Roaring Twenties

Hoover’s Response to the Depression: What He Did and Didn’t Do

Herbert Hoover was inaugurated as the 31st president on March 4, 1929, seven months before the Wall Street Crash of October 1929. By the time he left office on March 4, 1933, the country was in the depths of the Great Depression — unemployment was over 20 percent, industrial production had fallen by half, and more than 9,000 banks had failed. Historians still debate Hoover’s response: some argue that he did more than any previous president to use federal power in a crisis, while others argue that his commitment to “rugged individualism” and voluntarism made the Depression deeper and longer than it needed to be.

The full political story of the three Republican presidents is told in the parent Harding, Coolidge, and Hoover cluster.

Hoover’s Philosophy: Rugged Individualism

Hoover’s response was shaped by a philosophy he called “rugged individualism.” The phrase, taken from a 1909 book by Herbert Croly and a 1921 Hoover speech, expressed the belief that the United States was a nation of self-reliant individuals who should not accept direct federal relief. Hoover believed the federal government could and should help in a crisis, but only in coordinating the response, not in paying for it. He believed the most important thing was to maintain confidence — in the banking system, in the financial markets, in the future. Direct federal relief, he feared, would create a permanent dependency on government. He believed that voluntary cooperation between business, labor, and local governments was the American way.

This philosophy was shared by Andrew Mellon, who argued that the Depression would cure itself if left alone: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” It was shared by Secretary of the Treasury Ogden Mills and by most of the Republican Party establishment. Hoover, however, was the president, and the consensus was tested by the most severe economic crisis in modern American history.

Confidence, Conferences, and the Smoot-Hawley Tariff

Hoover’s first response to the Wall Street Crash was an attempt to maintain confidence. On the day after Black Thursday, October 24, 1929, he issued a statement: “The fundamental business of the country… is on a sound and prosperous basis.” In November 1929, he called meetings with business leaders, asked them to maintain wages and employment, and convened the President’s Conference on Unemployment in December 1929.

The voluntarist response worked, to a degree, in 1930. Wages did not fall as quickly as in previous downturns, and bank failures were modest. But the economy was not recovering, and the Smoot-Hawley Tariff, which Hoover signed on June 17, 1930, made things dramatically worse. The bill, introduced by Reed Smoot of Utah and Willis Hawley of Oregon, raised duties on more than 20,000 imported goods and triggered retaliatory tariffs from Canada, Britain, France, Germany, and other trading partners. World trade fell by about 65 percent between 1929 and 1934. The tariff is widely considered to have deepened the Great Depression. Read the full story of the stock market crash and its aftermath in the economy cluster.

The Federal Farm Board and the Agricultural Crisis

The agricultural crisis was already in its eighth year when Hoover took office. The Agricultural Marketing Act of 1929, signed on June 15, 1929, was his first major legislative achievement. The act created the Federal Farm Board, a federal agency with a $500 million budget to buy agricultural surpluses, lend money to farm cooperatives, and stabilize farm prices. The board was a failure: farm prices continued to fall, and by 1932 it had lost most of its budget.

The Reconstruction Finance Corporation

The Reconstruction Finance Corporation (RFC), created on January 22, 1932, was Hoover’s most important legislative achievement. The RFC was a federal agency with up to $2 billion in capital to lend money to banks, railroads, insurance companies, and other businesses in financial distress. It lent money to institutions, not to individuals. Its most controversial feature was its discrimination: the largest banks and railroads received the most help, and small banks and small businesses received little. The RFC became a symbol of “trickle-down” economics and a target of the 1932 Democratic campaign. It was also the “seed of the New Deal” — adapted by Franklin Roosevelt in 1933 to create the Federal Emergency Relief Administration, the Civilian Conservation Corps, and the Home Owners’ Loan Corporation. It was not abolished until 1957.

The Bonus Army and the Glass-Steagall Act

The Bonus Army — formally the Bonus Expeditionary Force — was a movement of about 20,000 World War I veterans who marched on Washington, D.C., in the spring of 1932 to demand the immediate payment of a bonus promised in 1924 but not due until 1945. The veterans set up camps in Anacostia Flats. Hoover’s response was a disaster. On July 28, 1932, he ordered the Army — under General Douglas MacArthur, with cavalry under Major George S. Patton — to clear the camps. The troops used tear gas, swords, bayonets, and bullets against the veterans; several people were killed. MacArthur, who exceeded Hoover’s orders, was reportedly the proudest man in the world for a few hours. The episode was the most famous political disaster of Hoover’s presidency. Read more about the end of the Roaring Twenties in the related cluster.

The Glass-Steagall Act of 1932, signed by Hoover on February 27, 1932, was the most important banking legislation of his presidency. It separated commercial and investment banking, created the Federal Deposit Insurance Corporation (FDIC), and gave the Federal Reserve new powers to regulate the money supply. The FDIC remains in effect. The act was not enough to prevent the banking panic of 1933, in which 9,000 banks failed in the first three months of the year.

Public Works and the 1932 Election

Hoover supported public works. He had signed the Colorado River Compact of 1922 and the Boulder Canyon Project Act of 1928, which authorized the construction of what would be named the Hoover Dam in his honor — the largest public works project in American history at the time. Public works were not a substitute for direct federal relief of the unemployed.

The 1932 election was a referendum on Hoover’s response. The Democratic nominee, Franklin Delano Roosevelt, attacked Hoover for his austerity and voluntarism, and his campaign coined the phrase “the forgotten man.” Hoover lost in a landslide, carrying only six states: Pennsylvania, Vermont, New Hampshire, Maine, Connecticut, and Delaware. The election was the end of the Republican ascendancy of the 1920s and the start of the New Deal coalition.

The Legacy of Hoover’s Response

Hoover’s response is a study in the limits of voluntarism. The Hoover administration was not as inactive as the popular image suggests — the RFC, the Glass-Steagall Act, the Federal Farm Board, and the public works were significant expansions of federal power. But Hoover was unwilling to use the federal government to provide direct relief to the unemployed, and the result was a depression that was deeper and longer than it needed to be. The New Deal of 1933 was, in significant part, a Hooverian project expanded and made more ambitious — the RFC, the FDIC, the public works, the farm programs — all were Hoover’s ideas, scaled up. The history of the end of the Roaring Twenties and the causes of the Great Depression is the next chapter.

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