- Category: History 118 Week 4
- Published on Saturday, 29 December 2012 02:24
- Written by Dr. Eric Mayer
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The Hoover Years
The US met the year of 1929 with great confidence, and President Hoover succeeded Coolidge.
Hoover approached the office of the presidency with great efficiency and he reorganized the presidential staff.
Hoover appointed a cabinet of men who stood for what the business community admired. Mellon continued as Secretary of the Treasury as he had under Coolidge, also Secretary of State Henry Stimson was no new comer to politics.
The president interceded to prevent private companies from being regulated by the Federal government.
Hoover also proposed that the Federal government withdraw all its control over public lands and from all new reclamation and irrigation projects.
Hoover did recognize the need for some aid to agriculture and summoned a special session of Congress to provide it.
Hoover suggested that the best way to help the farmer would be to raise the tariff and give them Federal assistance in the marketing of their produce.
In the Agricultural Marketing Act of 1929 Congress acted on Hoover’s suggestion and created the Federal Farm Board which had a revolving fund of $500 million from which the Board could make loans to cooperatives.
However, the tariff proposal was shot down and Hoover lacked the political skills to guide such a controversial bill through Congress.
Yet in 1930 industrial lobbyists and their friends in the Republican majority carried protection to its all time high with the passage of the Hawley-Smoot Tariff that raised average rates from 32 to 40% on 70 farm products and over 900 manufactured goods.
The unbridled prosperity and speculation on the stock market began to worry conservative financiers and the president in the early months of 1929.
Hoover privately urged financiers to end the the manipulation of securities, but with no success and he would not ask Congress to interfere.
Instead Hoover supported the Federal Reserve when it warned banks against making loans for speculative purposes and he approved the Board’s 1% increase in interest. But the higher cost in speculative loans did not curb the wild wave of speculation.
The first danger signs appeared in the summer of 1929.
Residential construction fell off more than a billion dollars, and the rate of consumer spending dropped some 400%
From June, industrial production, commodity prices and employment steadily declined.
Yet the stock market boomed on and speculators bid shares to new peaks. The market seemed strong, but it was sustained only by deluded confidence.
In one week broker’s loans totaled $137 million and New York banks had borrowed $64 million to cover the cost of the speculation.
From September to October the market moved gently downward, then on October 24 security prices crumbled in a wave of frenzied selling.
The panic was averted when JP MOrgan and Co. agreed to pool their resources and support the stock market and Morgan and Co. assured reporters that the heavy wave of panic and selling was due simply to technical difficulties.
They were wrong and in the next 2 weeks the market shuddered to a collapse. As values fell an uncontrollable decline swept past the support the bankers had organized.
In less than one month the securities listed on the New York Stock Exchange lost $26 Billion, more than 40% of their face value.
Contrary to Hoover assertions the fundamental business of the country was completely unsound and wealth had been skewed to the point that less than 5% of the population controlled more than 33% of all the wealth in the country.
The crash itself was the predictable end of a period of intense speculation, and the crash in turn brought the sagging economy down. It wiped out savings and confidence alike.
Also a mood of despair settled over the nation that stifled the initiative of people to reinvest in the nation which might have encouraged recovery.
By 1930 it was clear the dominance of businessmen and industrialists inside and outside the government had brought not a new Jerusalem, but a severe panic that created the worst economic depression in recorded history.
Most people thought that the Depression would be a temporary phenomena like the recessions of the 1870’s and 1880’s, but Hoover knew better.
Hoover took steps in order to prevent the spread of the Depression.
He called on the Federal Reserve to make it easier for small businesses to borrow and he encouraged the Farm Board to provide funds to help the stabilization corporations in their efforts to sustain commodity prices. And Hoover also hoped that by providing private advice and making public pronouncements that he could restore national confidence in business.
Hoover was in favor of the Tariff Act of 1930 for he thought that protection of American business and industry would help the nation get back on its feet.
To gain the confidence of businessmen he recommended and Congress approved a tax cut for personal and corporate income taxes.
The tax bill of 1930 gave the rich more money which they would presumably spend on reinvesting int the national economy, but did absolutely nothing for the middle class and poor who were the social classes most hurt by the Depression.
Unfortunately, Hoover efforts were to little too late to check the contraction in private spending, investment and employment that followed the crash.
Also Hoover and the Federal Reserve both opposed a rapid inflationary expansion of the currency and bank deposits which under the circumstances may have helped the situation.
But Hoover would not consider any more spending for he was determined to keep the Federal budget as close to balanced as possible.
While Hoover encouraged the business classes of the US the plight of the poor and middle class continued to deteriorate.
By May of 1930 Hoover announced that "we have no passed the worst", but statistics told a different story. Capital issues, investment capital continued to decline, and the number of businesses failing every month continued to rise—over 100,000 businesses went under in the period between 1929 and 1932.
Banks collapsed over this same period at the rate of over 200 per month and each collapse erased the cash and savings of depositors, most of whom had no other resources.
By mid-1932 industrial production was off over 51% from the 1929 level and by the Fall of 1932 there were over 11 million people out of work, and the majority of employed Americans were actually under-employed.
In 1929 national income was$81 billion, but by 1932 that figure had declined to $49 billion.
Millions of middle class people lost their savings, then their insurance, their mortgages and finally their properties and homes.
The optimism of the 1920’s gave way now to unprecedented fear and gloom for the future of not only the US but all of the industrialized world.
