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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.
Franklin D. Roosevelt, “The Forgotten Man,” April 7, 1932, The Public Papers and Addresses of Franklin D. Roosevelt, Volume 1, The Genesis of the New Deal, 1928-1932; with a special introduction and explanatory notes by President Roosevelt (New York : Random House, 1938), p. 624. Available at https://goo.gl/mnULoQ.
Although I understand that I am talking under the auspices of the Democratic National Committee, I do not want to limit myself to politics. I do not want to feel that I am addressing an audience of Democrats or that I speak merely as a Democrat myself. The present condition of our national affairs is too serious to be viewed through partisan eyes for partisan purposes. . . .
In my calm judgment, the Nation faces today a more grave emergency than in 1917.
It is said that Napoleon lost the battle of Waterloo because he forgot his infantry – he staked too much upon the more spectacular but less substantial cavalry. The present administration in Washington provides a close parallel. It has either forgotten or it does not want to remember the infantry of our economic army.
These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power, for plans like those of 19171 that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.
Obviously, these few minutes tonight permit no opportunity to lay down the ten or a dozen closely related objectives of a plan to meet our present emergency, but I can draw a few essentials, a beginning in fact, of a planned program.
It is the habit of the unthinking to turn in times like this to the illusions of economic magic. People suggest that a huge expenditure of public funds by the Federal Government and by State and local governments will completely solve the unemployment problem. But it is clear that even if we could raise many billions of dollars and find definitely useful public works to spend these billions on, even all that money would not give employment to the seven million or ten million people who are out of work. Let us admit frankly that it would be only a stopgap. A real economic cure must go to the killing of the bacteria in the system rather than to the treatment of external symptoms.
How much do the shallow thinkers realize, for example, that approximately one-half of our whole population, fifty or sixty million people, earn their living by farming or in small towns whose existence immediately depends on farms. They have today lost their purchasing power. Why? They are receiving for farm products less than the cost to them of growing these farm products. The result of this loss of purchasing power is that many other millions of people engaged in industry in the cities cannot sell industrial products to the farming half of the nation. This brings home to every city worker that his own employment is directly tied up with the farmer’s dollar. No nation can long endure half bankrupt. Main Street, Broadway, the mills, the mines will close if half the buyers are broke.
I cannot escape the conclusion that one of the essential parts of a national program of restoration must be to restore purchasing power to the farming half of the country. Without this the wheels of railroads and of factories will not turn.
Closely associated with this first objective is the problem of keeping the home-owner and the farm-owner where he is, without being dispossessed through the foreclosure of his mortgage. His relationship to the great banks of Chicago and New York is pretty remote. The two-billion-dollar fund which President Hoover and the Congress have put at the disposal of the big banks, the railroads and the corporations of the Nation is not for him.
His is a relationship to his little local bank or local loan company. It is a sad fact that even though the local lender in many cases does not want to evict the farmer or home-owner by foreclosure proceedings, he is forced to do so in order to keep his bank or company solvent. Here should be an objective of Government itself, to provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations. That is another example of building from the bottom up.
One other objective closely related to the problem of selling American products is to provide a tariff policy based upon economic common sense rather than upon politics, hot-air, and pull. This country during the past few years, culminating with the Hawley-Smoot Tariff in 1929, has compelled the world to build tariff fences so high that world trade is decreasing to the vanishing point. The value of goods internationally exchanged is today less than half of what it was three or four years ago. . . .
What we must do is this: revise our tariff on the basis of a reciprocal exchange of goods, allowing other Nations to buy and to pay for our goods by sending us such of their goods as will not seriously throw any of our industries out of balance, and incidentally making impossible in this country the continuance of pure monopolies which cause us to pay excessive prices for many of the necessities of life.
Such objectives as these three, restoring farmers’ buying power, relief to the small banks and home-owners and a reconstructed tariff policy, are only a part of ten or a dozen vital factors. But they seem to be beyond the concern of a national administration which can think in terms only of the top of the social and economic structure. It has sought temporary relief from the top down rather than permanent relief from the bottom up. It has totally failed to plan ahead in a comprehensive way. It has waited until something has cracked and then at the last moment has sought to prevent total collapse.
It is high time to get back to fundamentals. It is high time to admit with courage that we are in the midst of an emergency at least equal to that of war. Let us mobilize to meet it.
- 1. Roosevelt may refer to the War Industries Board, created in 1917 and tasked to negotiate with industry so as to increase industrial production to support the U.S. effort in World War I.