Herbert Hoover

31st President: Herbert Hoover (Republican)(August 10, 1874 - October 20, 1964)

Term: March 4, 1929 - March 4, 1933

Background: Herbert Clark Hoover was born on August 10, 1874, in West Branch, Iowa, and was the first president to be born west of the Mississippi River. His father, Jesse Clark Hoover, of German and German-Swiss descent, was a blacksmith and owned a store in which he sold his farming products. Hoover's mother, Hulda Minthorn, of Irish and English descent, was a Quaker. In 1891, Hoover entered Stanford University and graduated in 1895 with a degree in geology. Hoover traveled to Australia in 1897 to work in gold mines. In 1899 he married Lou Henry and had two sons. During World War I, he worked toward bringing home 120,000 United States citizens from Europe, and volunteered by giving out food and clothing. Once the United States entered the war, Hoover was appointed head of the United States Food Administration by Woodrow Wilson. Hoover then implemented "meatless Mondays, wheatless Wednesdays." Hoover became the 3rd United States Secretary of Commerce and was in office from March 5, 1921 to August 21, 1928.

Major Domestic Policy: Issues that were due to The Great Depression dominated Hoover's presidency. The country had very low morale as technologies such as the radio and movies informed the public of the difficulties that the country was facing. On October 29, 1929, the stock crashed, which caused the Great Depression. The crash was mainly due to the debts of farmers and to the over speculation of the stock market. This then lead to the unemployment of close to 15 million people. Up to 25% of farms went bankrupt and were taken away because farmers could not pay their taxes or their mortgages. This in turn caused a third of the railroads to become bankrupt and over 5500 banks to close.

Hoover sought to end the Great Depression by encouraging people to become less dependent upon the government and more dependent upon themselves. Once he saw that the Great Depression was deepening, he passed bills to improve housing for the poor, who lived in "Hoovervilles," where living conditions were considered inhumane. In 1930, Hoover established a public-works program with a budget of $150 million. Then, in 1932, the Reconstruction Finance Corporation was formed. This Corporation was able to lend up to $2 billion to large businesses and companies. Hoover's reasoning, which became known as "pump-priming," was based upon the idea that, by giving money to businesses, the businesses would then give the money to their employees, which would in turn end the Great Depression.

Also occurring during this time was the signing of the Smoot-Hawley Tariff Act on June 17, 1930. This act raised the tariffs on up to 20,000 imported goods. While the act was immediately successful, slowly the amount of exports decreased by 66% between 1929 to 1934 throught the world. Another result was that foreign countries imposed tariffs on American goods, which caused international trade to decrease even more, thus hurting the world economy.

In June 1932, World War I veterans camped in Washington D.C. when they did not receive the immediate payment of a bonus from the Adjusted Service Certificate Law. Congress offered money to these veterans, but a majority of the "Bonus Army" stayed. Police then tried to remove these individuals, but they were outnumbered and unsuccessful. The military was then call to remove the remaining veterans.

Major Foreign Policy: The Great Depression led to a decline in the amount of international political activity. The National Origins Immigration Act was passed right before the Great Depression and was enacted to control immigration from southern and eastern Europe. Up to 75% of all immigrants in 1914 had come from those areas. Then the first quota laws were passed, thus limiting the further immigration to just 3% of the immigrant population that was counted in the 1910 census. Later, Hoover signed the National Origins Act to replace the quota laws with an even more severe plan. Now only 150,000 immigrants were allowed in the United States.

Major Supreme Court Decisions:

• Near v. Minnesota ex rel. Olson (1930): Held that the Minnesota law that was against "malicious, scandalous, and defamatory" publication was also against the First Amendment.

• Stromberg v. People Of State Of California (1931): Held that states don't have the power to violate the First Amendment, which protects the freedom of speech.

• Nixon v. Condon (1932): Held that all of the white Democratic Party primaries in the state of Texas are unconstitutional

• Powell v. Alabama (1932): Held that, since the defendants were denied the assistance of counsel until their trial, it was in violation of the 14th Amendment due- process clause.

Intellectual and Social Development:

• The Great Depression took a toll on the nation's morale as the stock market crashed and Americans grew more despondent.

• Farming families moved from the Dust Bowl to places in the West such as California.

• There was a rise in the labor movement, and married women became more prevalent in the workforce.

After he was President he was appointed to chair two Hoover Comissions which made nearly 600 recommendations on how to streamline government.

