Module 3: The Great Depression and the New Deal (1929 - 1941)
The Great Depression and President Hoover's Response
Brother, Can You Spare a Dime? The Great Depression
On March 4, 1929, at his presidential inauguration, Herbert Hoover stated, “I have no fears for the future of our country. It is bright with hope.” Most Americans shared his optimism. They believed that the prosperity of the 1920s would continue, and that the country was moving closer to a land of abundance for all. Little could Hoover imagine that barely a year into his presidency, shantytowns known as “Hoovervilles” would emerge on the fringes of most major cities, newspapers covering the homeless would be called “Hoover blankets,” and pants pockets, turned inside-out to show their emptiness, would become “Hoover flags.”
The stock market crash of October 1929 set the Great Depression into motion, but other factors were at the root of the problem, propelled onward by a series of both human-made and natural catastrophes. Anticipating a short downturn and living under an ethos of free enterprise and individualism, Americans suffered mightily in the first years of the Depression. As conditions worsened and the government failed to act, they grew increasingly desperate for change. While Hoover could not be blamed for the Great Depression, his failure to address the nation’s hardships would remain his legacy. (2)
The Stock Market Crash of 1929
Herbert Hoover became president at a time of ongoing prosperity in the country. Americans hoped he would continue to lead the country through still more economic growth, and neither he nor the country was ready for the unraveling that followed. But Hoover’s moderate policies, based upon a strongly held belief in the spirit of American individualism, were not enough to stem the ever-growing problems, and the economy slipped further and further into the Great Depression.
While it is misleading to view the stock market crash of 1929 as the sole cause of the Great Depression, the dramatic events of that October did play a role in the downward spiral of the American economy. The crash, which took place less than a year after Hoover was inaugurated, was the most extreme sign of the economy’s weakness. Multiple factors contributed to the crash, which in turn caused a consumer panic that drove the economy even further downhill, in ways that neither Hoover nor the financial industry was able to restrain. Hoover, like many others at the time, thought and hoped that the country would right itself with limited government intervention. This was not the case, however, and millions of Americans sank into grinding poverty. (2)
The Early Days of Hoover’s Presidency
Upon his inauguration, President Hoover set forth an agenda that he hoped would continue the “Coolidge prosperity” of the previous administration. While accepting the Republican Party’s presidential nomination in 1928, Hoover commented, “Given the chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation forever.” In the spirit of normalcy that defined the Republican ascendancy of the 1920s, Hoover planned to immediately overhaul federal regulations with the intention of allowing the nation’s economy to grow unfettered by any controls. The role of the government, he contended, should be to create a partnership with the American people, in which the latter would rise (or fall) on their own merits and abilities. He felt the less government intervention in their lives, the better.
Yet, to listen to Hoover’s later reflections on Franklin Roosevelt’s first term in office, one could easily mistake his vision for America for the one held by his successor. Speaking in 1936 before an audience in Denver, Colorado, he acknowledged that it was always his intent as president to ensure “a nation built of home owners and farm owners. We want to see more and more of them insured against death and accident, unemployment and old age,” he declared. “We want them all secure.” Such humanitarianism was not uncommon to Hoover. Throughout his early career in public service, he was committed to relief for people around the world. In 1900, he coordinated relief efforts for foreign nationals trapped in China during the Boxer Rebellion. At the outset of World War I, he led the food relief effort in Europe, specifically helping millions of Belgians who faced German forces.
President Woodrow Wilson subsequently appointed him head of the U.S. Food Administration to coordinate rationing efforts in America as well as to secure essential food items for the Allied forces and citizens in Europe.
