President Herbert Hoover's Economic Policies
Herbert Clark Hoover was the 31st U.S. president, serving from 1929 to 1933. He rode into power because of his success during World War I and the Roaring Twenties. The recession that started the Great Depression began in August 1929. The stock market crashed in October. The rest of his presidency was consumed with the Great Depression.
Hoover was an advocate of laissez-faire economics. He believed an economy based on capitalism would self-correct. He felt that economic assistance would make people stop working. He believed business prosperity would trickle down to the average person. This philosophy was not effective against the depression. His failure to end it led to his defeat in the 1932 presidential election against Franklin D. Roosevelt and his New Deal.
As a result, Hoover's enduring legacy is tainted by economic near-collapse. Many of his achievements have gone unnoticed. For example, in 1931, he signed a law that made "The Star-Spangled Banner" America's national anthem. A self-made millionaire, he donated his presidential salary to charity. He also saved millions from starvation during the two world wars.
- Herbert Hoover presided as President of the United States during the beginning of the Great Depression.
- He tried to end the Great Depression by using a "laisse faire" approach, but it did not do much to help the economy.
- While Herbert Hoover is often blamed for the Great Depression, many of the reasons the economy collapsed were there before he was elected.
What Did Hoover Do to End the Depression?
Hoover tried many tactics to fight the depression. He encouraged business leaders to keep workers. He gave many public speeches to instill confidence and prevent panic. Hoover did not believe the federal government should fix prices, control businesses, or manipulate the value of the currency. He thought these would lead to socialism.
- In 1929, he cut taxes. He lowered the top rate from 25%-24%.
- In December 1930, he raised it back to 25%.
- In 1930, Hoover vetoed several bills that would have provided direct relief to struggling Americans. “Prosperity cannot be restored by raids upon the public Treasury,” he explained in his 1930 address to Congress. Instead, he protected businesses by signing the Smoot-Hawley Tariff Act. It was supposed to protect farmers but ended up imposing 40% tariffs on 900 products. That year, the nation's gross domestic product fell 8.5%. The unemployment rate was 8.7%.
- In 1931, other countries retaliated with their own tariffs. The resultant trade war reduced international trade by 67%. GDP growth fell 6.4% while the unemployment rate rose to 15.9%.
- In 1932, the economy shrank 12.9%. But Hoover raised the top rate to 63% to reduce the deficit. His commitment to a balanced budget worsened the depression.
- In 1932, Hoover approved the Reconstruction Finance Corporation to prevent more bankruptcies.
- By 1933, it disbursed $2 billion to failing banks, railroads, and a few other businesses. It was effective in keeping them from going under. In July, the Emergency Relief Act empowered the RFC to lend money to states to feed the unemployed and expand public works. He felt that the states should provide for the unemployed. He was opposed to too much federal intervention.
- Hoover signed the Revenue Act of 1932. It increased the top income tax rate to 63%. He wanted to reduce the federal deficit. Hoover believed it would also restore confidence. Instead, higher taxes worsened the Depression. GDP growth fell 12.9% and unemployment was 23.6%.
Did Hoover Cause the Depression?
The causes of the Depression were already in place before Hoover took office. The stock market was volatile. Its value had risen 20% a year since 1924. The number of shares traded doubled to 5 million per day. People were buying stocks "on margin." They only needed to put down 10%-20% and their brokers would lend the rest. When prices rose, they became millionaires. But they become instant paupers when the market crashed.
The Federal Reserve used a contractionary monetary policy to defend the gold standard. Instead, it should have lowered interest rates to fight the recession. In August 1929, the Fed raised the discount rate from 5%-6%. That made loans more expensive right when banks needed cheap funds.
The banking system was unstable. Only one-third of the nation's 24,000 banks belonged to the Federal Reserve banking system. Non-members relied on each other to hold reserves. They were vulnerable to bank runs. That's when depositors rush to withdraw their savings. Banks only hold 10% of all deposits, so they can lend out the rest.
Banks held fictitious reserves. Checks were double-counted by the sending bank and the receiving bank, which counted them before they had cleared.
In 1930, the Bank of Tennessee failed. That led to the failures of affiliate banks in the next few days. By the end of the year, 1,300 banks had failed. As banks failed, it reduced the money supply because there was less credit available. That meant each dollar was worth more. As the value of the dollar rose, prices fell. That reduced revenue for businesses. Higher interest rates meant that debt now cost more for lenders to pay back. That created a ripple effect of personal and business bankruptcies.
Hoover could do little to stop the Dust Bowl drought, another major cause of the Depression. It was a 10-year drought that affected 23 states from the Mississippi River to the mid-Atlantic region. It was the worst drought in 300 years. As crops failed, farmers could not produce enough to eat. Hoover asked the Red Cross to help. It supplied $5 million for seeds. As the crisis worsened, Congress appropriated $45 million for seed and $20 million for food boxes. But the drought was so bad that it didn't really help. The only crop that would grow was turnips.
