Hoover as Scapegoat

August 17, 1964

In his brilliant and absorbing biography of Herbert Hoover, published on Aug. 10 to celebrate the former President’s 90th birthday, Eugene Lyons is obliged to refer again and again to the incredible smear campaign launched against Hoover in the early months of his Administration and continued long after his exit from public office.

The campaign, under the paid direction of Charlie Michelson, was enormously successful. In his autobiography, Michelson afterward alluded to “the gloomy occupant of the White House whom we referred to as the author of the Depression.” The smear stuck. “The Hoover Depression” became an established phrase. So did “Hoover bread lines” and “Hoovervilles.” The myth got firmly established for a generation that Hoover had thrown the country into a major depression and that Franklin Roosevelt had bailed us out.

THE DOUBLE MYTH

The facts support neither the first nor second half of the myth. The causes of the collapse and world depression that started in October 1929, go back years before Herbert Hoover assumed the Presidency. They are complex. But they can be summarized as cheap-money policies, credit expansion, inflation. And Hoover was among the earliest to combat such policies. In 1925, as Secretary of Commerce, he warned in a letter to one of the Federal Reserve governors against “inflation with inevitable collapse which will bring the greatest calamities upon our farmers, our workers, and legitimate businessmen.” In a New Year’s statement for 1926 he warned against “real estate and stock speculation . . . with inevitable inflation.” One member of the Federal Reserve Board, Adolph C. Miller, who opposed the cheap-money obsessions of his colleagues, testified in an interview published in the magazine Sphere in July 1935:

“The Board knew that Mr. Hoover, from 1926 on, had been protesting that the money policy of the Reserve System was certain to bring about disaster and calamity. Mr. Hoover before and after he took office was struggling desperately to curb credit extravagance. . . . The record will show that he became the victim of a policy that was anathema to him the whole time it was in operation.”

When the Depression started, Hoover made Herculean efforts to stem it. The most fantastic myth of all was that he “did nothing.” A far more plausible charge is that he did too much. True, he made errors. But they were not those for which he is popularly blamed.

MAINTAINING WAGES

The most serious error, in my estimation, was to call together the leaders in business in November 1929, a month after the stock-market break began, and urge upon them the policies of not cutting prices, not cutting wages, and increasing capital outlay. When there has been a collapse in confidence, in demand, and in the money-and-credit supply, there must be some downward adjustment in prices and wages if sales, output, and employment are to be sustained. When, under such circumstances, prices and wages are inflexible in a downward direction, the result can only be spreading unemployment.

But the doctrine of maintaining or even increasing money wage rates, to “increase purchasing power,” has now become New Deal, Fair Deal, Keynesian, Hellerious gospel.

But the great “error” for which the New Dealers, Keynesians, Hellerites, and Fiscal Revolutionists blame Hoover is trying (unsuccessfully) to balance the budget. I doubt that this was an error. In any case none of Hoover’s opponents at the time thought so. On the contrary, it was the deficits and the “spending” that Franklin Roosevelt denounced. The Democratic platform pledged a budget “annually balanced.”

It is constantly forgotten that the worst disasters in the Hoover Administration came in the last four months, after his election defeat and before FDR took office, when Hoover was powerless and FDR refused to deny rumors that he meant to take the country off the gold standard.

The final myth is that Roosevelt stopped the Depression. In his first two terms, chronic deficits were combined with massive unemployment. Only our entrance into World War II “solved” the problem.