The Development of Hoover's Interventionism: Unemployment
Hoover, of course, did not come upon his interventionist ideas suddenly. It is instructive to trace their development and the similar development in the country as a whole, if we are to understand clearly how Hoover could so easily, and with such nationwide support, reverse the policies that had ruled in all previous depressions.
Herbert Clark Hoover was very much the "forward-looking" politician. We have seen that Hoover pioneered in attempts to intimidate investment bankers in placing foreign loans. Characteristic of all Hoover's interventions was the velvet glove on the mailed fist: i.e., the businessmen would be exhorted to adopt "voluntary" measures that the government desired, but implicit was the threat that if business did not "volunteer" properly, compulsory controls would soon follow.
When Hoover returned to the United States after the war and a long stay abroad, he came armed with a suggested "Reconstruction Program." Such programs are familiar to the present generation, but they were new to the United States in that more innocent age. Like all such programs, it was heavy on government planning, which was envisaged as "voluntary" cooperative action under "central direction."[3] The government was supposed to correct "our marginal faults" including undeveloped health and education, industrial "waste," the failure to conserve resources, the nasty habit of resisting unionization, and seasonal unemployment.
Featured in Hoover's plan were increased inheritance taxes, public dams, and, significantly, government regulation of the stock market to eliminate "vicious speculation." Here was an early display of Hoover's hostility toward the stock market, a hostility that was to form one of the leitmotifs of his administration.[4] Hoover, who to his credit has never pretended to be the stalwart of laissez-faire that most people now consider him, notes that some denounced his program as "radical" as well they might have.
So "forward-looking" was Hoover and his program that Louis Brandeis, Herbert Croly of the New Republic, Colonel Edward M. House, Franklin D. Roosevelt, and other prominent Democrats for a while boomed Hoover for the presidency.[5]
Hoover continued to expound interventionism in many areas during 1920. Most relevant to our concerns was the conference on labor-management relations that Hoover directed from 1919 to 1920, on appointment by President Wilson and in association with Secretary of Labor William B. Wilson, a former official of the United Mine Workers of America. The conference which included "forward-looking" industrialists like Julius Rosenwald, Oscar Straus, and Owen D. Young, labor leaders, and economists like Frank W. Taussig recommended wider collective bargaining, criticized "company unions," urged the abolition of child labor, and called for national old-age insurance, fewer working hours, "better housing," health insurance, and government arbitration boards for labor disputes. These recommendations reflected Hoover's views.[6]
Hoover was appointed Secretary of Commerce by President Harding in March 1921, under pressure from the left wing of the Republican Party, led by William Allen White and Judge Nathan Miller of New York. (Hoover was one of the first of the modern breed of politician, who can find a home in either party.) We have seen that the government pursued a largely laissez-faire policy in the depression of 19201921, but this was not the doing of Herbert Hoover. On the contrary, he "set out to reconstruct America."[7] He only accepted the appointment on the condition that he would be consulted on all economic policies of the federal government. He was determined to transform the Department of Commerce into "the economic interpreter to the American people (and they badly need one)."[8]
Hardly had Hoover assumed office when he began to organize an economic conference and a committee on unemployment. The committee established a branch in every state having substantial unemployment, along with subbranches in local communities and mayors' emergency committees in 31 cities.[9] The committee contributed relief to the unemployed, and also organized collaboration between the local and federal governments.
As Hoover recalls:
We developed cooperation between the federal, state, and municipal governments to increase public works. We persuaded employers to "divide" time among their employees so that as many as possible would have some incomes. We organized the industries to undertake renovation, repair, and, where possible, expand construction.[10]
Standard Oil of New Jersey announced a policy of laying off its older employees last, and it increased its repairs and production for inventory; US Steel also invested $10 million in repairs immediately upon conclusion of the conference.[11] In short, the biggest businesses were the first to agree.