Hoover’s first months in office hinted at the reformist, humanitarian spirit that he had displayed throughout his career. He continued the civil service reform of the early twentieth century by expanding opportunities for employment throughout the federal government. In response to the Teapot Dome Affair, which had occurred during the Harding administration, he invalidated several private oil leases on public lands. He directed the Department of Justice, through its Bureau of Investigation, to crack down on organized crime, resulting in the arrest and imprisonment of Al Capone. By the summer of 1929, he had signed into law the creation of a Federal Farm Board to help farmers with government price supports, expanded tax cuts across all income classes, and set aside federal funds to clean up slums in major American cities. To directly assist several overlooked populations, he created the Veterans Administration and expanded veterans’ hospitals, established the Federal Bureau of Prisons to oversee incarceration conditions nationwide, and reorganized the Bureau of Indian Affairs to further protect Native Americans. Just prior to the stock market crash, he even proposed the creation of an old-age pension program, promising fifty dollars monthly to all Americans over the age of sixty-five—a proposal remarkably similar to the social security benefit that would become a hallmark of Roosevelt’s subsequent New Deal programs. As the summer of 1929 came to a close, Hoover remained a popular successor to Calvin “Silent Cal” Coolidge, and all signs pointed to a highly successful administration. (2)
The Great Crash
The promise of the Hoover administration was cut short when the stock market lost almost one-half its value in the fall of 1929, plunging many Americans into financial ruin. However, as a singular event, the stock market crash itself did not cause the Great Depression that followed. In fact, only approximately 10 percent of American households held stock investments and speculated in the market; yet nearly a third would lose their lifelong savings and jobs in the ensuing depression. The connection between the crash and the subsequent decade of hardship was complex, involving underlying weaknesses in the economy that many policymakers had long ignored.
What Was the Crash?
To understand the crash, it is useful to address the decade that preceded it. The prosperous 1920s ushered in a feeling of euphoria among middle-class and wealthy Americans, and people began to speculate on wilder investments. The government was a willing partner in this endeavor: The Federal Reserve followed a brief postwar recession in 1920–1921 with a policy of setting interest rates artificially low, as well as easing the reserve requirements on the nation’s largest banks. As a result, the money supply in the U.S. increased by nearly 60 percent, which convinced even more Americans of the safety of investing in questionable schemes. They felt that prosperity was boundless and that extreme risks were likely tickets to wealth. Named for Charles Ponzi, the original “Ponzi schemes” emerged early in the 1920s to encourage novice investors to divert funds to unfounded ventures, which in reality simply used new investors’ funds to pay off older investors as the schemes grew in size. Speculation, where investors purchased into high-risk schemes that they hoped would pay off quickly, became the norm. Several banks, including deposit institutions that originally avoided investment loans, began to offer easy credit, allowing people to invest, even when they lacked the money to do so.
Several warning signs portended the impending crash but went unheeded by Americans still giddy over the potential fortunes that speculation might promise. A brief downturn in the market on September 18, 1929, raised questions among more-seasoned investment bankers, leading some to predict an end to high stock values, but did little to stem the tide of investment. Even the collapse of the London Stock Exchange on September 20 failed to fully curtail the optimism of American investors. However, when the New York Stock Exchange lost 11 percent of its value on October 24—often referred to as “Black Thursday”—key American investors sat up and took notice. In an effort to forestall a much-feared panic, leading banks, including Chase National, National City, J.P. Morgan, and others, conspired to purchase large amounts of blue chip stocks (including U.S. Steel) in order to keep the prices artificially high. Even that effort failed in the growing wave of stock sales. Nevertheless, Hoover delivered a radio address on Friday in which he assured the American people, “The fundamental business of the country . . . is on a sound and prosperous basis.”
As newspapers across the country began to cover the story in earnest, investors anxiously awaited the start of the following week. When the Dow Jones Industrial Average lost another 13 percent of its value on Monday morning, many knew the end of stock market speculation was near. The evening before the infamous crash was ominous. Jonathan Leonard, a newspaper reporter who regularly covered the stock market beat, wrote of how Wall Street “lit up like a Christmas tree.” Brokers and businessmen who feared the worst the next day crowded into restaurants and speakeasies (a place where alcoholic beverages were illegally sold). After a night of heavy drinking, they retreated to nearby hotels or flop-houses (cheap boarding houses), all of which were overbooked, and awaited sunrise. Children from nearby slums and tenement districts played stickball in the streets of the financial district, using wads of ticker tape for balls. Although they all awoke to newspapers filled with predictions of a financial turnaround, as well as technical reasons why the decline might be short-lived, the crash on Tuesday morning, October 29, caught few by surprise.