The times were terribly hard on the middle class, the majority of whom for the first time in the history of the nation suffered from chronic malnutrition and protein deficiency in their diet.
When Hoover had been elected in 1929 he had predicted the abolition of poverty in the US within a decade. Instead within two years an entire nation became impoverished, and hungry.
In the congressional elections of 1930, the Democrats conducted a rousing campaign against Hoover, but they offered no clear alternatives to his policies.
The Republican majority in the Senate had been reduced by a single vote after the 1930 elections.
In 1930 the Democratic minority of the old Congress to develop a program for unemployment relief.
Hoover, however felt that relief was essentially a local problem and by 1930 local public relief funds were 75% paid by local entities.
As the winter of 1930-31 came on, cold and hunger moved into the homes of the unemployed and relief payments were only $2.39 a week in the state of New York.
Two Texas cities barred unemployment relief for Black families and in the majority of the city dumps of the nation children combed through the trash in search of food and clothing.
In October of 1930 Hoover appointed an Emergency Committee for Employment under Colonel Arthur Woods. Hoover had told Woods that funding was a local matter but Woods ardently insisted that the Federal government help out local authorities with funding for the unemployed.
Senator La Follette urged Federal spending for public works and relief. But all this Hoover opposed on the ground that federal action was unnecessary.
Instead Hoover continued to believe that individual responsibility, local and mutual self-help organizations were the answer to the Depression.
The depression was now worldwide in scope and was provoking individual nations to pursue their separate advantages and the resulting scramble and trade wars hurt them all.
In terms of foreign policy Hoover and his Secretary of State Stimson took a benign and friendly approach to Latin America.
In Argentina, Hoover promised to abstain from intervention in the political affairs of countries south of the border and Hoover set about withdrawing US Marines from Nicaragua and by 1933 all troops were out of Central America and the Caribbean.
In 1930 Hoover repudiated the Roosevelt corollary to the Monroe Doctrine which justified US intervention in Latin America for almost whatever reason the US saw fit.
Nor did Hoover regard the doctrine as a mandate for collecting debts by force.
During Hoover’s time some 50 revolutions shook Hoover’s "Good Neighbor" policy, but the president refused to intervene despite much pressure from economic and political pressure groups in the US.
By abandoning protective imperialism, Hoover created an improved atmosphere in hemispheric relations.
In terms of US/European relations, Hoover participated in the London Naval Disarmament Conference of 1930, extended the holiday on the construction of capital ships by the US and Britain, but allowed Japan parity in terms of submarines and allowed Japan to build more cruisers and destroyers.
In effect this formally recognized Japan’s primacy in the eastern Pacific.
In the 1930’s Japan broke the peace of the world.
Since its victory over Russia in 1905 it had dominated the economy of southern Manchuria. Japan had no problem with China’s political claims to the area so long as Chinese administration did not conflict with Japanese military and economic priorities and goals.
In the north of China the Russians still managed the Chinese Eastern Railway and were developing a Pacific terminal. This alarmed Japan who then resolved to reinforce southern Manchuria.
By the middle 1920’s Chiang Kai-shek was the leader of China and the nationalist party the KMT after having broke with Mao and the CCP by 1927.
Chiang was determined not to yield Chinese territory to another foreign power, especially the Japanese.
In the Fall of 1931 the period of Taisho democracy came to end and the military took over the Tokyo government. In September Japanese troops occupied Mukden and other Manchurian cities and moved rapidly to establish political control over the region.
Japanese aggression in China violated The Nine Power Treaty and the Kellog Briand Act. The League of Nations was powerless and the Japanese representatives walked out of the League of Nations.
Hoover then rejected Stimson’s suggestions that the US impose economic sanctions on the Japanese.
By 1932 the Japanese Kwantung Army drove on south of Manchuria, massacring and bombing tens of thousands of civilians in its path.
Stimson now resorted to moral condemnation of Japan’s actions.
Before the end of January the Japanese army had invaded Shanghai, carpet bombed the city and created many atrocities later known as the "Rape of Shanghai" where 200,000 civilians were raped, mutilated and killed in a two week orgy of bloodshed.
The League of Nations was completely impotent in preventing further Japanese hostilities in China.
By 1932 the Nazis had come into power in Germany.
A new Congress convened in December of 1931 and it appropriated $125 million to expand the lending powers of the Federal Land Banks, also it established a system of home loan banks with a capital of $125 million for discounting home mortgages.
In February of 1932 Congress passed the Glass-Steagall Act which freed about a billion dollars worth of gold to met the demands of Europeans who were converting their dollars to gold.
But this form of orthodox economics further depressed prices and added to the burden of debts contracted when prices were high.
In January of 1932 Congress created the Reconstruction Finance Corporation with a capital stock of $500 million and its purpose was to lend money to banks and insurance corporations.
The situation of the nation’s farmers seemed as hopeless as that of the unemployed workers in the cities. Even before the depression destroyed the European market for US farm commodities, the Federal Farm Board recognized that it could never stabilize prices without some control over production.
Farmers found themselves without enough money to pay their mortgage payments or even to buy food for their families.
The communists organized hunger marches in Washington and constantly preached revolution, but Americans spurned communism in favor of good old American violence.
In the summer of 1932 the Republicans renominated Hoover and his vice president Charles Curtis.
The Democrats, in contrast sensed victory ahead and they nominated Franklin D. Roosevelt, a distant cousin of Teddy.
FDR was a master orator and showman and very charismatic and Roosevelt carried the election by a landslide and reflected that people had had enough of big business running American politics.