Happily, the depression was about over by the time these measures could take effect, but an ominous shadow had been cast over any future depression, a shadow that would grimly materialize when the 1929 crash arrived. Once again, these measures bore the characteristic Hoover stamp; the government compulsion and planning were larded with the rhetoric of "voluntary cooperation." He spoke of these and other suggested measures as "mobilization of cooperative action of our manufacturers and employers, of our public bodies and local authorities." And there came into use the now all too familiar war analogy: "An infinite amount of misery could be saved if we have the same spirit of spontaneous cooperation in every community for reconstruction that we had in war."
While the government did not greatly intervene in the 19201921 recession, there were enough ominous seeds of the later New Deal. In December 1920, the War Finance Corporation was revived as an aid to farm exports, and a $100 million Foreign Trade Financial Corporation was established. Farm agitation against short-selling led to the Capper Grain Futures Act, in August 1921, regulating trading on the grain exchanges. Furthermore, on the state level, New York passed rent laws, restricting the eviction rights of landlords; Kansas created an Industrial Court regulating all key industries as "public utilities"; and the Non-Partisan League conducted socialistic experiments in North Dakota.[12]
Perhaps the most important development of all, however, was the President's Conference on Unemployment, called by Harding at the instigation of the indefatigable Herbert Hoover. This was probably the most fateful omen of antidepression policies to come. About 300 eminent men in industry, banking, and labor were called together in September 1921 to discuss the problem of unemployment. President Harding's address to the conference was filled with great good sense and was almost the swan song of the Old Order's way of dealing with depressions. Harding declared that liquidation was inevitable and attacked governmental planning and any suggestion of Treasury relief. He said, "The excess stimulation from that source is to be reckoned a cause of trouble rather than a source of cure."[13]
To the conference members, it was clear that Harding's words were mere stumbling blocks to the wheels of progress, and they were quickly disregarded. The conferees obviously preferred Hoover's opening speech, to the effect that the era of passivity was now over; in contrast to previous depressions, Hoover was convinced, the government must "do something."[14] The conference's aim was to promulgate the idea that government should be responsible for curing depressions, even if the sponsors had no clear idea of the specific things that government should do. The important steps, in the view of the dominant leaders, were to urge the necessity of government planning to combat depressions and to bolster the idea of public works as a depression remedy.[15] The conference very strongly and repeatedly praised the expansion of public works in a depression and urged coordinated plans by all levels of government.[16] Not to be outdone by the new administration, former President Wilson, in December, added his call for a federal public-works-stabilization program.
The extreme public-works agitators were disappointed that the conference did not go far enough. For example, the economist William Leiserson had thought that a Federal Labor Reserve Board "would do for the labor market what the Federal Reserve Board did for the banking interests." But the wiser heads saw that they had made a great gain. As a direct result of Hoover's conference, twice as many municipal bonds for public works were floated in 1921 and 1922 as in any previous year; federal highway grants-in-aid to the states totaled $75 million in the autumn of 1921, and American opinion was aroused on the entire subject.