No one even heard the opening bell on Wall Street that day, as shouts of “Sell! Sell!” drowned it out. In the first three minutes alone, nearly three million shares of stock, accounting for $2 million of wealth, changed hands. The volume of Western Union telegrams tripled, and telephone lines could not meet the demand, as investors sought any means available to dump their stock immediately. Rumors spread of investors jumping from their office windows. Fistfights broke out on the trading floor, where one broker fainted from physical exhaustion. Stock trades happened at such a furious pace that runners had nowhere to store the trade slips, and so they resorted to stuffing them into trash cans. Although the stock exchange’s board of governors briefly considered closing the exchange early, they subsequently chose to let the market run its course, lest the American public panic even further at the thought of closure. When the final bell rang, errand boys spent hours sweeping up tons of paper, tickertape, and sales slips, as shown in Figure 8-1.
On Black Tuesday, October 29, stock holders traded over sixteen million shares and lost over $14 billion in wealth in a single day. To put this in context, a trading day of three million shares was considered a busy day on the stock market. People unloaded their stock as quickly as they could, never minding the loss. Banks, facing debt and seeking to protect their own assets, demanded payment for the loans they had provided to individual investors. Those individuals who could not afford to pay found their stocks sold immediately and their life savings wiped out in minutes, yet their debt to the bank still remained.
The financial outcome of the crash was devastating. Between September 1 and November 30, 1929, the stock market lost over one-half its value, dropping from $64 billion to approximately $30 billion. Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket. The crash affected many more than the relatively few Americans who invested in the stock market. While only 10 percent of households had investments, over 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves. This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves. Eventually, thousands of banks closed their doors after losing all of their assets, leaving their customers penniless. While a few savvy investors got out at the right time and eventually made fortunes buying up discarded stock, those success stories were rare. Housewives who speculated with grocery money, bookkeepers who embezzled company funds hoping to strike it rich and pay the funds back before getting caught, and bankers who used customer deposits to follow speculative trends all lost. While the stock market crash was the trigger, the lack of appropriate economic and banking safeguards, along with a public psyche that pursued wealth and prosperity at all costs, allowed this event to spiral downward into a depression.
Causes of the Crash
The crash of 1929 did not occur in a vacuum, nor did it cause the Great Depression. Rather, it was a tipping point where the underlying weaknesses in the economy, specifically in the nation’s banking system, came to the fore. It also represented both the end of an era characterized by blind faith in American exceptionalism and the beginning of one in which citizens began increasingly to question some long-held American values. A number of factors played a role in bringing the stock market to this point and contributed to the downward trend in the market, which continued well into the 1930s. In addition to the Federal Reserve’s questionable policies and misguided banking practices, three primary reasons for the collapse of the stock market were international economic woes, poor income distribution, and the psychology of public confidence.
After World War I, both America’s allies and the defeated nations of Germany and Austria contended with disastrous economies. The Allies owed large amounts of money to U.S. banks, which had advanced them money during the war effort. Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help. The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U.S. provided to assist with their payments. The U.S. government refused to forgive these loans, and American banks were in the position of extending additional private loans to foreign governments, who used them to repay their debts to the U.S. government, essentially shifting their obligations to private banks. When other countries began to default on this second wave of private bank loans, still more strain was placed on U.S. banks, which soon sought to liquidate these loans at the first sign of a stock market crisis.
Poor income distribution among Americans compounded the problem. A strong stock market relies on today’s buyers becoming tomorrow’s sellers, and therefore it must always have an influx of new buyers. In the 1920s, this was not the case. Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth. This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close. In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt.
Finally, one of the most important factors in the crash was the contagion effect of panic. For much of the 1920s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow. But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop. This was partly due to Americans’ inability to weather market volatility, given the limited cash surpluses they had on hand, as well as their psychological concern that economic recovery might never happen.
