V. Herbert Hoover's New Deal

The election of 1920 returned the White House to Republican hands with the ascendance of Warren G. Harding to the presidency. Harding served only two years before dying of a heart attack during a political visit to San Francisco. His term was completed by his vice president, Calvin Coolidge, who was then elected to a four-year term all his own. Harding, in his inaugural address, "said that the United States was ready to confer with 'nations great and small' to promote disarmament and any other program that would 'lessen the probability of war.'"³¹⁹ And his foreign policy, and the foreign policies of his Republican successors, Coolidge and Hoover, were noticeably less bellicose than the foreign policy of Woodrow Wilson—or, for that matter, the foreign policy of the GOP's most recent superstar president, Teddy Roosevelt.

In every other respect, however, the Republican administrations of the 1920s were perfectly traditional Republican administrations. "The party now in power in this country," Calvin Coolidge said in 1922, when he was vice president of the United States, "through its present declaration of principles, through the traditions which it inherited from its predecessors, the Federalists and Whigs, through their achievements and its own, is representative of those policies which were adopted under the lead of Alexander Hamilton."³²⁰

The Hamiltonian economic program, as we have seen, is based on tariffs, subsidies to favored businesses, and public works. In 1922, the Harding administration moved "to enact tariff bills restoring the system of protection for manufacturers," though it was necessary to accept "high duties on raw materials and agricultural produce" as part of the price of success in the venture.³²¹ In 1926, according to Murray Rothbard, Coolidge attempted to prop up the domestic cotton industry by awarding "grants totaling $10 million [...] to government-sponsored farm organizations to buy cotton at a certain price." A year earlier, "[a] ddressing the Associated General Contractors of America (a group that stood to gain by a government building program), Coolidge had called for public works planning to stabilize depressions."³²²

What Coolidge called for, Herbert Hoover, Secretary of Commerce under both Harding and Coolidge, implemented. As Paul Johnson puts it, "President Hoover, who had risen to worldwide prominence in the war by managing relief schemes, and had then held high economic office throughout the twenties before moving into the White House itself in 1929, was a born planner, meddler, orderer, and exhorter." Not surprisingly,

Hoover's was the only department of the U.S. federal government which had expanded steadily in numbers and power during the 1920s, and he had constantly urged Presidents Harding and Coolidge to take a more active role in managing the economy. [...] When Hoover finally took over the White House, he followed his own advice, and made it an engine of interference, first pumping more credit into an already overheated economy and, then, when the bubble burst, doing everything in his power to organize government rescue operations.³²³

The policy of "pumping more credit into an already overheated economy"—the policy which caused the economic downturns that seemed to cry out for Hoover's "government rescue operations"—was one that Hoover had inherited from his immediate predecessors in the White House. As Rothbard notes, "[a]n inflationary, low-discount-rate policy was a prominent and important feature of the Harding and Coolidge administrations."³²⁴

And what form did Hoover's "government rescue operations" take? According to William Appleman Williams, he

pulled out every antidepression tool the Progressives ever owned. He first tried, as had Theodore Roosevelt in the Panic of 1907, to coerce and wheedle financial leaders such as Andrew Mellon and Thomas Lamont into underwriting the stock market and thereby stopping the downturn. They lacked both the will and the capital. Hoover then recommended or approved a wide spectrum of recovery measures. The Norris-LaGuardia Act of 1932 established the principle of collective bargaining as the law of the land. The Reconstruction Finance Corporation provided the model as well as one of the key instruments of most New Deal financing of domestic production and overseas economic expansion. Hoover asked also for [...] a $423 million public works program, more credit for farmers, new guarantees for bank deposits, more liberal bankruptcy laws, and direct-relief appropriations.

In sum, Williams argues, "The policies that Hoover did finally employ in his efforts to halt the depression provided the rudiments of [Franklin] Roosevelt's program."³²⁵

Rothbard agrees. He wrote in 1963 that

if we define "New Deal" as an antidepression program marked by extensive governmental economic planning and intervention—including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works)—Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez-faire canons. As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 percent of the labor force.³²⁶

The fact is, according to Rothbard, that Hoover was "the founder of every single one of the features of Franklin Roosevelt's New Deal." ³²⁷ Benjamin M. Anderson saw things in exactly the same way. Anderson was a former economics professor at Columbia and Harvard who served as senior economist for the Chase National Bank of New York City throughout the '20s and '30s, then returned to teaching at UCLA for the last decade of his life. Anderson was at Chase at the time Hoover was implementing his antidepression program. He watched it take shape, occupying a front-row seat. And, again according to Rothbard, Anderson's name for what the president did during the period 1929-1932 was "the Hoover New Deal."³²⁸