It was no accident that the conference had arrived at its interventionist conclusions. As usually happens in conferences of this type, a small group of staff men, along with Herbert Hoover, actually prepared the recommendations that the illustrious front men duly ratified.[17] Secretary of the crucial Public Works Committee of the conference was Otto Tod Mallery, for a long time the nation's leading advocate of public-works programs in depressions. Mallery was a member and guiding spirit of the Pennsylvania State Industrial Board and Secretary of the Pennsylvania Emergency Public Works Commission, which had pioneered in public-works planning, and Mallery's resolutions thoughtfully pointed to the examples of Pennsylvania and California as beacon lights for the federal government to follow.[18]
Mallery was one of the leading spirits in the American Association for Labor Legislation (AALL) an organization of eminent citizens and economists devoted to the promotion of government intervention in the fields of labor, unemployment, and welfare. The Association had held the first national unemployment conference in early 1914. Now, its executive director, John B. Andrews, boasted that the presidential conference's recommendations followed the standard recommendations formulated by the AALL in 1915. These standard recommendations featured public works and emergency public relief, at the usual hours and wage rates the wage rates of the boom period were supposed to be maintained.[19] Neither was the conference's following of the AALL line a coincidence. Aside from Mallery's critical role, the conference also employed the expert knowledge of the following economists, all of whom were officials of the AALL: John B. Andrews, Henry S. Dennison, Edwin F. Gay, Samuel A. Lewisohn, Samuel McCune Lindsay, Wesley C. Mitchell, Ida M. Tarbell, Mary Van Kleeck, and Leo Wolman.[20]
It seems clear that the businessmen at the conference were not supposed to mold policy; their function was to be indoctrinated with the Hoover-AALL line and then to spread the interventionist gospel to other business leaders. Andrews singled out for particular praise in this regard Joseph H. Defrees, of the United States Chamber of Commerce, who appealed to many business organizations to cooperate with the mayors' emergency committees, and generally to accept "business responsibility" to solve the unemployment problem. President Samuel Gompers of the American Federation of Labor (AF of L) also hailed the widespread acceptance by industry of its "responsibility" for unemployment, as an outcome of this conference.
Hoover did his best to intervene in the recession, attempting also to stimulate home construction and urging banks to finance more exports. Fortunately, however, Harding and the rest of the cabinet were not convinced of the virtues of governmental depression "remedies." But eight years later, Hoover was finally to have his chance. As Lyons concludes, "A precedent for federal intervention in economic depression was set, rather to the horror of conservatives."[21]
It is, of course, a sociological law that a government bureau, once launched, never dies, and the conference was true to this law. The conference resolved itself into three research committees, run by a staff of experts, with Hoover in overall command. One project bore fruit in Leo Wolman's Planning and Control of Public Works, a propublic works study published in 1930. A second committee published a study on Seasonal Operation in the Construction Industry, in 1924, in cooperation with the Division of Building and Housing of the Department of Commerce. This work urged seasonal stabilization of construction, and was in part the result of a period of propaganda activity by the American Construction Council, a trade association headed by Franklin Delano Roosevelt. Its foreword was written by Herbert Hoover.[22] The most important project was a study of Business Cycles and Unemployment, published in 1923.
Hoover invited the National Bureau of Economic Research (headed by Wesley C. Mitchell) to make a "fact-finding" study of the problems of forecasting and control of business cycles, and then appointed a Committee on Business Cycles to draft policy recommendations for the report. Chairman of the committee was Owen D. Young, and other members included Edward Eyre Hunt, who had been secretary of the President's Conference, Joseph Defrees, Mary Van Kleeck, Clarence Woolley, and Matthew Woll of the AF of L. Funds for the project were considerately supplied by the Carnegie Corporation. Wesley C. Mitchell, of the National Bureau and AALL, planned and directed the report, which included interventionist chapters by Mallery and Andrews on public works and unemployment benefits, and by Wolman on unemployment insurance. While the National Bureau was supposed to do only fact-finding, Mitchell, in discussing his report, advocated "social experimentation."[23]
Meanwhile, Hoover had not been idle on the more direct legislative front. Senator W.S. Kenyon of Iowa, in late 1921, introduced a bill supported by Hoover, embodying recommendations of the conference and specifically requiring a public-works-stabilization program. In the December 1921 hearings, the Kenyon Bill was supported by numerous leading economists, as well as by the American Federation of Labor, the American Engineering Council (of which Hoover had just been named president), and the United States Chamber of Commerce. One of the supporters was Wesley C. Mitchell. The bill never came to a vote, however, largely due to healthy senatorial skepticism based on laissez-faire ideas.
The next public-works-stabilization bill before Congress was the Zihlman Bill in the House. This was promoted by the National Unemployment League, formed in 1922 for that purpose. Hearings were held in the House Labor Committee in February 1923. Hoover backed the proposal, but it failed of adoption.
