmes) achieved a world-wide reputation for benevolent interventionism. Maxim Gorky wrote to him: ‘You have saved from death 3,500,000 children and 5,500,000 adults.’
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In fact he used food diplomacy selectively, to defeat both Béla Kun’s Communist regime in Hungary and a Habsburg come-back in Austria, while propping up the regimes the Anglo-Saxon powers favoured.
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Keynes wrote of him as ‘the only man who emerged from the ordeal of Paris with an enhanced reputation … [who] imported in the councils of Paris, when he took part in them, precisely that atmosphere of reality, knowledge, magnanimity and disinterestedness which, if they had been found in other quarters also, would have given us the Good Peace.’
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Franklin Roosevelt, who as Navy Under-Secretary had also been in the wartime administration and shared Hoover’s general outlook, wrote to a friend: ‘He is certainly a wonder and I wish we could make him President of the United States. There could not be a better one.’
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As Secretary of Commerce for eight years, Hoover showed himself a corporatist, an activist and an interventionist, running counter to the general thrust, or rather non-thrust, of the Harding—Coolidge administrations. His predecessor, Oscar Straus, told him he only needed to work two hours a day, ‘putting the fish to bed at night and turning on the lights around the coast’. In fact his was the only department which increased its staff, from 13,005 to 15,850, and its cost, from $24.5 million to $37.6 million.
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He came into office at the tail-end of the Depression and immediately set about forming committees and trade councils, sponsoring research programmes, pushing expenditure, persuading employers to keep up wages and ‘divided time’ to increase jobs and, above all, forcing ‘co-operation between the Federal, state and municipal governments to increase public works’.
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Everywhere he formed committees and study-groups, sponsoring reports and working-parties, generating an atmosphere of buzz and business. There was no aspect of public policy in which Hoover was not intensely active, usually personally: child-health, Indian policy, oil, conservation, public education, housing, social waste, agriculture – as President, he was his own
Agriculture Secretary, and the 1929 Agricultural Marketing Act was entirely his work.
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Harding did not like this hyperactivity, but was overwhelmed by Hoover’s brains and prestige – ‘The smartest gink I know’.
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Coolidge hated it; but by then Hoover was too much part of the furniture of Republican government to be removed.

Besides, Hoover’s corporatism – the notion that the state, business, the unions and other Big Brothers should work together in gentle, but persistent and continuous manipulation to make life better – was the received wisdom of the day, among enlightened capitalists, left-wing Republicans and non-socialist intellectuals. Yankee-style corporatism was the American response to the new forms in Europe, especially Mussolini’s fascism; it was as important to right-thinking people in the Twenties as Stalinism was in the Thirties.
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Hoover was its outstanding impresario and ideologue. (One of his admirers was Jean Monnet, who later re-named the approach ‘indicative planning’ and made it the basis both for France’s post-war planning system and for the European Economic Community.) Yet Hoover was not a statist. He said he was against any attempt ‘to smuggle fascism into America through a back door’.
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On many issues he was liberal. He wanted aid to flow to underdeveloped countries. He deplored the exclusion of Japanese from the 1924 immigration quotas. His wife entertained the ladies of black congressmen. He did not make anti-Semitic jokes, like Woodrow Wilson and his wife or Franklin Roosevelt.
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To a very wide spectrum of educated American opinion, he was the leading American public man long before he got to the White House.

Hence the general belief that Hoover, as President, would be a miracle-worker. The
Philadelphia Record
called him ‘easily the most commanding figure in the modern science of “engineering statesmanship”’. The
Boston Globe
said the nation knew they had at the White House one who believed in ‘the dynamics of mastery’.
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He was ‘the Great Engineer’. Hoover said he was worried by ‘the exaggerated idea people have conceived of me. They have a conviction that I am a sort of superman, that no problem is beyond my capacity.’
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But he was not really disturbed. He knew exactly what to do. He ran the administration like a dictator. He ignored or bullied Congress. He laid down the law, like a character from Dickens. He was fond of telling subordinates, ‘When you know me better, you will find that when I say a thing is a fact, it
is
a fact.’
