Good Day to each of you reading this column on the Great Depression.
Let’s recap that the Stock Market had crashed, $40 billion dollars was lost in sixty-four days of the stock market collapse and nine thousand banks closed causing massive panic, no money and massive unemployment.
Nine thousand banks and countless people who could not retrieve their money from the bank. Where could the people turn and what help could the Government provide and what role did the Federal Reserve play in the Great Depression.
The chain reaction had begun—look at what ThoughtCo.com says– With people’s investments worthless, their savings diminished or depleted, and credit tight to nonexistent, spending by consumers and companies alike ground to a standstill. As a result, workers were laid off en masse. In a chain reaction, as people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans; repossessions and evictions were commonplace. More and more unsold inventory began to accumulate. The unemployment rate rose above 25%, which meant even less spending to help alleviate the economic situation.
This did not happen overnight for the “roaring 20’s” produced mass production and over production for many businesses. Many businesses in this period were overproducing to the point of selling goods at a loss to create capital. Remember “Silent Cal”, President Calvin Coolidge, who did nothing to help the farmers by vetoing two bills. Keep this in mind, for the farmers, were buying more machinery to produce more food.
The farmer, during World war 1, went into full production, buying and producing more and adding more debt to themselves by more machinery and land. The war ended and farmers kept right on producing more and more and more until supply overtook demand and the farmers had to sell at a loss as land, crops and industrial machinery took a nose dive.
Demand, in the roaring 20’s, caught up with and overtook supply in both the industrial and agriculture fields only to result in debt, over-extended and decimated profits.
The roaring 20’s ended abruptly as unemployment would reach almost 25% by 1933. Small business closed, large businesses cut employees and production drastically, and consumers were in over their head financially.
Many banks were closed, money was in limited supply and inflation had begun to creep in. People could not make their mortgage payments, car payments, electric, water nor food payments.
The President, Herbert Hoover, where was he and what steps did, he take to help the American people? The information came directly from the Herbert Hoover Presidential Library and National Archives beginning in 1929:
The 1920s were a period of optimism and prosperity – for some Americans. When Herbert Hoover became President in 1929, the stock market was climbing to unprecedented levels, and some investors were taking advantage of low interest rates to buy stocks on credit, pushing prices even higher. In October 1929, the bubble burst, and in less than a week, the market dropped by almost half of its recent record highs. Billions of dollars were lost, and thousands of investors were ruined.
After the stock market crash, President Hoover sought to prevent panic from spreading throughout the economy. In November, he summoned business leaders to the White House and secured promises from them to maintain wages. According to Hoover’s economic theory, financial losses should affect profits, not employment, thus maintaining consumer spending and shortening the downturn. Hoover received commitments from private industry to spend $1.8 billion for new construction and repairs to be started in 1930, to stimulate employment.
The President ordered federal departments to speed up their construction projects and asked all governors to expand public works projects in their states. He asked Congress for a $160 million tax cut while doubling spending for public buildings, dams, highways, and harbors.
Praise for the President’s intervention was widespread; the New York Times commented, “No one in his place could have done more. Very few of his predecessors could have done as much.” Together, government and business spent more in the first half of 1930 than in the entire previous year. Still consumers cut back their spending, which forced many businesses and manufacturers to reduce their output and lay off their workers.
In October 1930, with unemployment rising, Hoover created the President’s Emergency Committee for Employment (PECE) to coordinate state and local relief programs, and to develop methods for increasing employment in the private sector. But with no direct control of funding for relief or jobs, PECE had only limited success.
As the Depression worsened, Hoover requested that the Federal Reserve increase credit, and he persuaded Congress to transfer agricultural surpluses from the Federal Farm Board to the Red Cross for distribution to relief agencies. Hoover asked Congress for even more spending on public works, and he continued to encourage states and private businesses to generate new jobs.
Economic conditions improved in early 1931 until a series of bank collapses in Europe sent new shockwaves through the American economy, leading to additional layoffs. In August 1931, PECE was reorganized as the President’s Organization on Unemployment Relief (POUR). POUR expanded on PECE’s work but also implemented a national fund drive for unemployment relief. The national fund drive raised millions of dollars but proved to be woefully inadequate as unemployment soared to record levels.
Hoover was criticized for almost every program he proposed. His public works projects, designed to create jobs, were characterized as wasteful government spending. His efforts to promote local relief programs, rather than asking Congress to create nationwide relief programs, were viewed as callous disregard for the unemployed.
On January 22, 1932, Hoover established the Reconstruction Finance Corporation (RFC) to make emergency loans to businesses in danger of default. At first the RFC lent money only to banks, railroads, and certain agricultural organizations, but the scope of its operations was later expanded, and it proved to be an effective tool for stabilizing business and industry. In July 1932, Hoover signed into law the Emergency Relief Construction Act, which allowed the RFC to lend $300 million to the states for relief programs and $1.5 billion for public works projects. Hoover also persuaded Congress to establish Federal Home Loan Banks to help protect people from losing their homes.
By the summer of 1932, the Great Depression had begun to show signs of improvement, but many people in the United States still blamed President Hoover. With the Presidential election approaching, the Democratic candidate, New York Governor Franklin D. Roosevelt, exuded hope and optimism, and promised the people a “New Deal.” Hoover, defending his record, came across as pessimistic and defeated. In November, Roosevelt won in a landslide.
Four long months intervened between the election and Roosevelt’s inauguration. Economic signs that had looked so promising in the summer of 1932 trended downward, unemployment went up, and banks failed at an alarming rate. As weak banks closed their doors, nervous depositors began withdrawing cash from even the soundest banks, but Congress refused to enact Hoover’s plans to stem the panic. When Roosevelt was inaugurated on March 4, 1933, the banking system was near total collapse, and unemployment had reached 25%. Within days, Congress passed and FDR signed into law the Emergency Banking Relief Act, which stemmed the panic and restored confidence in the financial system – and was almost identical to legislation Hoover had proposed weeks before. Despite all the efforts of Roosevelt’s “New Deal,” the Depression persisted seven more years, until World War II stimulated the economy with increased demand for commodities and war materials.
President Hoover viewed by various historians and economists was a believer in minimal government intervention. When searching further and using the article from the Gilder Lehman Institute of American History concerning Herbert Hoover and the Great Depression the following article came to light:
As the Depression became worse, however, calls grew for increased federal intervention and spending. But Hoover refused to involve the federal government in forcing fixed prices, controlling businesses, or manipulating the value of the currency, all of which he felt were steps towards socialism. He was inclined to give indirect aid to banks or local public works projects, but he refused to use federal money for direct aid to citizens, believing the dole would weaken public morale. Instead, he focused on volunteerism to raise money. Hoover’s opponents painted him as uncaring toward the common citizen, even though he was in fact a philanthropist and a progressive before becoming president. During his reelection campaign, Hoover tried to convince Americans that the measures they were calling for might seem to help in the short term, but would be ruinous in the long run. He asserted that he cared for common Americans too much to destroy the country’s foundations with deficits and socialist institutions. He was soundly defeated by Franklin D. Roosevelt in 1932.
Herbert Hoover provided too little too late as the president for, as in the article above, refused to use federal money for direct aid to citizens. But wait, the blame should not be placed solely on Herbert Hoover for the Federal Reserve has played a major role in the Great Depression.
In the next column, we will explore the role of the Federal Reserve and the impact upon the world.