Herbert Hoover

by Glen Jeansonne

  Shortly after his series of addresses the chief executive summoned a large group of congressmen to the White House to explain the rationale behind his program and to ask for their aid. Although action was essential, this was no time to panic, he cautioned. He had already submitted some sixty-three major and minor bills for their thoughtful consideration. Hoover pointed out that progress had been made in public health. There were fewer ill and dying than during normal times. The president indicated that he hoped for additional progress in arms reductions, which would liberate funds for job-creating domestic public works. During his series of talks the president had requested additional money for law enforcement but had taken no stand regarding Prohibition, an issue increasingly dividing the nation, especially within the Republican Party. He felt that precious resources must be husbanded and targeted where they could do the most good, and he eschewed demagogic or emotional tangents. The Californian observed that the hardship was real, yet in a relative sense America was faring better than most of the world and was virtually self-sufficient in raw materials. The chief executive also urged Congress to consider consolidating all public works into a single Department of Public Works in the cabinet. He repeatedly emphasized the importance of railroads, especially for farm products, and warned that their bankruptcy would disrupt transportation. For the foreseeable future, they remained vital. Hoover prioritized his legislation for the congressmen, emphasizing the need for prompt action on the Glass-Steagall Act and the RFC. The suffering, as well as the potential bounty of the land, would have to be shared. Hoover strove to cultivate a conciliatory atmosphere. Indeed, through March, the 72nd Congress was less divisive than the 71st Congress had been and the period was the most productive of his presidency, despite the forthcoming election. Hoover proved an effective bipartisan leader over the course of the 72nd Congress and usually ended up achieving about what he wanted in the general form he wanted it. At the end, the landscape did not lie littered with shipwrecked legislation, though the Depression stubbornly persisted. Hoover’s defenders argued that without his exertions it could have been worse. In fact, in many places, it was.5

  Congress moved relatively expeditiously to enact the RFC. The only significant opposition came from Progressives, who based their resistance on class arguments. Senator Fiorello La Guardia of New York termed the loans to salvage banks a “millionaire’s dole” and the Western insurgents wanted more money for agriculture. La Follette and Burton Wheeler passionately opposed the bill, though their own constituents stood to benefit. Hoover explained that he was more interested in saving depositors than in rescuing banks. However, when banks failed, depositors lost their savings. Congress deleted specific provisions, such as placing a limit on the amount that could be loaned to large banks, and permitting loans to bankrupt banks to repay ruined depositors. Senator Carter Glass of Virginia, who took paternalistic pride in the Federal Reserve System, which he had helped create, balked at some of the provisions. The president appeased most of his critics. He permitted Democratic leaders, Garner in the House and Robinson in the Senate, to appoint one member each to the board of directors, which was bipartisan, divided equally by party affiliation. Reaching out to farm interests, Hoover accepted an amendment permitting the RFC, through the secretary of agriculture, to loan up to $50 million to farmers. Another amendment permitted the new agency to loan money to railroads upon permission of the Interstate Commerce Commission. The chief executive named Federal Reserve governor Eugene Meyer to chair the RFC board and former vice president Charles G. Dawes to become president of the new agency. Hoover, later depicted as a passive archreactionary by some critics, actually wanted more power vested in the new federal agency than Congress was willing to authorize. Some major magazines condemned the measure as a step toward socialism. Without question, creation of the RFC marked a landmark shift toward a more powerful government. The bill included a total appropriation, in direct money and bonds, of some $2 billion, the largest relief bill passed by Congress up to that point. Over time, the agency would operate for eight years and loan $50 billion. Hoover believed the aphorism that necessity is the mother of invention and that serious emergencies require unorthodox approaches. The spirit of urgency and willingness to compromise stood out more than the decibel level of the Progressive dissenters. The RFC bill proved that bipartisan cooperation was possible and that Congress could act during an emergency. On January 22, Hoover signed the bill he had dispatched to Congress on December 7. It passed the Democrat-controlled House by 335–55 and the Senate by 63–8. In the Senate, where only five Democrats and three insurgents voted nay, the body invoked cloture several times to speed the process. Nonetheless, as one journalist observed, thousands of banks could have been saved from failure if the measure had been enacted two years earlier. However, Hoover remained convinced that his approach, as pathbreaking as it might be, remained within the parameters of restoring old, permanent jobs rather than making the economy the tail of a dog embodied by the federal government.6

  A lesser yet nonetheless important facet of Hoover’s program was an appropriation of an additional $125 million for the federal land banks, which supported mortgages on farm properties and homes, some already in default. The appropriation passed Congress and was signed on January 23, 1932. The additional capital helped farmers keep their land and enabled homeowners to remain in their homes while preserving the liquidity of the local banks that held the home and land mortgages as collateral. The funding drove home another peg in the president’s plan to ease credit and deter deflation, one of the chief ogres intimidating recovery. The land banks complemented the role the Federal Reserve played for larger commercial banks. Complementing the land banks were twelve home loan discount banks, which discounted home mortgages. These institutions also supported smaller savings banks, insurance companies, and savings and loan associations. The Federal Home Loan Bank bill proposed on November 13, 1931, by the president was not approved until July 1932, near the end of the session. The delay caused the failure of thousands of banks and homes lost to mortgage foreclosures.7