Of course, all this flies in the face of most people's understanding of Herbert Hoover. As Rothbard notes,

[t]he conventional wisdom, of historian and layman alike, pictures Herbert Hoover as the last stubborn guardian of laissez-faire in America. The laissez-faire economy, so this wisdom runs, produced the Great Depression in 1929, and Hoover's traditional, do-nothing policies could not stem the tide. Hence, Hoover and his hidebound policies were swept away, and Franklin Roosevelt entered to bring to America a New Deal, a new progressive economy of state regulation and intervention fit for the modern age.³²⁹

On the other hand, as Williams has argued, "[m]ore than any other 20^th Century American's, Hoover's reputation is the product of misinformation and distortion."³³⁰ The "conventional wisdom" described above by Rothbard is certainly an example of "misinformation and distortion," for, as we have seen, the truth of the matter is almost the exact reverse of this picture.

Consider, then, the situation of a traditional American liberal—an advocate of individual liberty, free markets, free trade, and international peace—in late 1932, just after the presidential election. Though the Republican party had held the White House and dominated Congress for most of a century and had done its absolute damnedest to grow the federal government into the sort of leviathan which would make Alexander Hamilton proud, still, the federal government of December 1932 was a tiny, toothless thing by present-day standards. Its capital city of Washington, according to William Manchester, "was a slumbering village in summer, largely forgotten the rest of the year. In size it ranked fourteenth among American cities," which made it about as big and important, relatively speaking, as Columbus or Jacksonville in the America of today. "Most big national problems," Manchester recalls, "were decided in New York, where the money was; when federal action was required, Manhattan's big corporation lawyers—men like Charles Evans Hughes, Henry L. Stimson, and Elihu Root—came down to guide their Republican proteges. President Coolidge had usually finished his official day by lunchtime." His successor, Herbert Hoover, "created a stir by becoming the first Chief Executive to have a telephone on his desk. He also employed five secretaries—no previous President had required more than one—and summoned them by an elaborate buzzer system."³³¹

Still, even the Hoover administration was remarkably compact— again, by present-day standards. As Manchester notes,

Foggy Bottom, the site of the present State Department Building, was a Negro slum. The land now occupied by the Pentagon was an agricultural experimental station and thus typical of Washington's outskirts; "large areas very close to the heart of the nation's lawmak-ing," the Saturday Evening Post observed, "are still in farm hands." The government employed fewer than two thousand foreign service officers. It is an astonishing fact that the Secretaries of State, War, and Navy were all under one mansard roof, across the street from the White House in that ugly, smug mass of balusters, cupolas, and pillared porticoes known today as the Executive Office Building. Indeed, after a fire gutted the President's oval office in 1929, he and his staff had moved in with them and no one had felt crowded.

Moreover, "[t]here was little pomp. [...] If you called on the Secretary of State, he sometimes met you at the door."³³²

In 1932, according to John T. Flynn, there were no federal "subsidies to farmers, [...] handouts to the indigent, [or] support [for] schools." The federal government did not "build hospitals [or] provide medical care."³³³ And though it did undertake national defense, it did so much more cheaply than Americans of today are accustomed to seeing. "The U.S. had the sixteenth largest army in the world" in 1932, Manchester reports, "putting it behind, among others, Czechoslovakia, Turkey, Spain, Romania, and Poland." And most of those in uniform "were committed to desk work, patrolling the Mexican border, and protecting U.S. possessions overseas." What remained to defend the United States from anyone other than Mexico was "30,000 troops—fewer than the force King George sent to tame his rebellious American colonies in 1776." ³³⁴ In constant dollars, this army cost about one-eighth of one percent of what today's military costs the U.S. taxpayer. In 1932, the federal government was seizing less than five percent of our national income, so it had to be a good deal more frugal than the federal government of 2005, which claimed a fraction more than five times that size.

The Great Depression was underway in 1932, of course—had been for three and a half years. Around a quarter of the workforce was out of work, banks were failing, times were hard. And President Hoover had only made matters worse. Flynn saw the "Hoover New Deal" as an effort to virtually nationalize the U.S. economy, an effort "to organize every profession, every trade, every craft under [government] supervision and to deal directly with such details as the volume of production, the prices, the means and methods of distribution of every conceivable product."³³⁵

Fortunately, however, from the liberal point of view, President Hoover had been voted out of office after a single term in the White House. The American electorate had repudiated his approach to fighting the depression and had elected the Democratic candidate, Franklin Delano Roosevelt, a man who stood for small government and fiscal responsibility.