Hoover's Legacy: Hoover will always be blamed for causing the Great Depression due to his idea of keeping the government out of the economic troubles. He will be recognized for his volunteerism during the Great Depression; his efforts on both the President's Emergency Committee on Employment and The President's Organization for Unemployment Relief; his aid to the National Credit Corporation; and also his ideas for increasing public-works spending. He will always be criticized for not creating relief programs to boost the economy. Overall, he was unable to handle the new consumer culture, such as the television and the press, and to work well with Congress. He lacked political leadership and will always be remembered as the president who lacked the programs to put an end to the Great Depression.

The Great Depression started in about 1929, official start date of it considered as Black Tuesday on October 29, 1929.

The Great Depression

The Great Depression (also known in the U.K. as the Great Slump) was a dramatic, worldwide economic downturn beginning in some countries as early as 1928. The beginning of the Great Depression in the United States is associated with the stock market crash on October 29, 1929, known as Black Tuesday. The depression had devastating effects in both the industrialized countries and those which exported raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices, and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by 40 to 60 percent. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as farming, mining and logging suffered the most. At the time, Herbert Hoover was President of the United States.

The Great Depression ended at different times in different countries; for subsequent history see Home front during World War II. The majority of countries set up relief programs, and most underwent some sort of political upheaval, pushing them to the left or right. In many states, the desperate citizens turned toward nationalist demagogues like Adolf Hitler, and António de Oliveira Salazar, setting the stage for World War II in 1939.

A downward spiral

The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below of peak in September 1929. Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the northern summer of 1930.

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, like the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, helped to strangle global trade. By late in 1930, a steady decline set in which reached bottom by March 1933.

Causes

Business cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. What turns a usually mild and short recession or "ordinary" business cycle into a great depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. The even larger question is whether it was largely a failure on the part of free markets or largely a failure on the part of governments to prevent widespread bank failures and the resulting panics and reduction in the money supply. Those who believe in a large role for governments in the economy believe it was mostly a failure of the free markets and those who believe in free markets believe it was mostly a failure of government that exacerbated the problem.

Current theories may be broadly classified into three main points of view. First, there is orthodox classical economics: monetarist, Austrian Economics and neoclassical economic theory, all which focus on the macroeconomic effects of money supply and the supply of gold which backed many currencies before the Great Depression, including production and consumption.

Second, there are structural theories, most importantly Keynesian, but also including those of institutional economics, that point to underconsumption and overinvestment (economic bubble), malfeasance by bankers and industrialists or incompetence by government officials. Another theory revolves around the surplus of products and the fact that many Americans were not purchasing but saving. The only consensus viewpoint is that there was a large scale lack of confidence. Unfortunately, once panic and deflation set in, many people believed they could make more money by keeping clear of the markets as prices got lower and lower and a given amount of money bought ever more goods.

Third, there is the Marxist critique of political economy. This emphasizes contradictions within capital itself (which is viewed as a social relation involving the appropriation of surplus value) as giving rise to an inherently unbalanced dynamic of accumulation resulting in an overaccumulation of capital, culminating in periodic crises of devaluation of capital. The origin of crisis is thus located firmly in the sphere of production, though economic crisis can be aggravated by problems of disproportionality between spheres of production and the underconsumption of the masses.

There were multiple causes for the first downturn in 1929, including the structural weaknesses and specific events that turned it into a major depression and the way in which the downturn spread from country to country. In terms of the 1929 small downturn, historians emphasize structural factors like massive bank failures and the stock market crash, while economists (such as Peter Temin and Barry Eichengreen) point to Britain's decision to return to the Gold Standard at pre-World War I parities (US$4.86:£1).

Debt

Debt is seen as one of the causes of the Great Depression. (What follows relates to the USA.

Macroeconomists including Ben Bernanke the current chairman of the U.S. Federal Reserve Bank, have revived the debt-deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher: in the 1920s, American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture and the later for capital investment to increase production. This fueled strong short-term growth but created consumer and commercial debt. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.

Massive layoffs occurred, resulting in unemployment rates of over 25%. (US) Banks which had financed this debt began to fail as debtors defaulted on debt and depositors became worried about their deposits and began massive withdrawals. Government guarantees and Federal Reserve banking regulations to prevent these types of panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets.

The debt became heavier, because prices and incomes fell 20-50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.

Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves, which intensified deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression.

Inequality of wealth and income

Marriner S. Eccles who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from November, 1934 to February, 1948 detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951): As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped. That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers' loans, and foreign debt. The stimulation to spending by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product -- in other words, had there been less savings by business and the higher-income groups and more income in the lower groups -- we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929. The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment. Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population. This then, was my reading of what brought on the depression.

PS this isn't an original answer