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In April 1930, he signed a bill that provided $575 million for new roads and asked Congress for an additional $28 million for building bridges.
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Among the public works projects that were launched were the San Francisco Bay Bridge, the Los Angeles Aqueduct, Boulder Dam (later Hoover Dam), and the Grand Coulee Dam on the Columbia River, which the Roosevelt administration later completed. Hoover negotiated with Canada to create the Saint Lawrence Seaway, but construction did not begin until World War II as a war measure.

At the same time, he addressed the problems of mortgage debt and labor market conditions. Hoover called for reforming bankruptcy laws to prevent bankruptcies.
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In 1930, he sought to tighten the labor market by reducing immigration, accelerating deportation of “undesirable” aliens, and urging young people to leave the labor market for school.
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Nor did Hoover neglect the depressed farm sector. His panacea for the depressed agricultural sector was cooperative marketing associations. As president, he signed into law the Agricultural Marketing Act, which created the Federal Farm Board. The FFB sought to hold up prices by persuading cooperatives to keep wheat off the market—indirectly at first, by loans to the cooperatives, and then by buying surplus wheat directly, through the FFB’s National Grain Corporation, later the Grain Stabilization Corporation. The FFB undertook similar programs in the cotton, wool, livestock, dairy, and tobacco industries. These had the perverse effect of encouraging overproduction, and the Roosevelt administration combated price deflation with the opposite policy of encouraging the removal of land from production and the plowing under of crops and slaughtering of livestock.

When the Depression deepened in 1931 and 1932, Hoover departed even further from laissez-faire economic orthodoxy. In international policy, as noted earlier, Hoover declared a moratorium on debt repayments from Britain and France, which was intended to help Germany in its economic troubles. In October 1931, Hoover backed the creation of the National Credit Corporation, funded by banks to help other banks in distress. New York bankers agreed to contribute $500 million to the National Credit Corporation only if Hoover agreed to ask Congress to create something along the lines of the War Finance Corporation of World War I to recapitalize troubled banks.
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The first chairman of the new Reconstruction Finance Corporation (RFC) was Eugene Meyer, the former chairman of the Federal Reserve and a member of the War Industries Board during World War I. By the time that Roosevelt was inaugurated in March 1933, the RFC had issued more than $2.9 billion in loans. More than a billion went to banks, while agricultural credit corporations received nearly $500 million, with $453 million going to state and local governments and $360 million going to the railroads.
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Increasing liquidity, the objective of the establishment of the RFC, was also the purpose behind the creation of the Federal Home Loan Bank Act of July 1932. This created a system of twelve regional home-loan banks to help struggling homeowners and to revive the stricken housing industry by rediscounting home loans. The Hoover administration and Congress also expanded the Federal Farm Loan Bank System, which had been created in 1916.

This kind of large-scale state capitalism, which Hoover only reluctantly supported, marked a departure from his associationalist ideal of self-help by business and banking with moral support from government. What Hoover called the “new individualism” could go up to the edge of an invisible line that only he perceived; if it crossed the line, then in his opinion it became “socialism” or “fascism.” An example of this phenomenon was his reaction to the Swope Plan, a 1931 proposal by Gerard Swope of General Electric for a combination of government-enforced cartelization of industries with mandatory company-based employee-benefit programs like those of GE. The plan was modeled on the War Industries Board of World War I, when Swope had worked with the head of the WIB, Bernard Baruch. The Chamber of Commerce put forth a plan with a similar combination of antitrust revision under government supervision. The liberal writer Stuart Chase, who coined the term “new deal,” called for a Peace Industries Board modeled on the War Industries Board.
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But the addition of an element of compulsion made this version of associationalism intolerable to Hoover, who denounced the Swope plan as “the most gigantic proposal of monopoly ever made in history.”
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HERBERT HOOVER AND “THE BITTER-END LIQUIDATIONISTS”

A central part of Hoover’s program for combating the Depression was to persuade employers not to cut wages. To this end he held conferences with business leaders and barraged them with pleas to maintain wage rates. He boasted, “For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest wages in the world.”
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The British economist John Maynard Keynes approved of the Hoover administration’s policy of defending wage rates.
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Then and later, the naive idea that a policy of allowing wages as well as prices to fall will cure a depression appealed to many who failed to understand that Depression was caused by a collapse of aggregate demand.
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A downward deflationary spiral would reduce wages and prices even further. As wages fell, demand would shrink, leading businesses to cut prices further, while cutting wages further. The reductio ad absurdum of this panacea is an economy in which everyone is employed, nobody is paid, and everything is free. In the real world, long before the cycle of wage and price cuts had gone very far, there would be riots in the streets or the government would be overthrown.