  In the fall of 1931 the U.S. economy was staggered by another crisis after Britain left the gold standard on September 21. For generations, the British pound sterling, backed by gold, had been the glue of the world economic system. Gold maintained exchange rates and controlled the amount of currency in circulation. After Britain abandoned gold’s backing, many felt it would become impossible for importers and exporters to plan ahead, especially those marketing perishable products. The prospect frightened businessmen into paralysis. European investors, fearing America might jettison bullion-backed currency next, began to drain the U.S. Treasury. France alone withdrew about $790 million in gold. By the end of 1931, some 2,294 American banks had failed, double the number of failures the previous year. Americans holding gold certificates withdrew the metal, and the rash of bank failures inspired panic withdrawals by depositors of currency, who hoarded their cash. There could be no wage stability or industrial recovery under such deflationary pressure. By the winter of 1932 the United States possessed only $430 million in bullion, with $1.3 billion outstanding to creditors. Hoover acted vigorously, warning Congress that it must enact legislation expeditiously to save America’s gold standard. Meanwhile, the Treasury paid out gold on demand to foreign and domestic creditors presenting gold bonds or certificates. The president did not reveal publicly how little remained to meet obligations, yet the payments helped calm the world financial community. The drain slowed, and some of the bullion began to flow back on the reassurance that America was a safer haven than most alternatives. Yet unless Congress enacted a permanent solution, the wolf at the door would remain famished.8

  To resolve the issue, Hoover devised a plan to permit the backing of currency and government gold obligations with certain types of extremely reliable paper, known as “eligible currency,” as was already done in some countries. This would, in effect, stretch the supply of gold, making it back a larger sum of currency. Ec
onomically, the problem was largely psychological. If people considered the scheme reasonable and trustworthy, it would work. The proposal was certainly feasible from an economic viewpoint. The bigger problem was political. Hoover knew he had to persuade a Congress controlled primarily by the opposing party, during a presidential election year, to pass legislation that would doubtless help the nation but also might help Hoover’s presidential prospects. To accomplish this he recruited Democrats respected for economic acumen, Carter Glass of Virginia in the Senate and Henry Steagall of Alabama in the House, to sponsor the measure, known as the Glass-Steagall Act. Both Southerners were more conservative than Hoover, especially Glass, who embraced a phobia of large banks. Yet the president massaged egos and did not seek to hog credit. He had to compromise, because he preferred a more vigorous approach than his chief sponsors. Moreover, the Progressives, as usual, railed against the bill, claiming the president pandered to millionaire bankers while neglecting the poor and hungry. Hoover reacted cautiously, discreetly pointing out that when banks failed, depositors lost their money. Eventually, what became the Glass-Steagall Act navigated the legislative shoals successfully and Hoover signed it on February 27, 1932. It was among the most important acts of the Hoover administration, and the timing was crucial. To Wall Street, bankers, and many businessmen, the measure was even more important than the RFC. It helped restore a degree of business confidence, at home and abroad. Now only America and France, of the major powers, remained on gold. It is small comfort to say things could have been worse, yet they could have been. Hoover demonstrated patience and political finesse but received only a limited amount of credit. In fact, as his legislative achievements mounted during the winter and spring of the 72nd Congress, blame mounted simultaneously. As the 1932 campaign approached, the rival parties increasingly resembled the Donner party.9

  Along with its blockbuster legislation such as the RFC and the Glass-Steagall Act, the 72nd Congress enacted a multitude of lesser bills. For example, on February 16 the House adopted the Lame Duck Amendment, already passed by the Senate, shortening the long interregnum between the election and inauguration of a president from early March to January 15. This permitted a more rapid transition of power, because a defeated outgoing president operated in a power vacuum during the long waiting period and the newly elected incoming president was officially powerless.10

  The division between the branches of government during a presidential election year, occurring in the midst of the nation’s worst domestic crisis, left the ship of state virtually rudderless at times, and when political paralysis resulted, the reaction was to blame the opposing party. The Democratic leadership, headed by Garner in the House and Robinson in the Senate, was, on the whole, more conservative than Hoover. Garner and Robinson were Southerners, and a large bloc of their supporters had Southern roots. Unified on the objective of defeating Hoover, from 1930 through 1932 the Democrats sought to destroy the president politically. The Democratic National Committee employed poison-pen journalist and playwright Charles Michelson to write scathing diatribes against Hoover, which were delivered in Congress by Democratic politicians and planted in the Congressional Record and in Democratic newspapers and popular magazines. Hoover was accused of being insensitive to human suffering, of consorting with millionaires to foist the Depression upon the nation, of delighting in the plight of the hungry, and of cackling maliciously while Wall Street crashed. In addition to blaming the president for the Depression, Michelson belittled Hoover’s achievements during the Great War and as commerce secretary. The scorn was bitter and personal, some of it pure invention. The Progressives, many of them nominally Republicans, were often comparably abusive. Hoover refused to respond. He believed that if he did the right things, the politics would take care of itself. In his later years, Hoover said he had forgiven all his former enemies except Michelson. Garner, who fought Hoover to win at all costs, later became an admirer of the ex-president, writing, “If he had become president in 1921 or 1937 he might have been ranked with the great Presidents.” He added, “Today, I think Herbert Hoover is the wisest statesman on world affairs in America. He may be on domestic affairs, too.”11