Hoover should have lowered taxes more than he did. He definitely shouldn't have raised them. His concern for balancing the budget, though commendable, was ill-timed. He shouldn't have imposed trade-destroying tariffs. But his response did not cause the Great Depression.
Why Hoover Was Blamed
People wrongly blame Hoover for the depression because it occurred after he took office. In 1930, unemployment rose, the Dust Bowl destroyed farms in the Midwest, and people lost their homes. Many traveled to California, where they thought they could find work. Instead, they lived in their cars or in shanty-towns that became known as Hoovervilles.
People attached Hoover's name to many of the signs of the newly-destitute. "Hoover blankets” were the newspapers used to cover the homeless in the winter. “Hoover flags” were the empty pants pockets pulled inside out to show the lack of money. “Hoover leather ” was the cardboard that replaced worn-out soles of shoes. “Hoover wagons” were the cars pulled by horses because gas was too expensive.
In 1932, thousands of World War I veterans set up a Hooverville in Washington, D.C. They asked for early payments of promised government bonuses. The government refused, claiming budget restriction. When the veterans refused to leave, Hoover sent in the Army. Troops set fire to the Hooverville and drove the group from the city with bayonets and tear gas. This further turned the population against Hoover.
Hoover and the Debt
The Depression destroyed Hoover's hopes of balancing the budget. Hoover added a $1 billion surplus in 1930, but that didn't last. By the end of his term, he added $6 billion to the debt, a 33% increase.
Hoover's Early Years
Hoover was born in Iowa in 1874. He was the first president born west of the Mississippi. He was orphaned by the time he was nine. He was separated from his siblings and sent to live with an uncle in Oregon. He received an engineering degree from Stanford University's inaugural class. He was so poor he lived in the construction workers' barracks.
Hoover's poverty gave him the drive to succeed. As a mining engineer, he traveled the world to locate mineral deposits. He started his own company and soon had businesses throughout the world.
His early adversities also made him a kind-hearted man. While working in China in his first job, he risked his life rescuing Chinese children during the Boxer Rebellion. He helped get stranded tourists home during the outbreak of World War I and helped feed 9 million Belgians. This gave him the deserved reputation of a humanitarian.
During World War I, President Woodrow Wilson made Hoover the head of the Food Security Administration. Hoover fed the troops without resorting to rationing at home. After the war, he headed the American Relief Administration where he fed 15 million famine-stricken people in eastern Europe and the Soviet Union.
Hoover was the Secretary of Commerce under prior Presidents William G. Harding and Calvin Coolidge. In 1927, he appeared in the first American demonstration of television.
In 1928, he became the Republican presidential nominee. He ran against Al Smith, a New York Democrat supported by FDR. But Smith was the nation's first Catholic presidential candidate, which triggered demonstrations by the Ku Klux Klan. He also supported the repeal of Prohibition, which made many believe he was an alcoholic. Hoover ran and won on the theme of the nation's prosperity during the Roaring Twenties. His campaign slogan was "A Chicken for Every Pot."
As president, Hoover received a $75,000 salary. It would be worth $2.1 million today. Hoover divided his salary between various charities. He also gave some to his staff. Hoover's net worth was around $4 million in 1913, worth $103 million today.
After Leaving Office
Hoover became the scapegoat for the Depression and was badly defeated in 1932. He criticized the New Deal as fascist because it made the federal government too powerful.
During World War II, FDR appointed Hoover to send food relief to German-occupied nations. He opposed entry into the war, especially the use of the atom bomb.
In 1946, President Truman appointed Hoover to coordinate efforts to prevent a global famine. In 1947, he chaired a commission that strengthened Truman's Executive Departments. In 1955, he chaired a similar commission for President Eisenhower.
Hoover was an outspoken critic of U.S. military intervention overseas. He thought military spending would bankrupt America. Given that $2 trillion has been spent on the War on Terror, he could be right.
Hoover wrote a three-volume autobiography of his life through 1941. He also published four volumes of presidential papers and eight volumes of speeches. His other popular books include "American Individualism," "The Challenge to Liberty," "The Ordeal of Woodrow Wilson," "Business Cycles and Unemployment," and "Freedom Betrayed." In 1964, he died at 90 of colon cancer.
Other Presidents' Economic Policies
- Donald J. Trump (2017 - 2021)
- Barack Obama (2009 - 2017)
- George W. Bush (2001 - 2009)
- Bill Clinton (1993 - 2001)
- Ronald Reagan (1981 - 1989)
- Jimmy Carter (1977 - 1981)
- Richard M. Nixon (1969 - 1974)
- Lyndon B. Johnson (1963 - 1969)
- John F. Kennedy (1961 - 1963)
- Harry Truman (1945 - 1953)
- Franklin D. Roosevelt (1933 - 1945)
- Woodrow Wilson (1913 - 1921)