Hoover understood this. In his memoirs, he claimed that Treasury Secretary Andrew Mellon prescribed harsh medicine in November 1929: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
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Whether Mellon actually said this or not is not clear. In public, Mellon repeated the administration’s philosophy in May 1931: “In this country, there has been a concerted effort on the part of both government and business not only to prevent any reduction in wages but to keep the maximum number of men employed, and thereby to increase consumption.”
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Hoover rejected the liquidationist school: “Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom. . . . We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.”
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In light of the tendency of free-market libertarians, at the time and during the Great Recession, to argue that deflation should be allowed to run its course in a depression, it is interesting to note that the influential libertarian economist Friedrich Hayek, in a 1979 interview, agreed that deflation must be stopped by government action: “I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.”
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HOOVER’S POLICY MISTAKES

Hoover anticipated many of the policies of the Roosevelt administration, such as support for maintaining wages, and worked with Congress, sometimes reluctantly, to create some of the institutions that played a central role in the New Deal, such as the Reconstruction Finance Corporation. Hoover wrote that “after coming to the Presidency, almost the whole of Roosevelt’s credit supports were built upon our measures.”
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In 1948, the economist Henry Simons of the University of Chicago wrote: “The N.R.A. [National Recovery Adminsitration] is merely Mr. Hoover’s trust policy and wage policy writ large. The agricultural measures and many other planning proposals are the logical counterpoint and the natural extension of Republican protectionism.”
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Rexford Tugwell, a member of Roosevelt’s brain trust, later said: “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
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This does not mean, however, that the New Deal was merely a continuation of Hoover’s policies. Hoover was right to try to fight deflation, an effort that Roosevelt continued. But Hoover made several basic mistakes that Roosevelt corrected. His most important mistakes were supporting the gold standard and raising taxes dramatically in an ill-timed attempt to balance the budget in 1932.

The gold standard required a country’s central banks to raise interest rates, with contractionary effects on the economy, to prevent the outflow of gold, which served as the basis for the nation’s bank reserves. Following a run on the dollar in 1931, the Federal Reserve, instead of ignoring the gold standard and acting as a lender of last resort to failing banks, worsened the crisis by making credit scarce, in order to prevent an outflow of gold. Eventually, in the spring of 1932, the Fed injected a billion dollars of new money into the economy, after Congress had passed the first Glass-Steagall Act, which lowered the amount of gold the Fed needed to hold to back the dollar. While this helped, it was too little and too late. Only the abandonment of the gold standard by the Roosevelt administration in 1933 gave the government the freedom of action it needed. Britain, which abandoned the gold standard in 1931, suffered less than the United States during the Depression.

Another mistake was Hoover’s support for the Revenue Act of 1932, the most dramatic increase in taxes in peacetime in American history. In his December 1930 address to Congress, Hoover said: “Prosperity cannot be restored by raids upon the Public Treasury.” Hoover supported a mild stimulus in 1929 only because the federal budget was then in surplus. During a depression caused by a collapse of aggregate demand, premature attempts to balance government budgets only contract demand further, by raising taxes and cutting spending. In Hoover’s defense, it should be pointed out that Roosevelt denounced him during the 1932 campaign for doing too little to balance the budget. Although Roosevelt recognized the need to run deficits during his first few years in office, his fiscal conservatism led him to support a premature attempt to balance the budget in 1937, which tipped the United States back into recession.

HOOVERVILLE

Hoover’s greatest failure was not of policy, but of leadership. He had many of the virtues of a great leader but lacked the mysterious quality of charisma. Introverted and reserved, he was incapable of inspiring the American people at a time when hope was most needed.

Federal relief programs might not have cured the Depression, but they would have convinced citizens that the leaders in Washington cared about the millions of unemployed and suffering Americans. Early in the Depression, on February 3, 1930, after rebuking the request of the Conference of Governors for a billion-dollar federal appropriation, Hoover said: “I am willing to pledge myself that if the time should ever come that the voluntary agencies of the country, together with the local and state governments, are unable to find resources with which to prevent hunger and suffering in my country I will ask the aid of every resource of the Federal Government.”
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But even when roughly one in five Americans was unemployed, Hoover rejected more than minimal intervention in the economy by the federal government: “It is not the function of the government to relieve individuals of their responsibilities to their neighbors, or to relieve private institutions of their responsibilities to the public.”
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Hoover continued to insist that relief was a matter for voluntary charities and state and local governments. Only reluctantly did Hoover choose not to wield the veto when Congress, which had been captured by the Democrats in 1930, passed the first federal relief legislation, the Emergency Relief and Construction Act, in July 1932. The act allowed the RFC to provide $300 million in loans to the states that could be used for relief. The act also provided for more public works spending and the creation of regional agricultural credit corporations to lend money to farm cooperatives.

Ironically, Hoover had become a celebrity for his role in administering relief in Belgium during World War I. This “volunteer effort” in fact derived four-fifths of its money from the governments of Britain and France, until the United States declared war in April 1917 and provided all the funding.

Hoover’s attempts to minimize the severity of the Depression were intended to boost business and consumer confidence, but they seemed callous. Homeless men called “hoboes” traveled on freight cars from place to place in search of work or charity. Hoover remarked: “The hoboes . . . are better fed than they have ever been. One hobo in New York got ten meals in one day.”
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Public contempt for the president was expressed in satire. Freight cars were renamed “Hoover Pullmans” and shantytowns for the homeless became “Hoovervilles,” while lesser game animals eaten reluctantly by the hungry, including armadillos and opposums, were “Hoover hogs.” A “Hoover purse” was an empty, turned-out pocket.

A parody of the Twenty-third Psalm was widely circulated:

Hoover is our shepherd

We are in want

He maketh us to lie

Down on the park benches

He leadeth us beside the still factories

He disturbeth our soul

He leadeth us in the path of destruction for his party’s sake