In the Aftermath of the Crash
After the crash, Hoover announced that the economy was “fundamentally sound.” On the last day of trading in 1929, the New York Stock Exchange held its annual wild and lavish party, complete with confetti, musicians, and illegal alcohol. The U.S. Department of Labor predicted that 1930 would be “a splendid employment year.” These sentiments were not as baseless as it may seem in hindsight. Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves. But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression. Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under. The more people pulled out their money in bank runs, the closer the banks came to insolvency.
As the financial markets collapsed, hurting the banks that had gambled with their holdings, people began to fear that the money they had in the bank would be lost. This began bank runs across the country, a period of still more panic, where people pulled their money out of banks to keep it hidden at home.
The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses. At this time, two industries had the greatest impact on the country’s economic future in terms of investment, potential growth, and employment: automotive and construction. After the crash, both were hit hard. In November 1929, fewer cars were built than in any other month since November 1919. Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown. Afterward, very few could afford them. By 1933, Stutz, Locomobile, Durant, Franklin, Deusenberg, and Pierce-Arrow automobiles, all luxury models, were largely unavailable; production had ground to a halt. They would not be made again until 1949. In construction, the drop-off was even more dramatic. It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in 1931.
The damage to major industries led to, and reflected, limited purchasing by both consumers and businesses. Even those Americans who continued to make a modest income during the Great Depression lost the drive for conspicuous consumption that they exhibited in the 1920s. People with less money to buy goods could not help businesses grow; in turn, businesses with no market for their products could not hire workers or purchase raw materials. Employers began to lay off workers. The country’s gross national product declined by over 25 percent within a year, and wages and salaries declined by $4 billion. Unemployment tripled, from 1.5 million at the end of 1929 to 4.5 million by the end of 1930, as shown in Figure 8-2. By mid-1930, the slide into economic chaos had begun but was nowhere near complete. (2)
The New Reality for Americans
For most Americans, the crash affected daily life in myriad ways. In the immediate aftermath, there was a run on the banks, where citizens took their money out, if they could get it, and hid their savings under mattresses, in bookshelves, or anywhere else they felt was safe. Some went so far as to exchange their dollars for gold and ship it out of the country. A number of banks failed outright, and others, in their attempts to stay solvent, called in loans that people could not afford to repay. Working-class Americans saw their wages drop: Even Henry Ford, the champion of a high minimum wage, began lowering wages by as much as a dollar a day. Southern cotton planters paid workers only twenty cents for every one hundred pounds of cotton picked, meaning that the strongest picker might earn sixty cents for a fourteen-hour day of work. Cities struggled to collect property taxes and subsequently laid off teachers and police.
The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different. Men who lost their jobs didn’t stand on street corners begging; they disappeared. They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view. As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal, as shown in Figure 8-3. Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed.
The hardships of the Great Depression threw family life into disarray. Both marriage and birth rates declined in the decade after the crash. The most vulnerable members of society—children, women, minorities, and the working class—struggled the most. Parents often sent children out to beg for food at restaurants and stores to save themselves from the disgrace of begging. Many children dropped out of school, and even fewer went to college. Childhood, as it had existed in the prosperous twenties, was over. And yet, for many children living in rural areas where the affluence of the previous decade was not fully developed, the Depression was not viewed as a great challenge. School continued. Play was simple and enjoyed. Families adapted by growing more in gardens, canning, and preserving, wasting little food if any. Home-sewn clothing became the norm as the decade progressed, as did creative methods of shoe repair with cardboard soles. Yet, one always knew of stories of the “other” families who suffered more, including those living in cardboard boxes or caves. By one estimate, as many as 200,000 children moved about the country as vagrants due to familial disintegration.
Women’s lives, too, were profoundly affected. Some wives and mothers sought employment to make ends meet, an undertaking that was often met with strong resistance from husbands and potential employers. Many men derided and criticized women who worked, feeling that jobs should go to unemployed men. Some campaigned to keep companies from hiring married women, and an increasing number of school districts expanded the long-held practice of banning the hiring of married female teachers. Despite the pushback, women entered the workforce in increasing numbers, from ten million at the start of the Depression to nearly thirteen million by the end of the 1930s. This increase took place in spite of the twenty-six states that passed a variety of laws to prohibit the employment of married women. Several women found employment in the emerging pink collar occupations, viewed as traditional women’s work, including jobs as telephone operators, social workers, and secretaries. Others took jobs as maids and housecleaners, working for those fortunate few who had maintained their wealth.
