Write on a historical topic of interest to you after Instructor approval: The Impact Of Herbert Hoover Individualistic Approach And Other Policies

Impact of President Hoover’s Policies on the Onset of the Great Depression

Background of the Great Crash

The Great Crash refers to the tremendous loss that stockbrokers, individuals, and banks made in October 1929. On one particular day, termed Black Tuesday, stock investors lost close to $14 billion after trading over 16 million shares. This loss was the hallmark of the stock market crash that would create panic across the social and economic spheres. After the crash, banks that had invested their money in the stock market collapsed or faced a severe economic downturn. William B. Smart writes, “$140 billion of depositor money disappeared, 10,000 banks closed their doors, and shrinking credit brought widespread foreclosures.” [1]Americans who had saved their money in these banks withdrew them and hid them in various places, including the bookshelves. The Great Crash would then become one of the most significant contributors to the Great Depression. Although only a small percentage of Americans had invested in the stock market, the massive unemployment that resulted from institutional failure ended in unsurmountable economic turmoil for the citizens. Arguably, the onset of the Great Depression was avoidable, but the economic strategies that President Herbert Hoover adopted hampered the restoration of the economic strength of the country. 

President Herbert Hoover

Herbert Hoover is a remarkable historical figure in the history of the United States, mostly due to his response to the economic crisis of the late 1920s and early 1930s. Hoover was the 31st American president who rose to power through a Republican ticket. Although he endorsed many of the Republican ideals throughout his presidency, Hoover held a personal stance on self-making. He was born into poverty but made his way up to the highest political seat in the United States. Throughout his life and political career, Hoover exemplified resilience and great resolve. He believed in the power of an individual to emancipate self and community from poverty. In all his endeavors, he embodied a great spirit of hard work and believed in the abilities of a person.

Early Responses

When the country sank into economic depression and corporations failed to retain their employees at work, Hoover initially refrained from issuing federal aid to corporations and Americans since “it would weaken the country’s moral fiber.” [2] As a Republican, he attempted to balance the ideological pace set by his predecessors with his economic philosophies of “cooperative individualism” and “independent internationalism.”[3] In other words, he abhorred excessive government involvement in the running of private organizations. He believed in the power of the private sector in making its own decisions and helping people excel financially. At the same time, he proposed a somewhat loose engagement of America in international affairs. Eleanore Douglass describes Hoover’s policies as a continuation of the retrenchment strategies perpetuated by previous Republican administrations. Some of the key features of this retrenchment idea were the withdrawal of America’s involvement in the League of Nations and a drastic reduction in the military budget.[4] Another notable feature of this policy was the establishment of tariffs that were favorable to farmers. Herbert Hoover introduced the Smoot-Hawley tariff to help farmers reap more benefits from agriculture. [5] This and other policies would prove detrimental to the economy after the Great Crash of October 1929. 

The Crash did not hit Hoover as a major economic event. Instead, he believed “it to be little more than a traditional, albeit severe, economic downturn.”[6] One of his responses to this crash was the assurance to businesses and banks that this was a passing cloud. He, therefore, encouraged them to maintain their wages and continue with the usual level of production. As Eleanore Douglass writes, “Hoover proposed that businesses maintain jobs and wages and continue to produce even while the market for their goods was melting away, instead of reducing production, cutting jobs, cutting wages, and maintaining prices to the extent possible.” [7]As the hard times continued, especially due to a lack of support from the government, the collapse of the market would lead to a massive loss of jobs in the country. [8] By 1931, unemployment in the United States had reached 8 million, twice the number in 1930. The hourly wage that stood at $48 in 1929 had dropped to $22.64 in 1931.[9]

The lack of a “serious” approach by President Hoover was not the only downfall recorded in his response to the Great Crash. Instead of devising new methods to deal with the economic meltdown unfolding before his eyes, he invoked the strategies used for the 1920-22 recession. For instance, he revamped the Federal Construction Authority as a gesture to support the building industry. As Eleanore Douglass notes, the federal construction agency was only a small portion of the total construction industry, and this move would have little impact on the sector. [10]

Another strategic blunder that prevented the post-crash deterioration of the economy was the engagement of proxies in channeling aid to farmers and businesses. President Hoover deployed the American Red Cross to distribute relief to the farmers after the 1930 drought. Hoover thought that the success that this agency had recorded in the Mississippi floods in 1927 would be replicated in this case. Unfortunately, his plan did not work as expected. Red Cross had its mode of operation aimed at encouraging the private inflow of charity. Therefore, they disbursed government funds in a slow manner, which would prove detrimental to an already ailing agricultural sector. [11] Similarly, President Hoover prevented direct government involvement through the formation of The President’s Emergency Committee on Employment (PECE). Among other things, this committee investigated the needy cases and matched them with private aid and funds from charitable sources. [12]

A seasoned financial expert, Herbert Hoover made a deal with privately owned banks to release money into circulation regardless of the risks involved. The second wave of bank closures in October 1931 prompted the formation of the National Credit Corporation. This organization was the vehicle that Hoover had planned to use in achieving cooperative self-help. Douglass notes that the formation of this corporation was not easy. Hoover had engaged in numerous closed-door negotiations with private bank directors in New York. The bank owners immediately realized the peril of this strategy and effectively rejected this presidential proposal.[13] This attempt depicted the desperation in Hoover’s administration, and the direct involvement of the government was inevitable at this point. 

Late Responses

As a response to the failure of the private sector in bailing the country out of the challenges encountered after the crash, Hoover formed the Reconstruction Finance Corporation (RFC) which directly lent out money to banks, farmers, and private companies. The RFC received bipartisan support in Congress and continued to offer loans in the country for the next 20 years.[14] However, the organization did not alleviate the financial problem in the crisis. People were already deep in debt, and the money borrowed from the RFC was used to bridge the existing loans. In addition to the RFC, Hoover loosened the retrenchment policy and reinitiated international engagement with Europe. [15] Hoover had begun to understand the seriousness of the crash's aftermath and the need to adjust his traditional policies as a move to emancipate the country from the shackles of the Great Depression.

Conclusion

Although the Great Crash of 1929 did not solely lead to the Great Depression, it made a significant contribution to the massive loss of employment in the subsequent years. The Great Crash caused a widespread panic that would persist for years to come. Households and individuals drastically scaled down on spending as banks declined to offer loans to people. As a symbol of national cohesion, President Herbert Hoover intervened to ensure that businesses remained productive while Americans retained their employment. The early responses by the president included the encouragement of businesses to uphold the American moral fiber and private cooperatives to restore the financial capacity of the nation. By this time, the economic depression had become clear for the president. These fruitless early responses prompted the president to adjust his stand on individualism, cooperative self-help, and the Republican New Era retrenchment ideology. These later responses succeeded in slowing down the depression and helped people retain their homes as bank foreclosures were reduced. However, the economy could not have reached very low levels if these measures had been taken in due time.