Hoover and the Great Depression: What would you have done?

Quite honestly -- I would have likely done the exact same thing that Hoover did.

Your thoughts?

 

So you would have stupidly raised taxes and tariffs and continued government intervention? Because that's exactly what Hoover did. He was an economic liberal or collectivist.

Most people have been duped into believing the Great Depression was caused by a free market. Nothing could be further from the truth. It was government intervention in the market that set the stage for the Great Depression and made it much worse than it would have been otherwise. Here's a brief list of some of the government intervention and regulation in the economy prior to 1929:

The first labor unions, then called federations were active in 1820. National labor union - 1866. American Federation of Labor - 1886. Dept. of Labor, 1913. Dept. of the Interior 1849. Dept. of Agriculture - 1862. Anti-Trust Acts 1902. Dept. of Commerce 1903. Shift from private to state-funded education began in the 1800's. Interstate Commerce Act of 1887. Federal Highway Act of 1916. Air Commerce Act of 1926. The Income Tax and Federal Reserve Act- 1913 (the graduated income tax and centralized bank are both planks of The Communist Manifesto). Also had the estate tax act in 1916. Corporate Tax Act of 1909. Zoning laws and regulations, which the Supreme Court ruled constitutional in 1921. And we had federal ownership of land throughout the history of our country. Contrary to what some might say, this constitutes a heavily regulated and unfree market. This is anything BUT unregulated capitalism.

The Great Depression was caused by government influence in the economy, not unregulated capitalism. Primarily, the Smoot-Hawley Tariff Act - which even a liberal like Al Gore admits was a major factor, the increase of the income tax (the top rate went from 25% to 63%), and the manipulation of credit, specifically the shrinking of the money supply, through the government central bank, the Federal Reserve:

http://www.shambhala.org/business/goldocean/causdep.html


"And, of course, there was the political regime of Franklin D. Roosevelt. To finance government expenditures to pay for his beloved New Deal welfare programs, Roosevelt and his cohorts began printing massive amounts of government notes. To ensure that gold would not expose what they were doing, legal-tender laws were enacted. But that wasn't the worst of it. The Roosevelt people next canceled — nullified — extinguished — every single gold clause in every single contract, public and private.

And even that wasn't the worst of it. Roosevelt and his cronies nationalized — confiscated — the gold coins of the American people and then made it illegal for Americans to own gold. Imagine — after 150 years of the strongest monetary system in history — a system free from government assault — a system that was a bulwark for American liberty — the American people became subject to serving time in a U.S. federal penitentiary for owning a gold coin!

What about the Constitution? What about enumerated powers? Unfortunately, Roosevelt had sufficient cronies on the Court to sustain his policies, especially after his infamous and shameful court-packing scheme."

From: http://www.fff.org/freedom/0596a.asp

 

I see we have a libertarian on the boards. Nice to have you around here. You are slightly misinformed on Hoover's policies and the causes of the Great Depression.

Hoover's first steps were:

(1) formed the Farm Board that lent some $500m to farmers to keep their homesteads, and a commission bought up commodity surpluses.
(2)tax cuts (1930) by 15%
(3) inflate the money supply
(4) and the Hawley-Smoot Tariff that you mentioned where Hoover raised the tariff with a 52.8% ad valorem rate

The first three seem like logical responses to the Depression, but personally, as a free trader, I wouldn't have passed the Hawley-Smoot tariff. My feelings are that he didn't really want to support the tariff increase, but he had to for political reasons.

At any rate, when his initial attempts at solving the Depression failed, he made a last gasp effort with the RFC which lent $2 billion to banks, insurance companies, etc. and the Emergency Relief and Construction Act which gave some $2 billion for direct relief and construction projects.

If you put yourself in Hoover's shoes, I think he made good decisions. Obviously, 80 years later, it's a lot easier to judge and be critical, but honestly, I probably would've taken the same measures he did in the same order.

I like your philsophies, but disagree with you on the causes of the Great Depression.

Here's my take:

(1) Overproduction where supply well outstripped demand which caued a self-perpetuating deflationary spiral that drove down prices, which drove down profits, both of which drove down wages and employment. In my opinion, this was caused by new technologies that overdeveloped, the wage gap and inequitable distribtuon of wealth ("social statification") and buying on credit.

(2) the international situation where (a) the U.S. market sucked up all the capital (not putting it in banks or overseas) (b) Europeans had less buying power (another cause of overproduction) and (c) American companies seeking protectionism.

(3) sector weakenesses in agriculture. housing, cars, and mining/lumber.

(4) bank failures

True -- can't argue with you here. Not a big fan of FDR.

You're right. And the thing is, New Deal didn't even help the American economy. Any progress was halted in 1937 with the "Roosevelt Recession" and the New Deal pretty much ended with the midterm elections of 1938.

Something most people don't know (but you probably do) is that it was actually the mobilization for and execution of World War 2 that brought America out of the Depression.

Glad to have you around here, Truth.

 

You are correct, sir.

Drought and climate were issues, no doubt about it, but this bailout still probably wouldn't have been necessary if the Federal Reserve hadn't totally mismanaged the monetary situation. That was the root cause of the Depression in my opinion.

The new chairman of the Federal Reserve has admitted that it did indeed cause the Great Depression. I'd say such an admission qualifies as "conclusive":

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

If that's accurate, I honestly wasn't aware of it. I'd like to see your source just out of curiousity. However, that doesn't counter my argument because his tax increase totally reversed this action. He made the increases based on liberal/collectivist reasoning, that a tax increase would reduce the deficit, but it just doesn't work like that. What he did was scare the living bejesus out of the producers and entreprenuers in this country. Can you imagine having your tax rate suddenly go from 25% to 63%???? That would put most people into panic mode, even if they were doing well financially. That is a massive tax increase.

