How Hoover and America Handled the Onset of the Great Depression
How Hoover and America Handled the Onset of the Great Depression

How Hoover and America Handled the Onset of the Great Depression

Larry Holzwarth - May 7, 2020

How Hoover and America Handled the Onset of the Great Depression
A Hooverville along the Willamette River at Portland, Oregon, circa 1931. Wikimedia

12. Hoover’s policies changed a budget surplus into a deficit

In 1929, the first year of Herbert Hoover’s Administration, the President inherited a budget surplus. Following the stock market crash Hoover opted to reduce income tax rates by 1% of the 1929 rates when people filed their taxes in 1930. There was no federal withholding at the time, people filed their taxes and paid what they owed. Income tax refunds were unknown, since no money was withheld during the years. During 1930 Hoover established federal agencies and advisory committees, intended primarily to shore up the crumbling financial system. As he did so he increased federal spending, and the surplus of 1929 became a deficit in 1930.

By 1932 some conservative economists and politicians believed the steadily expanding deficit contributed to the continuing, and still worsening depression. Hoover asked Congress to increase federal income tax rates across the board. The act produced by Congress both increased the number of people owing taxes and the rates to determine the amount they owed. Hoover compared the act to similar actions during the First World War, calling them justified to “fight the depression, the misery and suffering from which are equally great”. In effect, Hoover compared the depression to a war, and asked Americans to rally around him as he led them to victory.

How Hoover and America Handled the Onset of the Great Depression
As President, Hoover expressed little interest in foreign affairs beyond formalities, though he did blame economic conditions on European turmoil. Library of Congress

13. Hoover publicly blamed America’s depression on Europe’s economy

European countries for the most part removed themselves from the gold standard in response to their own economic woes. Hoover refused to follow suit. Instead, he publicly blamed much of America’s industrial and agricultural collapse on the problems in Europe and their adverse effects on trade. He proposed a moratorium on the payment of war reparations by Germany as that nation’s economy fell into near-complete collapse, in order to stabilize markets. The action did little to shore up the German economy, which nearly collapsed anyway. The German democratic government collapsed with it as the Nazis gained strength.

By 1931, Hoover was the target of considerable disdain among the Americans most affected by the depression. Nearly 60% of the population was considered “poor” by government standards. Cardboard inserts for shoes to cover holes in the sole were called “Hoover leather”. Men sleeping on park benches and city sidewalks covered themselves with discarded newspapers and called them “Hoover blankets”. Still, the President’s mind remained closed to the idea of direct relief payments to the unemployed, the homeless, and the hungry. He continued to support the idea that such relief belonged in the hands of the state and local governments.

How Hoover and America Handled the Onset of the Great Depression
By 1932, Hoover shifted much of the blame for unemployment to immigrant workers in the United States taking jobs from Americans. National Archives

14. Hoover also shifted blame for unemployment to immigrants

As the depression worsened in 1931, unavoidable scapegoats emerged upon whom Americans vented their growing frustrations and fears. In many areas of the country, racism and xenophobia also contributed. Mexican immigrants and Mexican-Americans became a target across America, blamed for taking American jobs, often at lower wages. A mass deportation of Mexicans and Mexican-Americans, including thousands of American citizens, began in 1929. It was endorsed by President Hoover as protection for American jobs, after his Secretary of Labor, John Doak, requested additional federal agents “to assist in the deportation of 500,000 foreigners”.

Several states developed their own deportation programs in addition to the federal effort, an act applauded by Hoover. Following Hoover’s national call for Mexican deportations in 1929, the popular magazine The Saturday Evening Post ran a series of articles describing the racial inferiority of Mexicans. Hoover did not express racist views, declaring the deportations were necessary to protect American jobs, not for the purposes expressed by numerous communities in the United States. Hoover’s Administration worked with representatives of the Mexican government to underwrite the costs absorbed by deportees.

How Hoover and America Handled the Onset of the Great Depression
President and Mrs. Hoover camapigning from the back of a railroad car in 1932. National Archives

15. Hoover opposed federal intervention via direct aid to individuals

Herbert Hoover was a noted philanthropist long before he was elected President. He also gained experience in disaster relief, in Central Europe following World War I, and in the United States following the Great Mississippi Flood in 1927. Hoover recognized the need for the federal government to come to the aid of the states and local communities, and moved to act on that need by early 1932. But he refused to yield to the urgings of members of both political parties and provide financial aid directly to Americans. He argued that to do so would undermine American morale, destroy the work ethic, and encourage Americans to enjoy idleness.

