This is a post in My Presidential Rankings series, linked here: http://sdu754.wordpress.com/2014/01/05/presidential-rankings/
Herbert Hoover became president shortly before the October 1929 stock market crash. While many historians paint a picture of Hoover as a do nothing president who was a victim of rampant stock speculation and economic mismanagement during the Coolidge years, the truth is quite the opposite.
You might be asking then, if it wasn’t rampant speculation in the stock market, and economic mismanagement by Coolidge, then what caused the great depression? It was bad monetary policy by the Federal Reserve and Herbert Hoover’s reaction to the initial economic downturn. The Fed started contracting the money supply in the spring of 1928 and continued until the stock market crash of October 1929. This was the exact opposite of what the Fed should have done at the time, as commodity prices were falling and there wasn’t a hint of inflation. The Fed decided to contract the money supply to reign in what it saw as “out of control market speculation”. further From 1929 until 1933, the fed contracted the money supply by 33%, coincidently (maybe not coincidently) 33% of banks failed.
Many historians have blamed over speculation in the stock market for causing the crash and the depression. Whereas it is true a speculative bubble existed, it wasn’t as big as many have suggested. Less than 1% of Americans owned stock at the time, as opposed to today, where over half the population owns stock in one way or another. How could less that 1% of people losing some or all of their wealth destroy the economy? It couldn’t, but greedy rich people always make a nice scape goat. If you look at the Dow Jones Industrial Average (DJIA) at the time, you can see the bubble wasn’t as big as has been shown. On December 31, 1928, the DJIA hit 300.00 for the first time, where it was at in June of 1929. On September 3, 1929 it was 381.17, the initial market crash bottomed out on November 13, 1929 at 198.60, but recovered to 294.07 on April 17, 1930, where it was on June of 1929. To recap, the speculative bubble started in July 1929, peaked in September, bottomed out in November and recovered by April. After the market crash in October of 1929, unemployment went up to 9%, but it dropped to 6.3% by June of 1930. So what happened? Herbert Hoover! If only he had acted as historians has said he did, everything would have been fine. It should be noted that it wasn’t just the crash of October 1929 that did investors in, but the long, continuous decline that occurred from mid-1930 until the summer of 1932.
Herbert Hoover has been painted by historians as a laissez faire do nothing president. The problem is that Hoover did quite a lot to fix the economy, and with every move the country sank further and further in to the depression. Hoover rejected Treasury Secretary Andrew Mellon’s suggested “leave-it-alone” approach, and eventually replaced him with the more activist Ogden Mills.
A month following the market crash Hoover summoned business leaders to implore them not to cut wages, believing that high wages were a way out of the depression. Hoover missed one important point, wages are a cost of doing business. During the depression prices were failing, so wages should have naturally fallen as well. Business honored Hoover’s request not to cut wages, and cut employees instead, leading to mass unemployment. Hoover also had several laws enacted that caused or worsened the depression.
Smoot Hawley tariff 1930 – On June 17th 1930, Hoover got the Smoot Hawley tariff passed, which touched off a trade war against the US. This was done at a time when the US was actually exporting more goods than it imported, meaning the US the needed exports to sustain it’s economy. A petition was signed by 1,028 economists in the U.S. asking President Hoover to veto the legislation. Threats of retaliation began long before the bill was enacted into law in June 1930. U.S. imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion
The Federal Home Loan Bank Act of 1932 – created the heavily regulated savings & loan industry. Things worked fine here until inflation crept into the economy in the late 1960s thru the 1980s, causing an inevitable crisis.
Reconstruction Finance Corporation – The agency gave $2 billion in aid to state and local governments and made loans to banks, railroads, mortgage associations and other businesses
Emergency Relief and Construction Act – an amendment to the Reconstruction Finance Corporation Act which was signed on January 22, 1932. It created the Reconstruction Finance Corporation which released funds for public works projects across the country
The Agricultural Marketing Act of 1929 – created the Federal Farm Board to loan farmers money to hold their products off of the market to keep prices high. The Federal Farm Board’s purchase of surplus could not keep up with the production as farmers realized that they could just sell the government their crops, they re-implemented the use of fertilizers and other techniques to increase production.
Bacon-Davis Act – establishes the requirement for paying the local prevailing wages on public works projects for laborers and mechanics. (i.e., the above market-clearing union wage). The result of this move was to close out non-union labor, especially immigrants and non-whites, and drive up costs to taxpayers.
Norris–La Guardia Act – outlawed “yellow dog contracts” in which employees agree not to join a union as a condition of employment. It also prevents the federal courts from issuing injunctions in nonviolent labor disputes.
Revenue Act of 1932 – Major tax increase
Bottom rate from 1% to 4%
Top rate from 25% to 63%
Corporate taxes raised 15%
Inheritance tax was doubled
Check Tax – placed a 2 cent tax on every check equates to 34 cents today
lowered personal deductions from $1,500 for single filers and $3,500 for married couples to $1,000 for single filers and $2,500 for married couples. Also levied Consumption taxes on lubricating oil, malt syrup, brewer’s wort, tires, toilet articles, furs, jewelry, automobiles, trucks, radio and phonograph equipment, refrigerators, sporting goods, cameras, firearms, matches, candy, chewing gum, soft drinks, electricity & a Gas Tax.
The Check tax helped lead to bank runs as depositors took there money out of banks and decided to pay cash as a way of avoiding the tax.
During Hoover’s term spending went from $3.1 billion in 1929 to $4.8 billion in 1933, a 48% increase. Hoover also canceled private oil leases on government lands, which could have aided in economic recovery.
As can be easily seen, Hoover took what would have been a short sharp recession and turned it into the longest economic calamity in history through higher taxes, higher spending and increased governmental interference in the economy.