White women’s forays into domestic service came at the expense of minority women, who had even fewer employment options. Unsurprisingly, African American men and women experienced unemployment, and the grinding poverty that followed, at double and triple the rates of their white counterparts. By 1932, unemployment among African Americans reached near 50 percent. In rural areas, where large numbers of African Americans continued to live despite the Great Migration of 1910–1930, depression-era life represented an intensified version of the poverty that they traditionally experienced. Subsistence farming allowed many African Americans who lost either their land or jobs working for white landholders to survive, but their hardships increased. Life for African Americans in urban settings was equally trying, with blacks and working-class whites living in close proximity and competing for scarce jobs and resources.
Life for all rural Americans was difficult. Farmers largely did not experience the widespread prosperity of the 1920s. Although continued advancements in farming techniques and agricultural machinery led to increased agricultural production, decreasing demand (particularly in the previous markets created by World War I) steadily drove down commodity prices. As a result, farmers could barely pay the debt they owed on machinery and land mortgages, and even then could do so only as a result of generous lines of credit from banks. While factory workers may have lost their jobs and savings in the crash, many farmers also lost their homes, due to the thousands of farm foreclosures sought by desperate bankers. Between 1930 and 1935, nearly 750,000 family farms disappeared through foreclosure or bankruptcy. Even for those who managed to keep their farms, there was little market for their crops. Unemployed workers had less money to spend on food, and when they did purchase goods, the market excess had driven prices so low that farmers could barely piece together a living. A now-famous example of the farmer’s plight is that, when the price of coal began to exceed that of corn, farmers would simply burn corn to stay warm in the winter.
As the effects of the Great Depression worsened, wealthier Americans had particular concern for “the deserving poor”—those who had lost all of their money due to no fault of their own. This concept gained greater attention beginning in the Progressive Era of the late nineteenth and early twentieth centuries, when early social reformers sought to improve the quality of life for all Americans by addressing the poverty that was becoming more prevalent, particularly in emerging urban areas.
By the time of the Great Depression, social reformers and humanitarian agencies had determined that the “deserving poor” belonged to a different category from those who had speculated and lost. However, the sheer volume of Americans who fell into this group meant that charitable assistance could not begin to reach them all. Some fifteen million “deserving poor,” or a full one-third of the labor force, were struggling by 1932. The country had no mechanism or system in place to help so many; however, Hoover remained adamant that such relief should rest in the hands of private agencies, not with the federal government.
Unable to receive aid from the government, Americans thus turned to private charities; churches, synagogues, and other religious organizations; and state aid. But these organizations were not prepared to deal with the scope of the problem. Private aid organizations showed declining assets as well during the Depression, with fewer Americans possessing the ability to donate to such charities. Likewise, state governments were particularly ill-equipped. Governor Franklin D. Roosevelt was the first to institute a Department of Welfare in New York in 1929. City governments had equally little to offer. In New York City in 1932, family allowances were $2.39 per week, and only one-half of the families who qualified actually received them. In Detroit, allowances fell to fifteen cents a day per person, and eventually ran out completely. In most cases, relief was only in the form of food and fuel; organizations provided nothing in the way of rent, shelter, medical care, clothing, or other necessities. There was no infrastructure to support the elderly, who were the most vulnerable, and this population largely depended on their adult children to support them, adding to families’ burdens.