Instead, Hoover favored the organization of volunteer groups and boards to distribute federal largesse on a local level, through the creation of public works projects. He continued throughout his administration to urge the railroads and utility companies to develop infrastructure, partially funded through federal support and tax reductions. Hoover argued that the 1920s economic boom erupted when banks and individuals spent money they did not yet have through speculation, and the federal government doing the same thing – deficit spending – would create an even worse downturn in the economy. His volunteerism required the increase in taxes which led to the disastrous tax increases in 1932, which placed an ever greater burden on the common man, and little in the way of relief.

How Hoover and America Handled the Onset of the Great Depression
Franklin Delano Roosevelt in 1933, the first year of his Administration. Library of Congress

16. Hoover’s policies and failures vaulted FDR to national prominence

The same year Herbert Hoover became President of the United States, 1929, saw Franklin D. Roosevelt inaugurated as Governor of New York. Following the stock market crash, FDR moved for immediate and aggressive action against the economic downturn. As Hoover argued the downturn was mild and destined to be short-lived, Roosevelt proposed several state initiatives, including the first in the United States for government provided unemployment insurance. Following reelection in 1930, FDR proposed a comprehensive relief package in the state, which offered voters a stark contrast between the troubled federal response and the successes in New York.

During the Presidential election of 1932, which pitted FDR and Hoover against each other, Hoover continued to support the national policy of Prohibition. It was he who gave Prohibition its moniker as the “noble experiment” in 1928. FDR argued that repeal would create jobs, including a larger market for grains, and generate badly needed tax revenues. FDR pointed out both were necessary fighting the economic depression, which he likened to a national emergency. His successes in New York and his enthusiastic endorsement of repeal were two major factors in his defeat of Hoover at the polls in November, 1932.

How Hoover and America Handled the Onset of the Great Depression
Hoover’s three years of failures controlling the Great Depression cost him the White House in 1932. National Archives

17. Hoover at first earned praise for his response to the economic downturn

During the first 18 months of the depression, Hoover’s steps to mitigate the effects of the downturn focused on completing government projects such as dams and bridges, encouraging businesses to keep wages up, and preventing general panic. In 1930, The New York Times editorialized, “No one in his place could have done more. Very few of his predecessors could have done as much”. Both the government and major businesses spent more in the first six months of 1930 than in all of 1929. But consumers did not follow suit. Consumer spending dropped month after month after month. In late 1931, Hoover ordered the Farm Board to transfer surplus agricultural products to the Red Cross.

The transfer of agricultural surpluses, intended to be distributed to relief agencies across the country, did not produce much in the way of food. The poor harvests of preceding years continued in 1930 and worsened in 1931. In August, 1931, Hoover organized the President’s Organization on Unemployment Relief (POUR), intending to raise money for the unemployed through private donations. Still, Hoover opposed direct injection of federal capital via unemployment payments. By the end of 1931 Hoover was roundly criticized for his actions, viewed as failures, and for his inaction, viewed as callous disregard for the nation’s suffering citizens.

How Hoover and America Handled the Onset of the Great Depression
By 1932 the majority of Americans viewed President Hoover as callous and aloof. National Archives

18. Hoover took more forceful action in the run-up to the 1932 elections

In early 1932 the first hopeful signs the depression was easing appeared. They were short-lived, as another series of shocks to the banking industry, triggered in large part by bank failures in Europe, again induced national panic. In January Hoover created the Reconstruction Finance Corporation (RFC), a federally owned entity intended to lend money to corporations in danger of default. During the first six months the RFC lent money primarily to railroads and agricultural businesses. In July, Hoover expanded the RFC to allow loans to states and communities for public works projects.

The RFC loans stabilized some industries and state governments with injections of cash, but it failed to accomplish its most important goal, reducing unemployment. Jobs remained scarce, cash among consumers remained scarce, and consumer spending continued to drop. The blame fell most squarely on the shoulders of the President. Hoover ran for re-election touting his record in supporting businesses, especially big businesses, and promising jobs and prosperity would quickly return. His opponents in his own party cited his wasteful federal spending and protective tariffs as causes for the increasing severity of the depression.

How Hoover and America Handled the Onset of the Great Depression
The Bonus Army encampment at Anacostia Flats, Washington DC. Library of Congress

19. The Bonus Army

In 1924 Congress passed, over the veto of President Calvin Coolidge, the World War Adjusted Compensation Act. The law guaranteed the payment of benefits to veterans of the First World War, granting them certificates redeemable in 1945. A veteran’s beneficiaries could cash the certificates should he pre-decease the redeemable date, which was his birthday in 1945. The certificates were also available as collateral for loans, and by 1932 over $1.3 billion in loans to veterans were backed by certificates. That same year, veteran groups led by the Veterans of Foreign Wars (VFW) began demonstrating to have the benefits paid to unemployed veterans as a means of easing the strains of the depression.

