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Herbert Hoover: Father of the New Deal, Cato Briefing Paper No. 122

Herbert Hoover: Father of the New Deal, Cato Briefing Paper No. 122

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Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington ... we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."

Hoover's big-spending, interventionist policies prolonged the Great Depression, and similar policies today could do similar damage. Dismantling the mythical presentation of Hoover as a "do-nothing" president is crucial if we wish to have a proper understanding of what did and did not work in the Great Depression so that we do not repeat Hoover's mistakes today.
Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington ... we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."

Hoover's big-spending, interventionist policies prolonged the Great Depression, and similar policies today could do similar damage. Dismantling the mythical presentation of Hoover as a "do-nothing" president is crucial if we wish to have a proper understanding of what did and did not work in the Great Depression so that we do not repeat Hoover's mistakes today.

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Published by: Cato Institute on Sep 28, 2011
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by 
 M.
 
 Herbert Hoover
 Father of the New Deal 
by Steven Horwitz
Steven Horwitz is the Charles A. Dana is professor of economics at St. Lawrence University and affiliated senior scholar at the Mercatus Center at George Mason University.
No. 122
Politicians and pundits portray HerbertHoover as a defender of laissez faire governancewhose dogmatic commitment to small govern-ment led him to stand by and do nothing whilethe economy collapsed in the wake of the stockmarket crash in 1929. In fact, Hoover had longbeen a critic of laissez faire. As president, he dou-bled federal spending in real terms in four years.He also used government to prop up wages, re-stricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruc-tion Finance Corporation—all interventionistmeasures and not laissez faire. Unlike many Democrats today, President Franklin D. Roo-sevelt’s advisers knew that Hoover had startedthe New Deal. One of them wrote, “When weall burst into Washington . . . we found every essential idea [of the New Deal] enacted in the100-day Congress in the Hoover administra-tion itself.”Hoover’s big-spending, interventionist poli-cies prolonged the Great Depression, and simi-lar policies today could do similar damage. Dis-mantling the mythical presentation of Hooveras a “do-nothing” president is crucial if we wishto have a proper understanding of what didand did not work in the Great Depression sothat we do not repeat Hoover’s mistakes today.
September 29, 2011
Executive Summary
 
Cato Institute1000 Massachusetts Avenue,N.W. Washington,D.C.20001(202) 842-0200
 
2
Introduction
 As the Great Recession threatens to be-come the Little Depression, the comparisonsbetween the U.S. economy today and that of the 1930s continue to proliferate. The ex-pansion of activist government policy thatbegan with the Bush administration andthat has been pursued even more vigorously by the Obama administration has invitedcomparisons to the New Deal legislation of Franklin Delano Roosevelt. The objectionsraised to the use of aggressive fiscal andmonetary policy to deal with the stagnanteconomy have invited comparisons as well,namely to the Herbert Hoover presidency of 1929–33. Many in the media have tried todiscredit the arguments made by free-mar-ket economists and other critics of Keynes-ian policy recommendations by claimingthey are modern-day Hoovers, who wish todo nothing in the face of an economic cri-sis. From Paul Krugman to Rachel Maddow to dozens of others on TV or the Internet,Hoover is seen as a defender of laissez fairewhose dogmatic commitment to small gov-ernment led him to stand by and do noth-ing while the economy collapsed in the wakeof the stock market crash in 1929. In theireyes, the modern-day Tea Parties and theacademics and intellectuals who agree withtheir criticism of activist government are re-peating the mistakes of the Hoover admin-istration and delivering us to a repeat of theGreat Depression.The critics of laissez faire are right aboutone thing: Herbert Hoover deserves a gooddeal of blame for turning what would havemost likely been a steep but short recessioninto a much deeper and eventually muchlonger Great Depression. Everything elseabout Hoover, however, they have wrong.The version of Hoover presented in themedia’s narrative of Hoover as champion of laissez faire bears little resemblance to thedetails of Hoover’s life, the ideas he held, andthe policies he adopted as president. In fact,Hoover
rejected
laissez faire early in his lifeand much of his career was spent workingin government and using the state to solvesocial problems, including reducing unem-ployment during recessions. When facedwith an economic crisis only months intohis presidency, his actions were completely consistent with his well-established views:he expanded the role of government signifi-cantly in order to fight the Depression. Hewould be more accurately portrayed as thefather of the New Deal, not its enemy. Theresult, unfortunately (but not surprisingly),was to fan the flames rather than successful-ly fighting the fire. Dismantling the mythi-cal presentation of Hoover as a “do-noth-ing” president is crucial if we wish to have a proper understanding of what did and didnot work in the Great Depression so that wedo not repeat Hoover’s mistakes today.
Hoover’s Early Career
Hoover began his career as a very suc-cessful engineer, and he desired to bringthe engineering mentality to government.He thought that the engineer’s focus on ef-ficiency could enable government to play a larger and more constructive role in theeconomy. He was a supporter of Teddy Roo-sevelt and the Progressives in the 1912 presi-dential election and, by 1917, he had his owngovernment job as head of the wartime Food Administration, working to reduce Ameri-can food consumption, which is not theproject one would expect of a free marketeer.His work there was lauded and many Demo-crats, including FDR, saw him as a potentialpresidential candidate for their party in the1920s. He remained a registered Republican,however, and for most of the 1920s servedas secretary of commerce under PresidentsWarren Harding and Calvin Coolidge.Hoover had long believed that it was nec-essary to “transform the structure of the U.S.economy from one of laissez-faire to one of  voluntary cooperation.”
1
In her biography 
 Herbert Hoover: Forgotten Progressive
JoanHoff Wilson summarizes Hoover’s economic views this way:
2
 
2
The version of Hoover presentedin the media’snarrative of Hoover aschampion of laissez faire bearslittle resemblanceto the details of Hoover’s life, theideas he held,and the policieshe adopted aspresident.
 
3
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.”
3
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.
4
 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.”
5
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
was
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.
6
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 
 
3
The real lessonfrom Hoover’scareer is thefailure of intervention, nothis supposedlaissez faire.

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