Herbert Hoover

by Glen Jeansonne

  Indeed, the Great Depression was to prove to be the greatest crisis Hoover would face as president. Wall Street, a narrow thoroughfare in lower Manhattan framed by towering buildings, had become the symbol, if not the sole substance, of American economic might. Thanks largely to America’s financial prowess, the United States had emerged from the Great War as the world’s largest creditor, the hub of technology and banking, and the leading industrial supplier. Wages rose steadily while unemployment fell, creating the world’s highest standard of living. In the lush years from 1922 to 1929, America’s economy had reached a height of prosperity unknown to previous generations. Pockets of poverty still existed in the South, the Appalachian uplands, and other rural areas, yet the nation’s economic future appeared bright. President Hoover appeared to have waded into a swiftly flowing economic stream. Neither he nor anyone else appreciated that it was filled with piranhas.21

  The centerpiece of Wall Street was the New York Stock Exchange, a neoclassical temple where stocks and bonds were traded. On the trading floor, corporations, employing brokers as middlemen, sold stocks to investors, who in turn could resell their stock to third parties. As the nation’s economy strengthened after the war, stock trading flourished. Theoretically, a stock’s value was based on the issuing company’s present, or even its future, value. Yet throughout the decade, many investors engaged in speculation, the act of acquiring stock not for its value, but to take advantage of price fluctuations. Speculators were intent on profiting from a timely resale of stock rather than on making an investment in a business. Thus, speculation could often drive the price of a stock up out of proportion to its actual value. During the bull market of the 1920s, speculation became the norm on Wall Street, with some speculators amassing tremendous wealth. During this period, about 15 million Americans, many of whom had no experience in business, waded into the stock market. Some observers believed the nation had entered a new era that replaced the boom-and-bust cycles of the past with permanent prosperity. Yet many industry leaders watched the trading and speculation with growing concern. By July 1929, some of the nation’s most eminent businessmen—including Joseph P. Kennedy, Bernard Baruch, and Herbert Hoover—began to quietly divest themselves of stocks. What concerned the advance guard of the business community was that a psychology of anxiety had begun to grip the business world.22

  On September 3, 1929, the Dow Jones Industrial Average, the yardstick of Wall Street’s performance, reached 386.10 and closed at 381.17. Although no one perceived it at the time, the Dow would not equal that peak for more than twenty-five years. The market gyrated wildly throughout September, falling only to recover. In October the trend plunged steadily and steeply downward. On October 23, some 16 million shares were dumped, and for some stocks no buyers could be found at any price. About $4 billion was lost that day as confusion reigned on the NYSE trading floor. Most believed this decline, like previous crashes, was temporary. President Hoover refused to comment directly on the market, saying only that the economy as a whole was sound. On October 25, a group of prominent bankers, attempting to slow the market’s death spiral, pooled their money and bought falling shares, providing a temporary respite. Yet they had little faith in their own hedge, and at the end of the day they secretly placed some shares back on the market. On Tuesday, October 29, there was a devastating sell-off of 23.5 million shares. Since September 1, the value of shares had declined by $18 billion. Some people, such as Secretary Mellon and British economist John Maynard Keynes, proclaimed the losses salutary because they would purge the economy of unsound businesses, leaving only the healthy ones. In the wake of past crashes, the federal government had not acted, and there were few calls for action now. Congressmen pondered the political implications of the sell-off, blind to the long-term effects on the nation. The hemorrhaging continued, and by mid-November the market had lost some $26 billion, about one-third of its September value.23

  Despite the staggering financial loss, no economist or historian has been able to establish a direct cause-and-effect relationship between the crash and the ten-year Depression that followed. Just as easy credit facilitated the crash but did not render it inevitable, Wall Street’s failure did not make a global, decade-long Depression inevitable. Initially, it seemed the panic would pass. By the end of 1929 the crash seemed like an aberration, or at least a normal adjustment to overvalued securities, the downswing of a pendulum that had swung too high. During the first half of 1930, planning for the London Naval Disarmament Conference was the major news story, not the deepening economic Depression. No major bank or company had failed. Even in hindsight, it is possible to interpret the stock market as simply a barometer that measures one index of business activity, rather than a cause that predetermines activity. Most expected the business decline to emulate the Harding recession of 1920–22, when the unemployment rate peaked at 5 million. Yet following the October 29 crash, jobless estimates show a downturn that initially moved at a slower rate, from 2.7 million in 1929 to about 4 million in mid-1930.

  The catastrophe, however, was worldwide, not simply American made. The Great Depression was actually a series of segregated yet interconnected events in different parts of the world. The London market, which experienced stock speculation similar to that conducted in New York, had crashed a month prior to the Wall Street disaster. The National Bureau of Economic Research showed that eleven nations preceded the United States into the Depression, and eight others were destabilized approximately simultaneously.