  Perhaps more time and rhetoric were devoted to balancing the budget during the 72nd Congress than to any other single issue. Many politicians, as well as the American public, believed sound government required a balanced budget. Yet businessmen, and many consumers, opposed any tax increases—unless they fell exclusively on someone else. Every congressman who favored higher taxes or budget cuts in general opposed any that affected his constituents or powerful interest groups such as veterans, government employees, or labor unions. The president was troubled. Congressmen pledged themselves to balanced budgets and then voted against tax hikes or for projects that made that objective impossible. Some $2.5 billion of the $4.4 billion in government expenditures was earmarked for fixed expenses. The Depression had scoured a $2 billion hole in government revenues. Hoover was satisfied to settle for a less-than-completely balanced budget during hard times. He called for $1.6 million in tax increases. Part, but not all, of the remainder could be recouped by slicing fat. He submitted a bill for streamlining government by reorganization and paring, which was rejected. When he proposed placing government employees on a five-day week, with no pay for the day off, Congress initially balked but ultimately gave way. Hoover believed expenditures should be targeted, while some congressmen considered them Christmas presents for constituents. The president agreed to take the blame for reorganization that dismantled unpopular programs, but Congress mistrusted the chief executive to shelter their constituents’ booty. As the session wound down, the government was trapped in a vise. Tax receipts had fallen by 50 percent, while spending for job-creating public works had soared. Unemployed people paid few or no taxes while they soaked up relief. At one point a grand bargain seemed in the works for a national sales tax, which gained support in both parties but faltered. The final version of the economy bill passed the Senate rancorously on June 8, 1932, the House concurred on June 28, and the president signed the final measure on June 30, only days before the session adjourned. The measure empowered the president to implement some reorganization, but only following the November presidential election, after which many expected him to become a has-been. Estimates of final savings trimmed from the budget were about $130 million, falling far short of the $300 million Hoover had requested.12

  While Hoover’s most important programs marched through the legislative chambers, several senators and representatives proposed relief programs that would expand federal involvement, though most had a short shelf life. In principle, Hoover agreed with strengthening the RFC, which he wanted to make the engine driving economic recovery by creating jobs and lubricating business and banking with credit. Realizing that private charity was failing to completely fill the necessities of the people, he was now amenable to spending a small amount for doles funneled through the states, allotted on the basis of prioritizing according to the local unemployment rate. Though he was still unconvinced that federal dollars could meet all needs, Hoover’s willingness to spend outpaced that of most legislators, who wanted to move prudently at this point in the Depression, although most lusted for additional federal public works in their own districts. A small group considered the president overly penurious. In February 1932, two liberal senators, Edward P. Costigan, a New York Democrat, and Robert M. La Follette, a Wisconsin Republican, cosponsored a measure to provide $75 million in direct relief to be channeled through the states, which was handily defeated. Next, three Democrats, Hugo L. Black, Thomas J. Walsh, and Robert J. Bulkley, also submitted a $75 million bill for doles distributed by the states, but this bill, too, was defeated. Senator Robert Wagner’s more grandiose measure authorizing the RFC to issue $1.5 billion in bonds to finance public works was quickly axed, as was his similar $500 million bill. Clearly, there was no consensus. Journalist Walter Lippmann joined the chorus of those who cautioned against spendthrift programs as a
quick fix.13

  The contest for scarce federal dollars and a fair means of raising and distributing the money heated up in late spring once the battle of the budget had ended. Senators Joseph T. Robinson and Robert Wagner had plans with which Hoover partially agreed. All of them concurred that work relief was preferable to doles and that the projects constructed should be useful and, if possible, self-liquidating. The president objected to Wagner’s technique of financing by a bond issue and distribution by population, regardless of the unemployment rate, designed to court vote-rich constituencies.14 However, in the latter phases of the session, the president’s chief rival in devising an acceptable measure was the opportunistic Garner. Hoover complained that many congressmen wanted to convert the RFC into a pork-barrel factory designed to make risky loans to companies domiciled in their districts. An old-fashioned spoils politician, Garner loaded his bill, introduced in late May, with provisions for special interests, trolling for votes. The president pointed out that when such unreliable companies defaulted, American taxpayers would be stuck with the debts. Garner retorted that the entire RFC was no more than a pork-barrel factory.15