During this time, local community groups, such as police and teachers, worked to help the neediest. New York City police, for example, began contributing 1 percent of their salaries to start a food fund that was geared to help those found starving on the streets. In 1932, New York City schoolteachers also joined forces to try to help; they contributed as much as $250,000 per month from their own salaries to help needy children. Chicago teachers did the same, feeding some eleven thousand students out of their own pockets in 1931, despite the fact that many of them had not been paid a salary in months. These noble efforts, however, failed to fully address the level of desperation that the American public was facing. (2)
President Hoover’s Response
President Hoover was unprepared for the scope of the depression crisis, and his limited response did not begin to help the millions of Americans in need. The steps he took were very much in keeping with his philosophy of limited government, a philosophy that many had shared with him until the upheavals of the Great Depression made it clear that a more direct government response was required. But Hoover was stubborn in his refusal to give “handouts,” as he saw direct government aid. He called for a spirit of volunteerism among America’s businesses, asking them to keep workers employed, and he exhorted the American people to tighten their belts and make do in the spirit of “rugged individualism.” While Hoover’s philosophy and his appeal to the country were very much in keeping with his character, it was not enough to keep the economy from plummeting further into economic chaos.
The steps Hoover did ultimately take were too little, too late. He created programs for putting people back to work and helping beleaguered local and state charities with aid. But the programs were small in scale and highly specific as to who could benefit, and they only touched a small percentage of those in need. As the situation worsened, the public grew increasingly unhappy with Hoover. He left office with one of the lowest approval ratings of any president in history.
The Initial Reaction
In the immediate aftermath of Black Tuesday, Hoover sought to reassure Americans that all was well. Reading his words after the fact, it is easy to find fault. In 1929 he said, “Any lack of confidence in the economic future or the strength of business in the United States is foolish.” In 1930, he stated, “The worst is behind us.” In 1931, he pledged federal aid should he ever witness starvation in the country; but as of that date, he had yet to see such need in America, despite the very real evidence that children and the elderly were starving to death. Yet Hoover was neither intentionally blind nor unsympathetic. He simply held fast to a belief system that did not change as the realities of the Great Depression set in.
Hoover believed strongly in the ethos of American individualism: that hard work brought its own rewards. His life story testified to that belief. Hoover was born into poverty, made his way through college at Stanford University, and eventually made his fortune as an engineer. This experience, as well as his extensive travels in China and throughout Europe, shaped his fundamental conviction that the very existence of American civilization depended upon the moral fiber of its citizens, as evidenced by their ability to overcome all hardships through individual effort and resolve. The idea of government handouts to Americans was repellant to him. Whereas Europeans might need assistance, such as his hunger relief work in Belgium during and after World War I, he believed the American character to be different. In a 1931 radio address, he said, “The spread of government destroys initiative and thus destroys character.”
Likewise, Hoover was not completely unaware of the potential harm that wild stock speculation might create if left unchecked. As secretary of commerce, Hoover often warned President Coolidge of the dangers that such speculation engendered. In the weeks before his inauguration, he offered many interviews to newspapers and magazines, urging Americans to curtail their rampant stock investments, and even encouraged the Federal Reserve to raise the discount rate to make it more costly for local banks to lend money to potential speculators. However, fearful of creating a panic, Hoover never issued a stern warning to discourage Americans from such investments. Neither Hoover, nor any other politician of that day, ever gave serious thought to outright government regulation of the stock market. This was even true in his personal choices, as Hoover often lamented poor stock advice he had once offered to a friend. When the stock nose-dived, Hoover bought the shares from his friend to assuage his guilt, vowing never again to advise anyone on matters of investment.
In keeping with these principles, Hoover’s response to the crash focused on two very common American traditions: He asked individuals to tighten their belts and work harder, and he asked the business community to voluntarily help sustain the economy by retaining workers and continuing production. He immediately summoned a conference of leading industrialists to meet in Washington, DC, urging them to maintain their current wages while America rode out this brief economic panic. The crash, he assured business leaders, was not part of a greater downturn; they had nothing to worry about. Similar meetings with utility companies and railroad executives elicited promises for billions of dollars in new construction projects, while labor leaders agreed to withhold demands for wage increases and workers continued to labor. Hoover also persuaded Congress to pass a $160 million tax cut to bolster American incomes, leading many to conclude that the president was doing all he could to stem the tide of the panic. In April 1930, the New York Times editorial board concluded that “No one in his place could have done more.”