Yes, but it was really just a drop in the bucket compared to the later levels during WW2 that finally actually did bring us out of the Depression.

This was a terrible, terrible policy. I prefer tariffs to taxes, and that is the way our government was intended to operate nnder the original intent of the Constitution, but anything over 15% is going to create problems - especially in a world with rapid transit, such as ours.

Well, then what good is he as a principled leader if he compromises his principles? Answer - not much good.

Hoover is certainly not entirely to blame, as the real culprits were enacted under Wilson in 1913 - the Unholy Trinity of the Income Tax, the Federal Reserve Act and an interventionist foreign policy(the last of the 3 was still not much of a factor at that time though).

Those were factors, but I don't think they were the major ones. As for the bank failures, yes, we definitely had an issue with that, but it was a situation in which corruption in government was preventing the proper authorities from taking action and cleaning the mess up before it became a problem, which is one of government's legitimate roles. For more details of that banking history see:

http://www.strike-the-root.com/51/hargis/hargis2.html

Thanks.

 

Fair enough.

I'll try to find a source for it and get back to you.

Well, if you believe in the Laffer Curve which I do then depending on where precisely you lie on the curve, a tax increase could potentially bring in more revenue -- but I understand you're argument.

What I'm saying is that after two years with tax cuts when the economy only continued to worsen, I think that it made sense for him to reverse his course and raise taxes (I think it was with the 1932 Revenue Act).

What I'm asking you to do in this thread is very difficult considering the amount of retrospect that we have, but try to put yourself in his shoes.

Agreed, but I still think that his policy of raising taxes after the tax cuts didn't work made sense, though I likely wouldn't have increased them to the same degree.

True.

True. I said that I don't think this was a good idea and he knew it, but I believe that he all but had to pass this tariff for political reasons.

Indeed.

You're absolutely right.

I didn't necessarily put those factors in order, but I do think that they all constitute the major roots of the Depression.

Will do...

 

It's true, he did raise taxes. I wouldn't make it up. The only reason that I said I would've done the same things as Hoover was because of his initial tax cuts.

http://www.archives.gov/publications/prologue/2004/summer/hoover-1.html

 

I see we're coming to a consensus on most of this, but still, raising taxes as much as he did killed the benefit of any tax cuts he enacted previously. Tax increases don't help an economy - they hurt it. Government always talks in terms of "deficit reduction" but what they always need to do is stop spending and wasting so much.

 

I agree. But I think that after the economy continued its downward spiral after two years of tax cuts, it was a fair move to raise them again.

If you don't mind, I'd like to know how you, a libertarian, feel about Keynsian economics.

 

We'll have to agree to disagree on that.

It's flawed because it's not based on root logic. Again, go back to "other people are not your property." The government has no legitimate authority to infringe on the rights of people who are engaged in peaceful, honest or voluntary transactions/activities. The only time the government has a legitimate role to step into human affairs is if fraud, coercion or violence occur and one person or group of people deprive another person or group of people of their inalienable rights to life, property or liberty.

 

You make good points, but I was referring more to the countercyclical spending aspect of Keynsian economics, where he Keynes advocated a policy of deficit spending your way out of depressions.

 

Much of economics is unnecessary complexity. I always go to the root logic of any matter and ignore the rest if it doesn't coincide with such logic. I find Occam's Razor usually holds true.

Where governments restrict the peaceful, honest and voluntary behavior of people, you will get unintended consequences. The laws of cause and effect can't be cheated. Good intentions will not change the results. Such as, with alcohol Prohibition.

Consider the following:

"A country may be governed with justice,
And a war may be won with cunning,
But people can only be mastered by following them.
How can this be known?
By looking!
The more people are controlled, the poorer they become;
The poorer they become, the more restless they get;
the more restless they get, the more forcefully they are restrained.

When people are forcefully restrained, their defiance becomes ingenious.
And the more ingenious their defiance, the stranger are the things that happen.

Now when strange things begin to happen, laws and regulations become stricter;
Then stricter laws and regulations mean more criminals and fugitives.
Soon everyone is either a criminal or a fugitive,
And no one can untangle the mess.

Therefore,
The sage does nothing and people govern themselves,
Provokes no one and people are peaceful,
Does not interfere and people prosper,
Is without desire and people fulfill themselves.

The more people are controlled, the less contented they become.
But when will leaders understand the significance of this?"

-- Lao Tzu, tr. Ray Grigg; stanza 57-58 (trad.), 20-21 (MaWangTui)

 

I think what caused the Great Depression was the FED decreasing the available money in the market. The made the wrong move, and turned a recession into what resulted. People ran to banks to get their money, and banks called in loans.

 

Hoover gets a lot of heat, he was a good man but he made one serious mistake, his signing the Smoot-Hawley Tariff Act really sealed the deal of the Great Depression. Of course FDR came in and prolonged the depression with his foolish economic policies but that's another story.

 

There are some disturbing items in Hoover's backgound. In the early 1900s he worked in China for British firms and later lived a good while in Britain. He lived there in 1914. Some claim he was a British citizen. H.L. Mencken used to call him "Lord Hoover" and others called him Sir Herbert. A 1931 book "The Strange Career of Mr. Hoover Under Two Flags" by John Hamil detailed his background. The intertwining between the U.S., Britain and China continues to this day. George H. W. Bush was special envoy to China and was knighted by Queen Elizabeth while Clinton was a Rhodes Scholar and tied with many Chinese business interests. Beware of Anglophilia and Sinophilia!

OswaldTheOsprey