Herbert Hoover: March Toward Reactionary, Part Two

During his lifetime, Herbert Hoover marched from moderate progressive toward a position on the solid political right; that is, he became something of a reactionary. I say "something of," because it is difficult to actually tell what Hoover truly believed at times, as in my opinion, he lived in a bit of a dream world where his words were often in denial of the actions he had taken. That dream world consisted of the American system which he had come to idealize; the system he had lived in and prospered in for his life up to the point of the Great Depression. It was a system of neighborliness, of voluntarism, of cooperation to help others, and it was a system where private business ruled, but where private business also needed a bit of government regulation to keep a check on ruthless exploiters (Hoover had been a supporter of progressive reformer Teddy Roosevelt). Hoover had been overseas a good part of his adult life, so he had seen many other parts of the world, including Europe during and after World War One. He had seen powerful rulers suppress their people and he had seen the absolute horrific results of  (then) modern warfare. He returned to the United States to serve in Woodrow Wilson's administration during America's time in the war, only to leave for Europe after the war to help feed starving Europeans and to sit in on the peace conference that officially ended the war. He came back home and took a position in Warren Harding's administration as Secretary of Commerce, which then led to his own successful run for the presidency. Wherever he served he had been known for his tremendous energy and his organizational abilities. Now to continue with some of the actions he took during the Great Depression, especially with the Reconstruction Finance Corporation from "Part One." (For those who need a refresher about the first part, or for new visitors, click here for "Part One:" http://pontificating-randy.blogspot.com/2013/06/herbert-hoover-march-toward-reactionary_15.html

Hoover's Reconstruction Finance Corporation (RFC) had some success in 1932, and the economy actually saw a mild tick upwards and confidence improved a great deal as the number of bank failures dropped dramatically, but confidence could not put food on the table nor money into empty pockets, and the economy continued in its depressed condition, with high unemployment. Franklin Roosevelt used the RFC much more than Hoover, as FDR wasn't as dogmatic in his approach to getting money into the economy as the methodical Hoover, and parts of the RFC were made into separate agencies under Roosevelt, like the Public Works Administration (PWA), for instance. Hoover and Congress expanded the RFC in mid 1932 to include aid to strapped states to help the unemployed and poor, an idea finally embraced by Hoover, as he belatedly admitted that private charities and state and local governments could not cope with the extent of the increasing poverty. The expanded RFC, besides its original purpose primarily to shore  up struggling banks, was also to provide loans for state and local public works projects and loans to agricultural entities, with the ultimate goal that all of this would generate employment to give the economy a boost toward recovery. The public works projects had to have some means of raising money on their own to help guarantee the repayment of the loans, as well as provide for continued operation and maintenance after they were built, so this was not a program where people were to be put to work digging ditches without purpose. Two of the problems with the program were, Hoover and his administration put limitations on the RFC by having the government charge higher interest rates than private loan institutions, so as not to compete with them, but the whole point was, the loans were NOT being provided by private lending institutions anyway, as they were generally holding onto their cash, and the main economic problem was not the lack of loans for businesses to expand, but a lack of demand by strapped consumers, the solving, or partial solving, of which would have created demand, which then would have led to a true demand for loans by businesses to expand production and to hire more workers. Second, the administration set the terms requiring loans to be repaid within the atypically short period of ten years. Hoover would not agree to use any of the money as "grants," only as "loans," and that mentality had the RFC giving close scrutiny to applications, fearful that the money could not be paid back. This meant that applicants faced almost the same requirements from the RFC as they faced from private bankers, but at a higher interest rate! Needless to say, applications were often sparse for many things and the process of approving the applications that were made took a good deal of time. Further, as the Obama administration found out early on, getting most projects mapped out, applied for, engineered and tweaked, took time, thus few projects were even approved or underway by the time Hoover left office in March 1933, with the "glory" then going to FDR as the projects finally started.*

Much the same happened with the relief expansion part of the RFC, as Hoover's administration made each state go through a pretty rigid approval process to show that the state had indeed exhausted its funds and had done all it could to help its own unemployed and poor. Even after jumping through the hoops, some states were given paltry sums compared to their actual needs. This all left many Americans embittered and angry at Hoover, but again, this was typical Hoover, where method was something of a result in itself.** In fairness, this was all new to America and Hoover deserves credit for making the changes, limitations or not, as without his having done all of this beforehand, FDR would likely have had a more difficult time, as Hoover's term showed that past policies didn't work, and that Hoover's new policies were too limited or too cumbersome to effectively halt the decline or bring about recovery, but that these new policies had promise, if they weren't hamstrung by the administration. The Roosevelt administration used the RFC to far better service right up through World War Two than did Hoover, even though it was Hoover's creation.