However, these modest steps were not enough. By late 1931, when it became clear that the economy would not improve on its own, Hoover recognized the need for some government intervention. He created the President’s Emergency Committee for Employment (PECE), later renamed the President’s Organization of Unemployment Relief (POUR).
In keeping with Hoover’s distaste of what he viewed as handouts, this organization did not provide direct federal relief to people in need. Instead, it assisted state and private relief agencies, such as the Red Cross, Salvation Army, YMCA, and Community Chest. Hoover also strongly urged people of means to donate funds to help the poor, and he himself gave significant private donations to worthy causes. But these private efforts could not alleviate the widespread effects of poverty.
Congress pushed for a more direct government response to the hardship. In 1930–1931, it attempted to pass a $60 million bill to provide relief to drought victims by allowing them access to food, fertilizer, and animal feed. Hoover stood fast in his refusal to provide food, resisting any element of direct relief. The final bill of $47 million provided for everything except food but did not come close to adequately addressing the crisis. Again in 1931, Congress proposed the Federal Emergency Relief Bill, which would have provided $375 million to states to help provide food, clothing, and shelter to the homeless. But Hoover opposed the bill, stating that it ruined the balance of power between states and the federal government, and in February 1932, it was defeated by fourteen votes.
However, the president’s adamant opposition to direct-relief federal government programs should not be viewed as one of indifference or uncaring toward the suffering American people. His personal sympathy for those in need was boundless. Hoover was one of only two presidents to reject his salary for the office he held. Throughout the Great Depression, he donated an average of $25,000 annually to various relief organizations to assist in their efforts. Furthermore, he helped to raise $500,000 in private funds to support the White House Conference on Child Health and Welfare in 1930. Rather than indifference or heartlessness, Hoover’s steadfast adherence to a philosophy of individualism as the path toward long-term American recovery explained many of his policy decisions. “A voluntary deed,” he repeatedly commented, “is infinitely more precious to our national ideal and spirit than a thousand-fold poured from the Treasury.”
As conditions worsened, however, Hoover eventually relaxed his opposition to federal relief and formed the Reconstruction Finance Corporation (RFC) in 1932, in part because it was an election year and Hoover hoped to keep his office. Although not a form of direct relief to the American people in greatest need, the RFC was much larger in scope than any preceding effort, setting aside $2 billion in taxpayer money to rescue banks, credit unions, and insurance companies. The goal was to boost confidence in the nation’s financial institutions by ensuring that they were on solid footing. This model was flawed on a number of levels. First, the program only lent money to banks with sufficient collateral, which meant that most of the aid went to large banks. In fact, of the first $61 million loaned, $41 million went to just three banks. Small town and rural banks got almost nothing. Furthermore, at this time, confidence in financial institutions was not the primary concern of most Americans. They needed food and jobs. Many had no money to put into the banks, no matter how confident they were that the banks were safe.
Hoover’s other attempt at federal assistance also occurred in 1932, when he endorsed a bill by Senator Robert Wagner of New York. This was the Emergency Relief and Construction Act. This act authorized the RFC to expand beyond loans to financial institutions and allotted $1.5 billion to states to fund local public works projects. This program failed to deliver the kind of help needed, however, as Hoover severely limited the types of projects it could fund to those that were ultimately self-paying (such as toll bridges and public housing) and those that required skilled workers. While well intended, these programs maintained the status quo, and there was still no direct federal relief to the individuals who so desperately needed it.
Public Reaction to Hoover
Hoover’s steadfast resistance to government aid cost him the reelection and has placed him squarely at the forefront of the most unpopular presidents, according to public opinion, in modern American history. His name became synonymous with the poverty of the era: “Hoovervilles” became the common name for homeless shantytowns (see Figure 8-4) and “Hoover blankets” for the newspapers that the homeless used to keep warm. A “Hoover flag” was a pants pocket—empty of all money—turned inside out. By the 1932 election, hitchhikers held up signs reading: “If you don’t give me a ride, I’ll vote for Hoover.” Americans did not necessarily believe that Hoover caused the Great Depression. Their anger stemmed instead from what appeared to be a willful refusal to help regular citizens with direct aid that might allow them to recover from the crisis.