  James T. Shotwell, a social and economic historian, observed that the Great War had been the chief precipitating factor for the worldwide downturn. “Indeed, it is hardly too much to say that the world-wide economic depression is the last battle of the World War itself.”24 The war had seen prices for natural resources such as metals and foodstuffs soar by 146 percent. When the conflict ended, prices fell, but the enormous debts incurred had to be repaid. Adding to the balance were trade restrictions, defaults on gold payments by struggling governments, and hoarding of precious metals by private citizens. During the first years after the war, trade was driven by a need for replenishment, and the world’s producers were slow to overtake demand. This inspired temporary prosperity at the cost of long-term stability and steady, even growth. In America, demand raced ahead of supply, but ultimately supply caught up.25

  In Washington, President Hoover quickly recognized the dangers of the crash on Wall Street. Fearing that it represented more than an ordinary slump, he “determined that the Federal government should use all of its powers.” In an attempt to arrest the deflationary spiral before it could fasten its grip on the economy, Hoover scheduled a series of private conferences with leaders from various sectors of the economy. In the first meeting, held at the White House on November 19, the president, along with cabinet members, convened with railroad executives, who agreed to maintain and even accelerate maintenance and the laying of tracks. They also agreed to avoid wage cuts in exchange for no-strike pledges from unions. On the morning of November 21, in a discussion with business leaders, the president exacted promises to avoid wage cuts and layoffs and, if necessary, to reduce the workweek in order to spread employment. This was crucial to preserve consumption, which powered the economy. Any reductions would have to come from profits, not jobs—Hoover did not consider labor a commodity to be liquidated. Some twenty-two executives agreed to implement Hoover’s requests to maintain wages at current levels. Before adjourning, Henry Ford guaranteed to grant wage increases to 150,000 employees of the Ford Motor Company. On November 22, the president summoned a meeting of leaders in the building and construction industries. They agreed to maintain their building schedule to save jobs. The following day he telegraphed all forty-eight governors and the mayors of major cities, urging them to expedite the pace of the public works to avert unemployment.26 They agreed.

  Soon after, Hoover met with labor leaders, who agreed to abstain from wage-increase demands and from striking. William Green, th
e president of the American Federation of Labor, concurred that wages should be stabilized at least until 1930. As a result, real wages, for those sufficiently fortunate to retain their jobs, would have more purchasing power due to deflated dollars. Next, Hoover met with the directors of the Farm Board, who attempted to stave off a collapse of the commodities market, and chairmen of the federal land banks, along with the leaders of national farm organizations. Hoover then conferred with leaders of the public utilities industry, who agreed, with the exception of the insolent Samuel Insull, to cooperate with the president’s program. Hoover asked his former assistant from the Food Administration and the Commerce Department, Julius Barnes, to create an executive committee of businessmen who could exert pressure to ensure that the agreements were implemented. On December 5, 1929, Barnes assembled the National Business Survey Conference in Washington, consisting of four hundred leading industrialists and financiers, to brainstorm about stabilizing business and enforcing the president’s guidelines. Meanwhile, Hoover opened the spigots of credit. The Federal Reserve System combated deflation by reducing its rediscount rate to member banks and by undertaking open-market operations. It also began to reject rediscounts to banks that used loans to finance speculation.27

  Such actions as persuading employers to preempt unemployment and stabilize labor relations had never before been attempted during a decline. Hoover was largely successful in eliminating strikes; his administration presided over a time of unusual labor peace. The prodding had tangible as well as psychological effects. Power companies increased their construction by $110 million over the previous year, while rail companies boosted theirs by $345 million and gas companies by $428 million above 1928. Moreover, the telephone and telegraph companies spent substantially more on repair and expansion. Altogether, the conclaves resulted in more than $1 billion in additional capital expenditures. Stocks also regained some of their lost ground. From mid-November through the final conference in early December, industrial stocks regained nearly three-fourths of their diminished value.28

  While encouraging private efforts, Hoover also launched large-scale public works at the federal level. In January 1930 he authorized the initiation of work on the Boulder Dam costing $60 million, and asked Congress for $500 million for the construction of public buildings. In addition, $75 million was authorized for work on highways. Hoover stated that it was the responsibility of the federal government to partially take up the slack in construction during hard times. Since his tenure as secretary of commerce he had advocated such a rainy-day fund. Congress agreed, sometimes grudgingly. The chief criticism on Capitol Hill was not that Hoover was doing too little, too late, but that he was overreaching, attempting too much, too soon. Historian Robert Sobel noted that in 1929 Hoover “proved a more activist president than any since the wartime activities of Wilson and Lincoln.” Sobel added, “Indeed, no peacetime president since Jefferson had done more to expand the power of the presidency in that one year.”29 “No one in his place could have done more,” the New York Times wrote that spring. “Very few of his predecessors could have done as much.” The New York Herald Tribune described the president’s leadership as “cool and superlative.”30

  Some historians argue that both Hoover and, to a greater degree, Franklin D. Roosevelt prolonged the Depression by meddling in the economic cycle. Hoover himself was fiscally conservative in comparison with Roosevelt, but temperamentally he was an activist and was disposed to alleviate human suffering. Well-read in history and having lived and worked abroad, he also knew that economic desperation inspires political instability that often culminates in totalitarianism. Hoover did not believe that government alone could legislate or spend its way out of a depression. Yet his first priorities following the crash were to preserve social order and alleviate suffering. Still, Hoover considered it ill-advised to create a government bureaucracy that would prove perpetual after the emergency ended. He preferred decisive policy implemented by decentralized means that tapped voluntary goodwill at the grass roots.31