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When Hoover became President in March 1929 the mechanism which was to create the Depression was already in motion. The only useful action he might have taken was to allow the artificially low interest rates to rise to their natural level – a high one in the circumstances – which would have killed off the Stock Exchange
boom much earlier and avoided the damaging drama of the 1929 autumn. But he did not do so: government-induced cheap credit was the very bedrock of his policy. When the magnitude of the crisis became apparent, Andrew Mellon, the Treasury Secretary, at last repudiated his interventionist philosophy and returned to strict
laissez-faire.
He told Hoover that administration policy should be to ‘liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate’ and so ‘purge the rottenness from the economy’.
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It was the only sensible advice Hoover received throughout his presidency. By allowing the Depression to rip, unsound businesses would quickly have been bankrupted and the sound would have survived. Wages would have fallen to their natural level, and that for Hoover was the rub. He believed that high wages were an essential element in prosperity and that maintaining wages was the most important element in policy to contain and overcome depressions.
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From the very start, therefore, Hoover agreed to take on the business cycle and stamp on it with all the resources of government. ‘No president before has ever believed there was a government responsibility in such cases,’ he wrote; ‘… there we had to pioneer a new field.’
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He resumed credit inflation, the Federal Reserve adding almost $300 million to credit in the last week of October 1929 alone. In November he held a series of conferences with industrial leaders in which he exacted from them solemn promises not to cut wages; even to increase them if possible – promises kept until 1932. The American Federation of Labor’s journal lauded this policy: never before had US employers been marshalled to act together, and the decision marked an ‘epoch in the march of civilization – high wages’.
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Keynes, in a memo to Britain’s Labour Prime Minister, Ramsay MacDonald, praised Hoover’s record in maintaining wage-levels and thought the Federal credit-expansion move ‘thoroughly satisfactory’.
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Indeed in all essentials, Hoover’s actions embodied what would later be called a ‘Keynesian’ policy. He cut taxes heavily. Those of a family man with an income of $4,000 went down by two-thirds.
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He pushed up government spending, deliberately running up a huge government deficit of $2.2 billion in 1931, so that the government share of the Gross National Product went up from 16.4 per cent in 1930 to 21.5 per cent in 1931. This increase in government spending, by far the largest in US history in peacetime, reaching $1.3 billion in 1931, was largely accounted for ($1 billion) by a rise in transfer payments.
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It is true that Hoover ruled out direct relief and wherever possible he channelled government money through the banks rather than direct to businesses and individuals. But that he sought to use government cash to reflate the economy is beyond
question. Coolidge’s advice to angry farmers’ delegations had been a bleak: ‘Take up religion.’ Hoover’s new Agricultural Marketing Act gave them $500 million of Federal money, increased by a further $100 million early in 1930. In 1931 he extended this to the economy as a whole with his Reconstruction Finance Corporation
(RFC)
,
as part of a nine-point programme of government intervention which he produced in December. More major public works were started in Hoover’s four years than in the previous thirty, including the San Francisco Bay Bridge, the Los Angeles Aqueduct and the Hoover Dam; the project for a St Lawrence Seaway was a casualty of Congressional, not White House, action. In July 1932 the
RFC’S
capital was almost doubled to $3.8 billion and the new Emergency Relief and Construction Act extended its positive role: in 1932 alone it gave credits of $2.3 billion and $1.6 billion in cash. Alas, as there was then unanimous agreement that the budget had to be brought back into balance after two years of deficit, the 1932 Revenue Act saw the greatest taxation increase in US history in peacetime, with the rate on high incomes jumping from a quarter to 63 per cent. This made nonsense of Hoover’s earlier tax cuts but by now Hoover had lost control of Congress and was not in a position to pursue a coherent fiscal policy.

