Hoover and the Great Depression, redux

By Steven Horwitz


I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.


Not surprisingly, he's taking a beating in the left-oriented press (see an example from Salon here) from those who simply cannot imagine that Hoover was anything but Rush Limbaugh's spiritual ancestor. The fact that Hoover might have been a significant interventionist, many of whose policies foreshadowed the New Deal, is one their brains simply cannot accept, no matter how much evidence there is. Of course, the fact that Rothbard and Vedder/Gallaway have hammered this point before is not discussed at all.

I have a piece in the next issue of Econ Journal Watch that provides a detailed critique of this AER piece on Hoover and Roosevelt, as well more generally offering a counter-narrative of whole 1929-45 period integrating a bunch of different research. I'll certainly post a link here when it's out, but I did want to include this bit of it as a counter to the Myth of Hoover the Laissez-Fairist:



Eggertsson’s portrayal of Hoover as dogmatically committed to a balanced budget and small government is utterly at odds with Hoover’s personal history and stated beliefs, as well as the actual policies he put into place while president. Hoover’s first major role in government was as head of the Food Administration upon the US entry into World War I in 1917. He leapt into that job with great energy, having long believed that government can and should play a large role in the economy. In 1912, he had supported Teddy Roosevelt and the Progressives for the presidency, and was touted by many, including Franklin Roosevelt, as a potential Democratic presidential candidate in the 1920s. He was a registered Republican, however, and in 1921 accepted a position as Secretary of Commerce under President Harding, a job that he retained through most of the 1920s.

Hoover vowed to turn what was one of the lowest-profile departments of the federal government into a more visible one, specifically by increased interaction with businesses and involvement in economic policy. Donald Stabile (1986) has characterized his views as a desire to “transform the structure of the US economy from one of laissez-faire to one of voluntary cooperation” (819). In her book Herbert Hoover: Forgotten Progressive, Joan Hoff Wilson (1975, 68) summarizes Hoover’s economic views this way:

Where the classical economists like Adam Smith had argued for uncontrolled competition between independent economic units guided only by the invisible hand of supply and demand, he talked about voluntary national economic planning arising from cooperation between business interests and the government… Instead of negative government action in times of depression, he advocated the expansion of public works, avoidance of wage cuts, increased rather than decreased production—measures that would expand rather than contract purchasing power.

When paired with his long-standing antipathy to free trade (65-66), this was hardly the program of a “limited government” or “laissez-faire” dogmatist. Other ideas he championed around this time included “increased inheritance taxes, public dams, and, significantly, government regulation of the stock market” (Rothbard 2008 [1963], 188).

As early as the 1920-21 recession, Hoover was becoming famous for convening conferences with business leaders as a way to use the power of government to generate what he saw as desirable “cooperation” as opposed to individualistic competition. In contrast to Harding’s much more genuine commitment to laissez-faire during that recession, Hoover quickly got busy organizing conferences and relief efforts and exhorting businessmen and the public to bring that spirit of “mobilization” and “spontaneous cooperation” experienced during the war to peacetime economic reconstruction. At one conference on unemployment in September of 1921, Harding opened with remarks committing him to keeping the federal government out of such issues, and yet Hoover followed by expounding the need to “do something.” The conference leaders, with Hoover’s approval, coalesced around a call for more “government planning to combat depressions and to bolster the idea of public works as a depression remedy” (Rothbard 2008 [1963], 192). Historian David Kennedy (1999, 48) describes Hoover’s activism this way: “No previous administration had moved so purposefully and so creatively in the face of an economic downturn. Hoover had definitively made the point that government should not stand by idly when confronted with economic difficulty” (see also Vedder and Gallaway 1993, 67-68).


It remains a fascinating question why the proponents of the New Deal can't see in Hoover the precursor of so much of what the New Deal gave us. His call for maintaining nominal wages in the face of price deflation was a belief he'd held for at least a decade prior to the onset of the Great Depression. That is the Hoover that Americans voted for in 1928! Of course, what the Hoover-Roosevelt policies gave us was mostly disastrous, but to deny the fairly straightforward facts of what Hoover believed and what he did seems to me to be the worst sort of dogmatic "head in the sand"ism. Note that the citations here are not just to free market types. David Kennedy is a liberal and that book won a Pulitzer. Stablile and Wilson are, again, just historians doing their job. Wilson's book and its title are particularly telling here as she lays out the case for her title very clearly. It's not "free market" ideology to argue Hoover was an interventionist; it's good history.

What's even funnier is how the commenters at the Salon piece linked above accuse Ohanian of being a lousy historian and of New Deal critics of ignoring the facts, etc., while stubbornly clinging to an utterly false view of Hoover.

Physicians, heal thyselves.