Forgotten Man, The (12 page)

Right away—in November 1929—Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures—a new agriculture department, for example. He asked his secretary of commerce, the man who
held his old job, to establish a national system of cooperation among the states in public works projects. When Congress convened in December, the president called for “the expansion of the merchant marine, the regulation of inter-State distribution of electric power, the consolidation of railroads, the development of public health services, and departmental reorganization for greater economy.”

But this was only the beginning. This time, he thought, perhaps the president could broker the recovery. “Words are not of any great importance in times of economic disturbance,” he announced. “It is action that counts.” The problem with the economy, at least as it was evolving, was mostly a monetary or an international one—Germany was already in depression. Yet at first Hoover focused on fixing it with domestic fiscal tools. And before a year would pass, Hoover had done damage that did matter on three fronts: by intervening in business, by signing into law a destructive tariff, and by assailing the stock market.

First came business. Hoover believed that business spending might make a difference. He thought he might cajole or bully Main Street, the industrial world, and labor leaders into pulling the economy back to recovery. Less than a month after Black Tuesday, on November 19, 1929, he therefore called a conference of railroad presidents in the cabinet room of the White House. Railroads mattered: they were at the time still the principal means of transport for both people and goods across the nation. The president asked the executives to sustain construction. Mellon came to the meeting. Later that week, industry leaders announced they planned a full billion dollars in outlays—an amount equal to more than a third of what the federal government had spent on all its budgeted projects in 1929.

Two days later, November 21, the cabinet room was the site of another meeting, this time of leaders from big industries. The guests included Treasury secretary Mellon, again, Henry Ford, Julius Rosenwald of Sears, Pierre Du Pont, Alfred Sloan Jr. of General Motors, and Julius Barnes, who was chairman of the board of the U.S. Chamber of Commerce. After hearing their views, Hoover did something radical. He noted that “liquidation” (layoffs) had accompanied all previous American recessions and that the federal government had
allowed those liquidations to take place. This time “his every instinct” told him things must be different; wages must stay in place. Otherwise values would be “stepped down”; industry must help to “cushion down” the situation. At the worst, businesses in trouble might reduce hours to share jobs. But the general push must be to keep high wages and keep up employment.

That same day Hoover met with labor leaders including William Green of the AFL and his colleague Matthew Woll, whom Robert Dunn had maligned in the meeting with Stalin. From them Hoover collected an assurance that they would not push for an increase in wages above what was already being negotiated. The next day, the president had the construction industry in; the next morning, November 23, found him telegraphing governors and mayors not to cease public works, but to continue their activities so as to take up the slack in unemployment. Within a week Hoover had held two other conferences, one with national agricultural organizations and one with utility executives—Sam Insull of Chicago attended, though not, as far as we know, Willkie. Historians of the Hoover administration later recorded that everyone agreed with his ideas on the necessity for continued expansion except Insull, “who deprecated all such activities” and wondered aloud whether his industry, at least, was really in trouble. For good measure, Hoover created a temporary bureau to coordinate the expansion of public works among states.

Hoover’s wage ideas sounded good to some. And they were indeed the opposite of federal policies in the last downturn. But they did not really make sense: to force business to go on spending when it did not want to was to hurt business. And in some areas—wages, especially—the president’s policy was dramatically counterproductive. As the crash continued, profits began to drop. Yet businesses could not adjust: if they wanted to be good citizens, they had to keep their pledge to Hoover and sustain employment and wages. The president was, essentially, requiring that companies take the hit in profits instead of employment.

Later scholars would note the effect of the new precedent: wages of those who had jobs stayed the same. But many did not keep their
jobs, or lost cash by being assigned part-time work—Hoover’s job sharing. This was different from 1921, when companies had been able to cover their losses by cutting wages. But there was also, of course, an effect on employers. Their wage costs forced down the value of company shares, aggravating the downturn that Hoover had vowed to fight. Hoover’s humanitarian policy sent a signal nationwide: do not lower wages. In the end, businesses had to choose between lowering wages and shutting down. Often, they shut down.

Some observers would, then or later, note the perversity. Coolidge, who had retreated to his home in Northampton, Massachusetts, the Beeches, would later rail against “these socialistic notions of government.” Tugwell was preparing to pen an acid tract titled “Mr. Hoover’s Economic Policy,” noting that Hoover liked competition, but only in some cases; in others he backed the concept of companies working together. This, Tugwell said, amounted to “a desire to have his cake and eat it too.” Albert Wiggin of the Chase bank argued that Hoover had his logic about wages backward. “It is not true that high wages make for prosperity,” Wiggin would protest at one point. “Instead, prosperity makes high wages.”

But Hoover proceeded, undaunted. He ordered governors to increase their public spending when possible. He also pushed for, and got, Congress to endorse large public spending projects: hospitals, bridges. The president documented meticulously all the positive responses he received from governors and senators when he asked them to increase spending. Among the telegrams came one from Franklin Roosevelt of New York, who wrote that he for his part expected to expand “much-needed construction work” in his state and that construction would be “limited only by estimated receipts from revenues without increasing taxes.” By April 1930 the secretary of commerce would be able to announce that public works spending was at its highest level in five years. At the same time, Hoover went to work on another front: farm prices. These were at painful lows, in part because of production incentive programs advanced by Hoover himself earlier in the decade. The government had lured farmers into overproduction.

There was a monetary element to the problem as well. Looser money or credit policies could have limited the farmers’ problems. So in fact could have more orthodox adherence to the gold standard—giving up sterilization. But Hoover chose to stick to the narrow challenge of price without regard to monetary factors. If farm prices were too low, he would raise them. Strengthening protection might bring them up. Protectionism had in any case been part of the Republican Party platform in 1928, in which the party had reaffirmed the tariff as a “fundamental and essential principle of the economic life of this nation.” And on April 15, 1929, well before the autumn siege, the president had as good as promised a new agricultural tariff: “Such a tariff not only protects the farmer in our domestic market, but also stimulates him to diversify his crop.”