Hoover’s interventionism was accompanied by an incessant activist rhetoric. He was perhaps the first of what was to become a great army of democratic statesmen to use military metaphors in a context of positive economic policy: ‘The battle to set our economic machine in motion in this emergency takes new forms and requires new tactics from time to time. We used such emergency powers to win the war; we can use them to fight the Depression …’ (May 1932). if there shall be no retreat, if the attack shall continue as it is now organized, then this battle is won …’ (August 1932). ‘We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic programme of economic defence and counter-attack ever evolved in the history of the Republic …. For the first time in the history of depression, dividends, profits and the cost of living have been reduced before wages have suffered …. They were maintained until… the profits had practically vanished. They are now the highest real wages in the world …. Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom …. We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the US brought to bankruptcy and the savings of our people brought to destruction …’ (October 1932).
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Hoover, the active engineer, thought in terms of tools and weapons. Tools and weapons are meant to be used. He used them. His incessant attacks on the stock exchanges, which he hated as parasitical, and his
demands that they be investigated pushed stocks down still further and discouraged private investors. His policy of public investment prevented necessary liquidations. The businesses he hoped thus to save either went bankrupt in the end, after fearful agonies, or were burdened throughout the 1930s by a crushing load of debt. Hoover undermined property rights by weakening the bankruptcy laws and encouraging states to halt action-sales for debt, ban foreclosures or impose debt moratoria. This, in itself, impeded the ability of the banks to save themselves and maintain confidence. Hoover deliberately pushed federal credits into the banks and bullied them into inflating, thus increasing the precariousness of their position.

The final crisis came when America’s protectionist policy boomeranged. The atrocious Smoot-Hawley tariff of 1930, which sharply increased import-duties, more than any other positive act of policy, spread the Depression to Europe. In the summer of 1931 the collapse of Austria’s leading bank, the Credit Anstalt, pushed over a whole row of European dominoes (Britain had already abandoned the gold standard on 21 September 1930) and a series of debt-repudiations ensued. What remained of America’s exports to Europe vanished, and her policy of foreign loans as a substitute for free trade collapsed. Foreigners lost confidence in the dollar and since the USA was still on the gold standard began to pull out their gold, a habit that spread to American customers. In a ‘normal’ year about 700 US banks failed. In 1931–2 there were 5,096 failures, with deposits totalling well over $3 billion, and the process culminated early in 1933 when the US banking system came to a virtual standstill in the last weeks of the Hoover presidency, adding what appeared to be the coping-stone to the President’s monument of failure.
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By that time Hoover’s interventionism had prolonged the Depression into its fourth year. The cumulative banking crisis had, in all probability, the deflationary effect which Hoover had struggled so hard and so foolishly to prevent, so that by the end of 1932 the very worst of the Depression was over. But the cataclysmic depth to which the economy had sunk in the meantime meant that recovery would be slow and feeble. The damage was enormous, though it was patchy and often contradictory. Industrial production, which had been 114 in August 1929, was 54 by March 1933. Business construction, which had totalled $8.7 billion in 1929, fell to a mere $1.4 billion in 1933. There was a 77 per cent decline in durable manufactures over the same period. Thanks to Hoover, average real wages actually increased during the Depression; the victims, of course, were those who had no wages at all.
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Unemployment, which had been only 3.2 per cent of the labour force in 1929, rose to 24.9 per cent in 1933 and 26.7 per cent in 1934.
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At one point it was
estimated that (excluding farm families) some 34 million men, women and children were without any income at all – 28 per cent of the population.
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Landlords could not collect rents and so could not pay taxes; city revenues collapsed, bringing down the relief system (such as it was) and services. Chicago owed its teachers $20 million. In some areas schools closed down most of the year. In New York in 1932, more than 300,000 children could not be taught because there were no funds, and among those still attending the Health Department reported 20 per cent malnutrition.
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By 1933 the US Office of Education estimated that 1,500 higher education colleges had gone bankrupt or shut and university enrolments fell by a quarter-million.
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Few bought books. None of the public libraries in Chicago could buy a single new book for twelve months. Total book sales fell 50 per cent and Little, Brown of Boston reported 1932–3 as the worst year since they began publishing in 1837.
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John Steinbeck complained: ‘When people are broke, the first things they give up are books.’
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