Hoover opposed the idea. The House of Representatives supported it. In the spring, 1932, a massive gathering of 17,000 veterans and their families, comprising 43,000 in all, gathered in Washington near the Anacostia River, establishing a “Hooverville”. They called themselves the Bonus Army. In June, after the House of Representatives passed a bill authorizing early payment of the certificates, a massed gathering of the veterans appeared before the United States Capitol. They demonstrated on the day the Senate was to consider and vote on the bill. The Senate defeated the bill on June 17. The veterans returned to their encampment, where they remained despite orders from the DC police and the federal government to disperse.

How Hoover and America Handled the Onset of the Great Depression
The Bonus Army camp after it was attacked by units of the US Army in July, 1932. Library of Congress

20. The attack on the Bonus Army

On July 28, tired of the negative publicity created by the existence of the Bonus Army, Hoover ordered his Secretary of War to use the US Army to disperse the veterans. The job fell to the Army’s Chief of Staff, Douglas MacArthur, a veteran of World War I. MacArthur relied on Army intelligence which indicated the Bonus Army was incited by Communist influencers, as part of a general uprising to take place that summer. He violated his orders to avoid the use of force, and attacked the Bonus Army encampment with tanks and infantry. After Hoover ordered the attack stopped, MacArthur again ignored the President and launched a second assault.

George Patton, Dwight Eisenhower, and other officers who gained prominence during World War II took part in the attack on their fellow veterans. At least two veterans were killed and over 1,000 injured in the assaults and panic as the veteran’s families fled. Eisenhower wrote the official Army report, which endorsed the actions taken by MacArthur, his boss at the time. The public reaction was for the most part outrage, other than from the conservative wing of the Republican Party. Hoover retained control over the party, though its progressive wing abandoned him completely.

How Hoover and America Handled the Onset of the Great Depression
Franklin D. Roosevelt campaigning in 1932. FDR Presidential Library

21. The Election Campaign of 1932

Herbert Hoover had no problem dominating the Republican Convention in 1932, emerging as the party’s nominee, though with tepid support from most of the party nationally. The protective tariffs (which he opposed other than for agriculture) and the creation of federally funded agencies to fight the depression (which created deficit spending) isolated him from much of the party. Worst was his raising of taxes during the height of the depression. Long considered aloof and callous by the general public, the Bonus Army incident reinforced the belief that he cared little for the common man, and much for big business.

Hoover campaigned vigorously, proclaiming his actions against the depression successful, and predicting the return of prosperity in the near future. He argued that businesses and the banking system were fundamentally sound. Meanwhile the worst months of the depression unfolded. FDR, who pointed at the measurable success of the programs he instituted in New York, announced similar national programs to end the depression. FDR won just under 58% of the popular vote, and the Democrats retained control of the House, extending their majority. They also seized control of the Senate. In the Electoral College Hoover received just 59 votes, to FDR’s 472.

How Hoover and America Handled the Onset of the Great Depression
The foreboding cover of News-Week in February, 1933, indicating changes to come. Wikimedia

22. The lame duck period, 1932-33

Prior to 1937, Inauguration Day for the office of the President of the United States occurred on March 4, except when that date was a Sunday. In such a case, the date moved to March 5. Thus, a period of four months transpired between the election and the installation of a new administration. The last four months of the Hoover Administration were among the worst, in terms of the depression, of any of the preceding years. Unemployment during that winter climbed rapidly. Cash continued in short supply. Once again, bank failures led the nation into a panic-driven run on the banks. As weaker and smaller banks collapsed, larger banks foun depositors lining up at their doors to remove their savings.

Many banks, throughout that winter, responded by simply closing their doors, refusing to admit customers. Hoover responded by lobbying Congress to enact emergency legislation to allow federal funds to further bolster the banking system. Congress did nothing. The incoming legislators weren’t interested in Hoover’s response, and the Republicans remaining in the Senate resented Hoover, blaming him for the loss of the majority in that body. Major banks in the United States also felt the tremors from bank failures in Europe. By the end of February, 1933, the nation was ready for Hoover’s exit from the national stage.