Frustration and Protest: A Bad Situation Grows Worse for Hoover
Desperation and frustration often create emotional responses, and the Great Depression was no exception. Throughout 1931–1932, companies trying to stay afloat sharply cut worker wages, and, in response, workers protested in increasingly bitter strikes. As the Depression unfolded, over 80 percent of automotive workers lost their jobs. Even the typically prosperous Ford Motor Company laid off two-thirds of its workforce.
In 1932, a major strike at the Ford Motor Company factory near Detroit resulted in over sixty injuries and four deaths. Often referred to as the Ford Hunger March, the event unfolded as a planned demonstration among unemployed Ford workers who, to protest their desperate situation, marched nine miles from Detroit to the company’s River Rouge plant in Dearborn. At the Dearborn city limits, local police launched tear gas at the roughly three thousand protestors, who responded by throwing stones and clods of dirt. When they finally reached the gates of the plant, protestors faced more police and firemen, as well as private security guards. As the firemen turned hoses onto the protestors, the police and security guards opened fire. In addition to those killed and injured, police arrested fifty protestors. One week later, sixty thousand mourners attended the public funerals of the four victims of what many protesters labeled police brutality. The event set the tone for worsening labor relations in the U.S.
Farmers also organized and protested, often violently. The most notable example was the Farm Holiday Association. Led by Milo Reno, this organization held significant sway among farmers in Iowa, Nebraska, Wisconsin, Minnesota, and the Dakotas. Although they never comprised a majority of farmers in any of these states, their public actions drew press attention nationwide. Among their demands, the association sought a federal government plan to set agricultural prices artificially high enough to cover the farmers’ costs, as well as a government commitment to sell any farm surpluses on the world market. To achieve their goals, the group called for farm holidays, during which farmers would neither sell their produce nor purchase any other goods until the government met their demands. However, the greatest strength of the association came from the unexpected and seldom-planned actions of its members, which included barricading roads into markets, attacking nonmember farmers, and destroying their produce. Some members even raided small town stores, destroying produce on the shelves. Members also engaged in “penny auctions,” bidding pennies on foreclosed farm land and threatening any potential buyers with bodily harm if they competed in the sale. Once they won the auction, the association returned the land to the original owner. In Iowa, farmers threatened to hang a local judge if he signed any more farm foreclosures. At least one death occurred as a direct result of these protests before they waned following the election of Franklin Roosevelt.
One of the most notable protest movements occurred toward the end of Hoover’s presidency and centered on the Bonus Expeditionary Force, or Bonus Army, in the spring of 1932. In this protest, approximately fifteen thousand World War I veterans marched on Washington to demand early payment of their veteran bonuses, which were not due to be paid until 1945. The group camped out in vacant federal buildings and set up camps in Anacostia Flats near the Capitol building (Figure 8-5).
Many veterans remained in the city in protest for nearly two months, although the U.S. Senate officially rejected their request in July. By the middle of that month, Hoover wanted them gone. He ordered the police to empty the buildings and clear out the camps, and in the exchange that followed, police fired into the crowd, killing two veterans. Fearing an armed uprising, Hoover then ordered General Douglas MacArthur, along with his aides, Dwight Eisenhower and George Patton, to forcibly remove the veterans from Anacostia Flats. The ensuing raid proved catastrophic, as the military burned down the shantytown and injured dozens of people, including a twelve-week-old infant who was killed when accidentally struck by a tear gas canister (see Figure 8-6).
As Americans bore witness to photographs and newsreels of the U.S. Army forcibly removing veterans, Hoover’s popularity plummeted even further. By the summer of 1932, he was largely a defeated man. His pessimism and failure mirrored that of the nation’s citizens. America was a country in desperate need: in need of a charismatic leader to restore public confidence as well as provide concrete solutions to pull the economy out of the Great Depression. (2)