While a large number of banks had collapsed throughout the 1920s, with far higher numbers during the Great Depression, one of the enduring legacies of the Great Depression was the national panic during the waning days of Hoover's term in office. In 1932 the RFC had bolstered a number of banks, and while some banks still failed, including some that had received aid, the banking system appeared to have stabilized. Most of the failed banks came from generally rural areas, but failures in smaller cities had increased. The appearance of stabilization was all an illusion, as general business conditions were very depressed and, as unemployment remained high, many Americans had little or no money to become the consumers American businesses needed to prosper. Farming communities were very hard pressed, as were urban industrial centers. All of this was bound to have dire consequences for the American banking system.

Receiving loans from the RFC turned out to be a double-edged sword, as Congress mandated that the RFC turn over periodic lists of recipient banks to them. The names of the banks were at first to remain out of the public domain. The idea was, if you heard that your bank had received RFC money, you might very reasonably assume that your bank had been in trouble, and might still be in trouble. This could then prompt you and other depositors to run to the bank to withdraw deposits and this would then bring about a possible failure of that bank. Well Congress, unhappy with some loans, wanted the names of the banks made public, and while it didn't exactly cause a panic, it made many a depositor of these banks nervous. At first though, with the banks seeming to have stabilized, it didn't cause much of a stir, but that would change. Further, some banks in need of help "may" have forgone seeking RFC help for the fear of their public image.

Franklin Roosevelt convincingly defeated Hoover in the 1932 election, but the very fact that a change in administrations was coming made some uneasy, as FDR had tried to steer clear of a commitment to any specific policies during the campaign. In those times, presidents were sworn into office on March 4, not January 20, as today, and during such an economic meltdown this extra period of time just served for even more calamity, with a politically defeated outgoing administration still in power, and a politically victorious new administration waiting to take the reins of power. In the interim period, Hoover tried to get Roosevelt to commit to certain economic policies, essentially Hoover's policies, something FDR would not do (correctly, as the country had just overwhelmingly rejected Hoover). This likely contributed to the uncertainty and shakiness of early 1933, but it was also not the primary cause of the banking crisis, as Hoover conveniently later said. Hoover was the last president to take office in March, as the amendment (the 20th Amendment)  to change the inauguration of presidents to January 20 was ratified in early 1933.
   
One of the industrial powerhouses of the nation was Detroit, where the auto industry had taken a major hit from the Great Depression, with a large percentage of production shut down. With prolonged high unemployment the Detroit banks suffered accordingly. In early 1933, a couple of large Detroit banks were on the verge of collapse and the RFC stepped in to to help, also seeking assurances from none other than large depositor Henry Ford that he would remain a depositor of the banks, something to which he would not commit. The fear that Ford would withdraw his money from the banks prompted the governor of the state to declare a bank holiday to head off the collapse. The news shook the country and other states began to follow suit in closing their banks for a time. The whole situation caused panic, as Americans, terrified they would lose their money (remember, no deposit insurance back then) or not have access to needed funds, raced to their banks before they were shut out. With many banks closed by their states and Americans so fearful of losing their money, spending dried up even more, sending the economy into another plunge.

There will be one more part ....       
 
* The "stimulus bill" passed very early in the Obama administration was to provide funding for many "shovel ready projects." The President later lamented there weren't many such projects available, as again, states and local governments had basic plans they wanted to develop, if and when they got the money, but then actually preparing those plans to go forward with firm architectural and engineering designs, public hearings (many cites and states require public hearings on such plans), modified zoning (if needed), any new roads or other infrastructure needed to support the project and the proper contracts, took much more time than "shovel ready." Someone didn't read or know their history, because Hoover's administration suffered from the same problem in 1932, with many projects terribly delayed and a demanding public furious that everything took so long.

** When Hoover was administering food programs in Europe during and after World War One, the overhead for such programs was astoundingly small and his vaunted "efficiency" was seen as an example of how to help people, but with almost all of the funds going directly to those in need and not to administrative costs, but Hoover also was dealing with many volunteers and charitable contributions back then, including from governments, a fact he did not publicly talk about, which did put a somewhat deceiving gloss to the process, and there's no question in my mind that all of this colored his thinking about the efficiency and voluntary cooperation efforts he tried later as president. Hoover's omission of telling about the large contributions of governments, including that of the United States, was part of that dream world he lived in, where he wanted so much to believe that people would voluntarily help other human beings that he was in denial about how far such help would go. Like today's conservatives, to admit government helps anyone is to admit failure of your own philosophy.

WORD HISTORY:
Rear (2)-English has a couple of words spelled "rear," this is the word meaning "hind part, back of, last part." The ultimate origin of this word is unknown. It goes back to Latin "retro," which meant "back, behind," a form of which was inherited by Old French as "riere" and then used in the compound "rerewarde," used in military terminology for "the rear guard." Another form, Latin "adretro," which meant "to the rear," was inherited by Old French as "ariere" (which was borrowed by English and became English "arrear"). It is unclear if English got "rear" by using a short form of French "rerewarde" or from a shortened form of "arrear." It is common to call the military units behind the front the "rear" or simply "the rear," so that might well be the source.