Where the classical economists like Adam Smith had argued for uncon-trolled competition between inde-pendent economic units guided only by the invisible hand of supply anddemand, he talked about voluntary national economic planning arisingfrom cooperation between businessinterests and the government. . . .Instead of negative government actionin times of depression, he advocatedthe expansion of public works, avoid-ance of wage cuts, increased ratherthan decreased production—measuresthat would expand rather than con-tract purchasing power.Hoover was also a long-time critic of inter-national free trade, and favored “increasedinheritance taxes, public dams, and, signifi-cantly, government regulation of the stockmarket.”
This was not the program of a devotee of laissez faire, and he was deter-mined to use the Commerce Department toimplement it. As commerce secretary during the 1920–21 recession, Hoover convened conferencesbetween government officials and businessleaders as a way to use government to gener-ate “cooperation” rather than individualisticcompetition. He particularly liked using the“cooperation” that was seen during wartimeas an example to follow for economic crises.In contrast to Harding’s more genuine com-mitment to laissez faire, Hoover began one1921 conference with a call to “do something”rather than nothing. That conference endedwith a call for more government planningto avoid future depressions, as well as usingpublic works as a solution once they started.
Pulitzer Prize–winning historian David M.Kennedy summarized Hoover’s work in the1920–21 recession this way: “No previousadministration had moved so purposefully and so creatively in the face of an economicdownturn. Hoover had definitively made thepoint that government should not stand by idly when confronted with economic diffi-culty.”
Most of Hoover’s ideas were rejectedby Harding, and later by Coolidge, but thepublicity he generated made it quite clear tothe political class and the American peoplethat if he had the power of the presidency,he would not stand idly by in the face of a depression. That Hoover did not get his way might explain why the 1920–21 recession, assteep as it was, was reasonably short and didnot get anywhere near the depth or length of the Great Depression, during which Hoover
able to get his way.In his role as secretary of commerce,Hoover also created a new government pro-gram called “Own Your Own Home,” whichwas designed to increase the level of home-ownership. Hoover jawboned lenders andthe construction industry to devote moreresources to homeownership and he arguedfor new rules that would allow federally char-tered banks to do more residential lending.In 1927, Congress complied and, with thisgovernment stamp of approval, as well as theresources made available by Federal Reserveexpansionary policies through the decade,mortgage lending boomed. Not surprising-ly, this program became part of the disasterof the Depression as bank failures dried upsources of funds, preventing the frequent re-financing that was common at the time, andhigh unemployment rates made the govern-ment-encouraged mortgages unaffordable.The result was a large increase in foreclosures,which also weakened thousands of very smallU.S. banks that were in a precarious situationas a result of laws preventing them from op-erating across state lines and thereby diversi-fying and reducing their risks.
The parallelsbetween Hoover’s program and the similarpolicies of the Clinton and Bush administra-tions in the 1990s and the first decade of the21st century demonstrate his willingness touse government intervention. The real lessonfrom Hoover’s career is the failure of inter- vention, not his supposed laissez faire.
The Hoover Presidency
Hoover did anything but stand idly by