American History is the source of many enduring myths. George Washington didn’t chop down the cherry tree, Abraham Lincoln did not free the slaves (or even end slavery in this country), and Jim Crow was not the natural heir to post-war policies in the South in the 1860s and 70s.
But myths persist, not because of any truths inherent in them, but because certain people find it advantageous to promote them. And perhaps there is no greater myth being peddled almost without criticism is that the Great Depression occurred because President Herbert Hoover pursued laissez-faire policies in the face of impending economic disaster. Writes Kimberly Amadeo:
Hoover was an advocate of laissez-faire economics. He believed an economy based on capitalism would self-correct. He felt that economic assistance would make people stop working. He believed business prosperity would trickle down to the average person.
According to the British Broadcasting Corporation:
Herbert Hoover had become president in 1929 after promising to bring prosperity to everyone in America with the slogan “a chicken for every pot.” However, Hoover thought that it was the job of charities to look after the poor, not the job of the government. He also followed the policy of laisse- faire, which said that the government should not interfere in what businesses were doing. He also believed in rugged individualism, which was the idea that people should sort out their own problems.
The late Steven Horwitz notes:
Many historians, most of the general public, and even many economists think of Herbert Hoover, the president who preceded Franklin D. Roosevelt, as a defender of laissez-faire economic policy. According to this view, Hoover’s dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the 1929 stock market crash.
But Horwitz adds:
The reality is quite different. Far from being a bystander, Hoover actively intervened in the economy, advocating and implementing policies that were quite similar to those that Franklin Roosevelt later implemented. Moreover, many of Hoover’s interventions, like those of his successor, caused the great depression to be “great”—that is, to last a long time.
As we shall see in this article, no one should be surprised that Hoover’s interventionist policies would block the economic recovery that should have followed the original economic downturn in late 1929. Perhaps we should be surprised that Hoover is portrayed by American historians as a rock-hard free enterpriser when all the evidence points the other way, but there is a “logical” story there, too. But first we look at what Hoover did from 1929-1932.
The standard story of the Great Depression is that it began with the infamous stock market crash of October 1929, with things spiraling downward until the economy hit rock bottom in early 1933 with more than 25 percent unemployment. Because of his previous beliefs that free enterprise would soon result in a recovery, Hoover did little, in the words of John Kenneth Galbraith, but give “organized reassurance on a really grand scale.”
As Murray Rothbard and others explain, however, the idea of Hoover being a strict laissez-faire president does not match his record. Instead of listing all of his interventions into the free market, I provide a number of statements that Hoover made toward the end of his term to defend his record.
On the infamous and destructive Smoot-Hawley Tariff:
By this act we gave protection to our agriculture from a world demoralization which would have been infinitely worse than anything we have suffered, and we prevented unemployment of millions of workmen.
On efforts to keep wages high in the face of falling prices and profits:
At the outset of the depression we brought about an understanding between employers and employees that wages should be maintained. They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.
On raising the top rate of taxation in 1932 from 25 percent to 63 percent:
By drastic reduction in the ordinary operating expenses of the Federal Government, together with the increasing of the revenues in the year 1932, we contributed to balancing the Federal budget and thus held impregnable the credit of the United States.
On the creation of the Reconstruction Finance Corporation (which lives today as the Small Business Administration) to prop up failing businesses and give agricultural loans:
In addition to strengthening the capital of the Federal land banks by $125 million we have, through the Reconstruction Corporation, made large loans to mortgage associations for the same purpose, and lately we have organized all lending agencies into cooperative action to give the farmer who wants to make a fight for his home a chance to hold it from foreclosure.
To gain a full picture of Hoover’s economic interventions, one should read Rothbard’s America’s Great Depression, which covers only the Hoover presidency and does not mention Franklin D. Roosevelt’s own New Deal. Rothbard does this not because he believes that Roosevelt bore no responsibility for the length and severity of the Great Depression, but rather because without Hoover’s actions on numerous fronts, there would not have been a Great Depression at all.
Certainly, there had been other economic downturns, and the economy recovered without any government intervention. Less than a decade earlier, the economy quickly contracted but within six months was already moving toward recovery. Writes Tom Woods:
Not surprisingly, many modern economists who have studied the depression of 1920–1921 have been unable to explain how the recovery could have been so swift and sweeping even though the federal government and the Federal Reserve refrained from employing any of the macroeconomic tools — public works spending, government deficits, and inflationary monetary policy — that conventional wisdom now recommends as the solution to economic slowdowns. The Keynesian economist Robert A. Gordon admitted that “government policy to moderate the depression and speed recovery was minimal. The Federal Reserve authorities were largely passive.… Despite the absence of a stimulative government policy, however, recovery was not long delayed.”
As Woods notes, many historians that write about that recession have expressed surprise that the economy recovered without government intervention. Indeed, the typical American historian today sees Hoover’s interventions not as actions that blocked an economic recovery, but as movements that were inadequate, as even more radical measures were needed. John Steele Gordon writing about Adam Cohen’s new book, Nothing to Fear, in the New York Times says:
The mini-biographies that Mr. Cohen gives the reader do much both to illuminate the actors in the story he tells and to show the world in which they developed their ideas about how to make it a better one. They are sure-footed and convincing.
Far less so, however, is his portrait of Herbert Hoover. Hoover, to be sure, was the wrong man at the wrong time. Dour, diffident and beaten down by four years of ever-growing economic disaster, he was the opposite of the ebullient, charming and naturally optimistic Roosevelt. Many early historians of the New Deal presented Hoover as uncaring and devoted to laissez-faire principles and balanced budgets to set the economy right.
This provided a handy foil to set off the glories of the New Deal. But as more modern scholarship has shown, it is at best a caricature. Mr. Cohen accepts this earlier partisan view of Hoover. (emphasis mine)
He states that the Hoover administration ordered the destruction of the main encampment of the Bonus Marchers, who had come to Washington to demand early payment of a veterans’ bonus. In fact, it was Gen. Douglas MacArthur, then the Army chief of staff, who attacked in flagrant violation of Hoover’s direct orders. He says that Hoover did little to help struggling homeowners keep their homes. In fact, Hoover proposed the Home Loan Bank Board in December 1931. Congress took seven months to pass the legislation and limited Hoover’s proposal, making many homeowners ineligible.
Even Rexford Tugwell said in an interview years later that “practically the whole New Deal was extrapolated from programs Hoover started.” He added, “Hoover had wanted and had said clearly enough that he wanted nearly all the changes now brought under the New Deal label.”
This hardly is something new, but it also is clear that most academic historians are happy accepting the party line. They are not interested in contradicting the narrative that their academic forebears created in the 1930s nor do they believe they have any obligation to tell the truth. After all, they are contented to pronounce their “truth.”
The laissez-faire myth of Herbert Hoover does not thrive because it is true, but rather it thrives because it enables modern American academic historians to distort history to their own political ends. Hence, I call them “distorians.”