Finally, Hoover presented the report on business cycles and unemployment to the Congress, and strongly urged a public-works program in depressions. Later, in 1929, Hoover's Committee on Recent Economic Changes would also support a public-works program.
In 1924, the AALL continued its agitation. It participated in a national conference proposing public-works planning. The conference was called by the Federated American Engineering Societies in January. In 1923, Wisconsin and Massachusetts were persuaded to adopt a stabilizing public-works program. Massachusetts was directly swayed by testimony from the ubiquitous Andrews and Mallery. These state programs were never translated into effective action, but they did indicate the developing climate. In January 1925, Hoover had the satisfaction of seeing President Coolidge adopt his position. Addressing the Associated General Contractors of America (a group that stood to gain by a government building program), Coolidge called for public-works planning to stabilize depressions. Senators George H. Pepper and James Couzens tried to pass public-works-planning legislation in 1925 and 1926, but they failed, along with later attempts by Senator Wesley Jones, who submitted bills that had been drafted in Hoover's Department of Commerce. The Republican Senate was the most recalcitrant, and one Pepper Bill was filibustered to death there. Even favorable reports by its Commerce Committee could not sway the Senate. By this time, not only Hoover and Coolidge, but also Secretary Mellon, the Democratic Party in 1924, and later Governor Alfred E. Smith of New York, had endorsed the public-works program. In May 1928, Senator Robert F. Wagner (D, NY) introduced three bills for comprehensive public-works planning, including the creation of an employment stabilization board, but the plan was not considered by Congress.[24]
After Hoover was elected president, he became more circumspect in presenting his views, but he carried on the fight with renewed vigor. His technique was to "leak" the "Hoover Plan" to trusted associates, who would obviously be presenting Hoover's views. He chose as his vehicle Governor Ralph Owen Brewster of Maine. Brewster presented a public-works plan to the Conference of Governors in late 1928, and waxed eloquent about the plan as designed to "prevent depressions."[25]
His use of the term "Road to Plenty" was hardly a coincidence, for Hoover had adopted the plan of Messrs. Foster and Catchings, which had recently been outlined in their famous book, The Road to Plenty (1928). The authors had submitted the plan to Brewster, and, after Hoover's endorsement, Brewster brought Professor William T. Foster along to the Governors' Conference as his technical advisor. Foster and Catchings, bellwethers of inflation and the bull market and leading underconsumptionists, had been closely involved in the public-works agitation. Foster was director of the Pollak Foundation for Economic Research, founded by investment banker Waddill Catchings. The pair had published a series of very popular books during the 1920s, agitating for such panaceas as public works and monetary inflation.[26]
Although seven or eight governors were enthusiastic about the Hoover-Foster-Catchings Plan, the conference tabled the idea. A large part of the press hailed the plan in extravagant terms, as "prosperity insurance," a "prosperity reserve," or as a "pact to outlaw depression"; while more conservative organs properly ridiculed it as a chimerical and socialistic effort to outlaw the law of supply and demand. It was not surprising that William Green of the AF of L hailed the plan as the most important announcement on wages and employment in a decade, or that the AF of L's John P. Frey announced that Hoover had now accepted the old AF of L theory that depressions are caused by underconsumption and low wages.[27] The press reported that "labor is jubilant, because leaders believe that the next President has found ... a remedy for unemployment which, at least in its philosophy and its groundwork, is identical with that of labor."[28]
The closeness of Foster and Catchings to Hoover is again demonstrated by the detailed account of their own plan that they published in April 1929. In an article entitled "Mr. Hoover's Plan: What It Is and What It Is Not A New Attack on Poverty," they wrote authoritatively that Hoover should wield a stabilization public-works reserve, not of $150 million, as had often been mentioned in previous years, but of the gigantic sum of $3 billion. This plan would iron out prices and the business cycle, and stabilize business. At last, scientific economics was to be wielded as a weapon by an American president: "The Plan ... is business guided by measurements instead of hunches. It is economics for an age of science economics worthy of the new President."[29]
