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The farm sector of the American economy had struggled in the 1920s, but overall by 1928, the United States had enjoyed eight years of unprecedented prosperity under Republican Presidents Harding and Coolidge. As the 1928 presidential race drew to a close, the Republican candidate, former Secretary of Commerce Herbert Hoover, outlined the Republicans’ governing philosophy, which he credited with producing the prosperity. Seven months after Hoover took office, in October 1929, the stock market crashed. After two weeks, it recovered somewhat, but then began a long-term decline, as the American economy fell into what became known as the Great Depression.
The fall in the stock market and the resulting loss of wealth was not the sole cause of the Depression. Economists still debate what broader effect the stock market crash had on the American economy and why the Great Depression was so severe and so prolonged. Two factors that postdate the stock market crash and are part of the current debate – the decrease in foreign trade and the failure of the banking system – were noted by contemporaries. However, contemporaries tended to agree that the US government should ensure the soundness of the financial system by setting its own financial house in order. This meant reducing its debt by curtailing its expenditures and even raising taxes, if necessary. Today, most economists would consider such measures counterproductive during a depression. High tariffs restricting trade did not encourage recovery, and reductions in government spending removed an economic stimulus that might have helped. (Economic orthodoxy began to change with the publication of John Maynard Keynes’ The General Theory of Employment, Interest and Money, in 1936, which called for governments to increase spending and deficits during a downturn.)
Hoover responded to the economic difficulties according to the principles he had articulated in 1928. The American system was sound, he thought, and would recover with only limited assistance from the government. As the economic situation worsened, however, Hoover did propose a series of measures to deal with the crisis, including the establishment of the Reconstruction Finance Corporation (RFC), a government entity that lent money to state and local governments, banks, and other businesses.
Franklin Delano Roosevelt, the leading Democratic candidate for President in 1932, argued that the American system as championed by Hoover was not sound and needed to be changed.
In a series of speeches in 1932 (The Forgotten Man, his Acceptance Speech at the Democratic Convention, and “Commonwealth Club Address”), Roosevelt explained why he thought the Depression had occurred and what had to be done to restore the country to economic health. This was the “New Deal” that Roosevelt offered the American people.
In his final weeks in the Oval Office, as the economic crisis reached its most severe stage, Hoover argued that President-elect Roosevelt had made the situation worse by refusing to commit himself to balancing the budget and maintaining a sound currency. Hoover first offered his account verbally to one of his closest political allies, Senator Simeon Fess of Ohio. At Fess’s request, Hoover put his remarks in writing in a letter he sent the Senator.
71st Congress, 2d session, Congressional Record 22, pt. 11: 12675-76.
. . . [I]t is my opinion that it is most inopportune that the tariff bill should have become a law. We have not only a surplus of farm commodities but also a surplus in all industrial lines, hence we must have foreign markets. We cannot afford to destroy our foreign trade in order to allow the American manufacturer to plunder the pockets of the consumer. . . .
The tariff bill was under consideration for seventeen months. During these seventeen months the President1 had opportunity to inform Congress as to what he meant by “limited tariff revision for the benefit of agriculture.” During these seventeen months the President remained mute. . . . So the only logical conclusion that can be reached is that the bill was entirely indorsed by the President during its making. So, I would not take credit from the President and the “Chief Manipulator” of this legislation in the Senate. I think the bill should be known as the Hoover-Grundy tariff bill.2 The President assumed full responsibility when he signed the bill, as it could not have become law without his signature.
On the day the tariff bill became a law all grain prices fell to a new low level for the season. Wheat fell to the lowest price in a year, oats to the lowest price in eight years, rye to the lowest price reached in thirty years. Cotton fell to the lowest price in more than three years.
The steel industry reported a further decline in operations to 69 per cent of capacity.
On the day the bill passed, the Department of Commerce announced that American exports dropped in May to the lowest point in the last six years.
Stocks dropped in value $2,000,000,000 the day the President announced that he would sign the bill. Can we remove the space below?
This tariff law carries a general average increase of 20.4 per cent over the Fordney-McCumber law of 1922,3 which means an additional burden each year to the consumers of this country. The farmers are told they will benefit by this law. The facts are that every dollar of benefit given the farmer will cost him $10 because of the increase in the rate on the other than the agricultural rates. . . .
There is an increase carried in this law upon practically every thing a person uses in everyday life from the swaddling cloth of the newborn babe to the tombstone he erects above his dead. This tariff law means an average increased cost of from fifty to one hundred dollars to every average householder in the United States each year. How the now overburdened masses can carry this additional burden I do not know.
We hear from certain quarters that prosperity is raging rampant in every corner of the land; that we are enjoying this unprecedented prosperity because Mr. Hoover is President. I am willing to give President Hoover full credit for the so-called Hoover prosperity we are not enjoying.
I understand that two new planets have been discovered and that someone suggested one be named “Hoover Prosperity” because it is invisible; the other “Farm Relief” because it is so far away.4
- 1. Herbert Hoover
- 2. “Chief Manipulator” refers to Joseph R. Grundy, a Republican senator from Pennsylvania and president of the Pennsylvania Manufacturers’ Association. Grundy had allegedly said that anyone who made campaign contributions to Republican candidates was entitled to higher tariffs in return.
- 3. Passed in the aftermath of World War I, the Fordney-McCumber tariff aimed primarily at restricting imports of chemical and metal products so as to give American manufacturers more time to develop innovations to compete with German manufacturers. But it also raised tariffs on agricultural imports.
- 4. The farm economy of the United States had not enjoyed the general prosperity of the 1920s.