Now, with farmers in need, the tariff idea gained momentum. Lawmakers pushed for it. In the House, the leader was Willis Hawley of Oregon; in the Senate, Reed Smoot of Utah. In the end the legislation called for one of the highest tariffs in U.S. history. The new law made sense on an emotional level: America was in trouble, so America’s domestic producers must be protected with fresh advantage. In the autumn of 1929 it became clear that a large new tariff would indeed pass the Congress—and that it would be up to Hoover whether to sign it.

Still, for the general economy the tariff was bad news. As Benjamin Anderson of Chase Bank would point out in an address the next March, the preceding fifteen years, going back to 1914, had seen an excess of exports over imports of $25 billion. America sold more than it bought in the international arena. Others agreed. A new tariff would shut U.S. sellers off from the world at a time when they badly needed customers. It would deprive foreign governments of trade. It would drive the prices of imports up for consumers at home. It would hurt other nations, nations that the United States hoped would become its markets. It would certainly hurt the worker. It would also, in the long run, hurt the farmer, by offering yet more—and greater—incentives to continue doing something that was uneconomical.

Meanwhile, the horizon darkened further. At the time unemployment data were not collected as they are today, but later analysis
suggests that unemployment went from something like 3 percent in the fall of 1929 to 9 percent by the new year. One of the state officers who did the best job was Frances Perkins, the industrial commissioner in New York. Perkins announced early in the year that joblessness in her state was “very serious”—worse than in fifteen years. Hoover’s labor department blithely told the country that things would normalize, but as
Time
would note in February 1930, “Communists stirred hungry, cold, jobless men and women to demonstrations which required no statistician to interpret.”

Of the problems confronting the economy, the tariff threat seemed most urgent, and easiest to stop. There were disputes, but some said it was the heaviest tariff in American history. Yet Hoover egged the lawmakers on to complete the legislation. In May 1930, one thousand and twenty-eight economists signed an open letter urging the president to veto the tariff legislation—and published the letter in the
New York Times.
Irving Fisher was among them. So was James Bonbright, the expert in utilities finance. And so was Rex Tugwell, whose name came after Bonbright’s on the list. The language of their protest was strong:

 

We are convinced that increased restrictive duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. By raising prices they would encourage concerns with higher costs to undertake production, thus compelling the consumer to subsidize waste and inefficiency in industry. At the same time they would force him to pay higher rates of profit to established firms…. Few people could hope to gain from such a change.

 

The economists went on to predict that “many countries would pay us back in kind.” As for unemployment, they reminded the Republicans, “we cannot increase employment by restricting trade.” They pointed out that farmers, the bloc whom the lawmakers were aiming to please, would also suffer from Smoot-Hawley. “The vast majority of farmers would also lose. Their cotton, pork, lard, and
wheat are export crops and are sold in the world market.” Among the other signators were seven professors from Hoover’s alma mater, Stanford, including the dean of a business school that Hoover had helped to found. Without free trade, the golden passportless world would fade.

Herbert Hoover of Tientsin, China, and Hyde Park, London, should know this. Thomas Lamont of J. P. Morgan was watching his bank shrink; it would lose half its net worth in the Hoover years. “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff,” Lamont recalled.

Washington received 106 wires from forty-nine General Motors overseas officers in fifteen countries. GM’s European director, Graeme K. Howard, sent a telegram whose message was as terse as it was clear:
PASSAGE BILL WOULD SPELL ECONOMIC ISOLATION UNITED STATES AND MOST SEVERE DEPRESSION EVER EXPERIENCED
.

Le Quotidien
in Paris published an editorial entitled “Can Mr. Hoover Limit the Catastrophe Which the American Protectionists Are Preparing?” The daily went on to write that if “the Yankees” brought in a tariff, “there will be nothing for us to do but to resort to reprisals, and that would mean war.” Writing from Paris as well on May 19, the
New York Times
’s Carlisle MacDonald predicted trouble. French prime minister Aristide Briand had proposed a novel idea: a United Europe, including a common market, also then a new thought. The author speculated that such an entity might not like the idea of Smoot-Hawley and would become a “medium for counteraction” at some point.

In the United States there was also another kind of concern—concern that civilized Europe would be lost if the United States did not trade with her. Stalin as a momentary revolutionary was one thing, but now that the Soviet leader was hardening his grip on Russia, many Americans, even some economists, felt alarm. The
Los Angeles Times
announced to its readers that leaders of all religious faiths would hold a protest meeting at the Trinity Auditorium, for, as the paper noted in shock, it was now clear that 70,000 churches,
mosques, and synagogues had been closed in the Soviet Union. “For the first time in history, a nation has undertaken a general crusade against religion,” the
New York Times
wrote, noting that a 1929 Kremlin decree had included a step no one had imagined: forbidding churches to “hold special meetings for children.” There were to be no more church reading rooms. The Bolsheviks had recently demolished the storied Simonov Monastery and replaced it with a so-called Palace of Culture—what was that? On March 7, some 3,500 representatives of all Christian denominations filled the Cathedral of St. John the Divine in Morningside Heights to pray for Russian souls; 3,000 more filled St. Patrick’s in New York’s midtown. With everything else, “few had realized what was going on in Russia,” Bishop Manning told New Yorkers. A number of city leaders were hosting another event, at the Metropolitan Opera, also in the name of pointing out religious persecution in Russia. Among them were Matthew Woll, the AFL leader, and Nicholas Murray Butler, Tugwell’s boss and the president of Columbia.