  His presidency still young, coping with the shock of the stock market crash and the nation’s downward spiral into depression, Hoover now faced a contentious appointment to the U.S. Supreme Court. On February 9, 1930, Chief Justice William Howard Taft resigned his seat due to ill health. The same day, Hoover announced the nomination of Charles Evans Hughes, one of the most distinguished Republicans. Hughes, a former governor of New York, had served on the Supreme Court for nearly six years before resigning to become the GOP candidate for president in 1916. Defeated by Woodrow Wilson, he later served as secretary of state under Harding and Coolidge. There were no blemishes on his record, nor any scandals in his closet. Yet opposition to Hughes hardened among the insurgent Republican clique along personal and ideological grounds. Some of the criticism of Hughes, impassioned if not unbiased, was indirectly aimed at Hoover. The insurgents, in alliance with some Democrats, claimed that Hughes was an opulent, conservative elitist, a crony of the aristocracy, and an attorney for big corporations who would orient the Court to the right. Hughes, they asserted, was an effete intellectual who did not understand dirt farmers, had never soiled his hands, and flitted among the corporate boardrooms of the Northeast. Aligned against Hughes were such GOP mavericks as Robert La Follette Jr. of Wisconsin, who had not voted for GOP legislation a single time during Hoover’s term; George Norris, who had supported Al Smith in 1928 and had cast only one vote for a Hoover measure in the Senate; Hiram Johnson, the president’s old archenemy still smarting from Hoover’s sidetracking of his bid for the GOP nomination in 1920; and Hoover’s new archenemy, William E. Borah, a silver-tongued though bellicose orator. Nonetheless, the insurgents and their Democratic allies could generate more noise than votes due to Hughes’s impeccable character and distinguished record. Ideologically, Hughes could not be pigeonholed. He was not actually a conservative but a moderate liberal who had cleaned up New York City, defended Socialists expelled from the New York legislature for their beliefs, and refused to permit party bosses to map out his 1916 campaign against Wilson. Ultimately, Hughes’s nomination prevailed 56–26 in the Senate. Eleven of the dissenters were Republicans.32

  Hoover’s next battle over a Supreme Court appointment occurred not long afterward and proved even more contentious than the polemics over Hughes. On March 8, 1930, Edward Terry Sanford, the only Southerner on the bench, died. The president wanted to replace him with another Southerner, particularly one from a circuit court district that had gone unrepresented for numerous years. Attorney General Mitchell perused possible nominees and recommended forty-four-year-old John J. Parker of North Carolina, a state Hoover had narrowly carried in 1928. Despite his youth, Parker was considered fair and highly intelligent and received endorsements from six former presidents, as well as the sitting president, of the American Bar Association. Although a Republican, Parker received the backing of ten Southern Democratic senators and seven Democratic governors. The jurist, who had never held elective office, had served as a special assistant to the U.S. attorney general under Coolidge from 1923 to 1925 before being elevated to the Federal Fourth Circuit Court. Opposition arose from two powerful interest groups, the AFL and the NAACP, both of which believed Parker might prove inimical to their interests. The AFL pointed to a case in which Parker had voted with the majority to uphold the legitimacy of a “yellow dog” contract requiring job applicants to pledge not to join a labor union as a condition of employment. Parker argued that he was not antilabor; he had merely followed judicial precedent. The Supreme Court had upheld a similar contract and any contrary lower court ruling would be summarily overturned. Nevertheless, the AFL mobilized its membership to exert pressure on industrial state senators to oppose Parker. The NAACP launched a campaign against Parker as well, arguing that no white Southerner could be a fair judge. Moreover, in 1920, while running for a state office, Parker had reputedly denied being an integrationist when baited, though any white Southerner with hope of winning would have been for
ced to respond as such in a state in which the voting public was exclusively white. Moreover, some senators, and their constituents, did not want a truly independent thinker on the bench who examined the evidence case by case and voted on its individual merits. While Hughes’s stature had enabled him to overcome the opposition, Parker had neither the stature nor the experience.33

  The GOP insurgents alone could not block Parker’s nomination; they could only make it ugly. Yet many Republican regulars who normally backed the administration joined the objectors. Senators representing states where the AFL or the NAACP wielded considerable clout resorted to self-preservation over loyalty to the president. Concerned with their own reelection prospects if they defied these potent interest groups, they weighed the odds and calculated that they had nothing to gain by voting for Parker. Meanwhile, Parker remained silent, considering it improper to lobby for a Supreme Court appointment, though he issued a letter defending his record. A more aggressive effort by Hoover might have tipped the scales in his favor. He did persuade several wavering senators, but on May 7 Parker’s nomination was defeated 41–39. If the president had persuaded one more senator to vote for his nominee, a tie would have resulted, permitting Vice President Curtis to cast the deciding vote and ensuring the confirmation. It was a major setback for Hoover; such a defeat had not been inflicted on a president since the second administration of Grover Cleveland thirty-six years earlier.34