How Hoover and America Handled the Onset of the Great Depression
Hoover promised FDR is support in a concession telegram, but it was not forthcoming. Wikimedia

23. Hoover left office determined to oppose government intervention to fight the depression

Herbert Hoover was 58 when he left office, and the only surviving ex-president. He left office embittered and angry. During the failed campaign he endured being pelted with eggs and vegetables at several stops as he attempted to deliver remarks defending his actions and outlining his plans. His speeches were interrupted by hecklers, his radio addresses were ignored, and the few Republican newspapers which endorsed him found their subscription bases reduced. His attempts to present FDR’s planned programs as socialism did not find an appreciative audience, other than with the far-right wing of his own party. Nonetheless, he left office determined to oppose Roosevelt’s plans for expanding the government.

Hoover published the first of several books defending his Presidency and attacking FDR in 1934, titled The Challenge to Liberty. He called the Banking Act of 1933, which stabilized the banks and created the Federal Deposit Insurance Corporation (FDIC), “gigantic socialism”. To Hoover, the National Recovery Administration and Roosevelt’s actions to save America’s small farms were “fascism”. Hoover drew thinly veiled comparisons between FDR’s New Deal and the rise of the Nazi Party in Germany. In 1938 Hoover went to Germany, stayed for a time at Herman Goering’s hunting lodge, Karinhall, and met Adolf Hitler. When FDR introduced Lend-Lease in 1940, which added American jobs, Hoover opposed it vehemently, calling it irresponsible war-mongering on the part of the President.

How Hoover and America Handled the Onset of the Great Depression
Americans waiting for relief checks during the “Roosevelt Recession” in 1937. Library of Congress

24. Hoover helped create the myth that FDR made the depression worse

By the end of 1933, the US economy showed signs of growth in all areas, including easing unemployment numbers and greater consumer spending. 1934 continued the upwards trends, as did the following year. By the end of 1936 all areas of the economy had returned to or exceeded the levels measured in the summer of 1929 except one. Unemployment remained above 10% by most estimates, though it too had improved from the darkest days of 1932. In late 1936 the Federal Reserve, concerned about the sharp increases in consumer spending and in bank lending, took steps to contract the money supply. The result was the Recession of 1937, which ended four years of economic growth.

Hoover was one of the earliest opponents to call the downturn the Roosevelt Recession, a name adopted by Republicans and even conservative Democrats. Its causes were many, but again a rapid and aggressive response by the federal government limited its scope, and by the beginning of 1939 employment had returned to 1936 levels, and the economy again experienced steady growth, which expanded with the coming of Lend-Lease and the eventual war economy. Hoover and conservatives argued that it was only the war which ended the Great Depression, made worse by FDR. Conservatives continue to advance that argument today.

 

Where do we find this stuff? Here are our sources:

“The Great Depression Hits Farms and Cities in the 1930s”. Tom Morain, Iowa Pathways. Online

“Why do banks fail? Evidence from the 1920s”. Lee J. Alston, Wayne A. Grove, David C. Wheelock, Explorations in Economic History. 1994. Online

“Hoover’s Economic Policies”. Steven Horwitz, Library of Economics and Liberty. Online

“Smoot-Hawley Tariff: A Bad Law, Badly Timed”. John Steele Gordon, Barron’s. April 21, 2017

“The Hoover/Mellon Tax on Checks”. David Henderson, Library of Economics and Liberty. March 18, 2013. Online

“Davis-Bacon and Related Acts”. Article, United States Department of Labor. Online

“Hoovervilles and Homelessness”. Article, The Great Depression in Washington State. Online

“Herbert Hoover was no deficit-cutter”. Stefan Karlsson, the Christian Science Monitor. March 11, 2010

“The Great Depression”. Article, Herbert Hoover Presidential Library and Museum. Online

“America’s Forgotten History of Mexican-American ‘Repatriation'”. Francisco Balderrama Interview, Fresh Air, National Public Radio. September 10, 2015. Online

“America’s Forgotten History of Illegal Deportations”. Alex Wagner, The Atlantic. March 6, 2017

“Franklin D. Roosevelt: Life Before the Presidency”. William E. Leuchtenberg, The Miller Center, University of Virginia. Online

“Herbert Hoover: Domestic Affairs”. David E. Hamilton, The Miller Center, University of Virginia. Online

“Banking Acts of 1932”. Michael Gou, Gary Richardson, Alejandro Komai, Daniel Park, Federal Reserve History. Online

“World War and Veterans: Struggle for Compensation”. Article, US House of Representatives History, Art, and Archives. Online

“The Bonus March”. The American Experience, PBS. Online

“Franklin D. Roosevelt: Campaigns and Elections”. William E. Leuchtenberg, The Miller Center, University of Virginia. Online

“Hating on Herbert Hoover”. Nicholas Lemann, The New Yorker. October 16, 2017

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