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Friday, June 22, 2007

America’s Engineer

No president is more despised by opponents of big government than Franklin Delano Roosevelt. His New Deal is singularly blamed for introducing large-scale national economic intervention to the United States. But FDR did not drop from the sky. He emerged in a particular context that was shaped by his predecessors, without whom we might have never heard his name. His immediate predecessor of course was Herbert Hoover, the one-term Republican elected in 1928 who had the misfortune to be in office only several months when the stock market crashed. History has treated Hoover curiously. His enemies see him as the heartless leader who stood by as the population was ravaged by the Great Depression. His admirers see him as the last lion of laissez-faire individualism, valiantly resisting the tide of statism that washed over America in the 1930s.

Both pictures are grotesque distortions of reality driven by political interest. To see this one must consult the Hoover revisionism produced by historians such as William Appleman Williams, Arthur A. Ekirch Jr., and Murray Rothbard. As Rothbard wrote almost 30 years ago, “To his credit, Hoover himself never claimed to be an exponent of laissez-faire. Indeed, at every Republican convention until his death the old man would be trotted out to give a speech that no one ever bothered to listen to: In this speech Hoover would insist that he himself was the father of numerous measures the New Deal got credit for, and he would proudly go through the list. But everyone, friend and foe alike, was too busy making myths to hear him.”

Williams, in his sweeping book The Contours of American History, pinpoints Hoover as “the key figure [in the] small core of leadership” of the Progressive “corporation community” that became influential in 1913-14. Laissez faire — the “unruly” free market where no one’s profits were secure — was the last thing these prominent businessmen wanted. Their transforming experience came with U.S. entry into World War I, which brought with it central planning the U.S. economy. For the first time, American businessmen got their hands directly on the levers power. It must have been a rush. “What was done in the war years was never forgotten,” said Bernard Baruch, the New York financier who ran the planning agency called the War Industries Board for President Woodrow Wilson. They saw the corporatist state, with organized labor in the role of cooperative junior partner, as the way of the future. (In the 1920s they were not unaware of what Mussolini was doing in Italy.) “The key leader among those Progressive and sophisticated corporation executives was Herbert Hoover,” Williams writes.

Hoover, of course, was a Republican, which, given the party’s historical record, should not lead anyone to think he favored laissez faire or small government. Before his term as president, he was secretary of commerce under Presidents Warren G. Harding and Calvin Coolidge, a position bound to be of overriding importance if held by the activist Hoover. (One wonders why Coolidge, with his reputation as a small-government man, would have kept Hoover in office for six years.) As Ekirch writes in The Decline of American Liberalism, “Seeing no conflict with the rugged individualism he prized…, he proceeded to make the Department of Commerce into a vast agency for the promotion of business interests both at home and abroad.”

The contours of Hoover’s career were clear even before he took over the Commerce Department. An engineer by training, he helped finance the Progressive magazine The New Republic under Herbert Croly’s editorship, Williams writes, and advised President Wilson beginning in 1916. Williams also notes that the Democrats nearly asked Hoover to run for president on their ticket in 1920. The then-assistant secretary of the Navy — a man named Franklin Roosevelt — said, “He is certainly a wonder, and I wish we could make him President of the United States. There could not be a better one.”

Hoover was concerned about what was going on in the world. For one thing, he watched events in the new Soviet Union and blamed “the great inequalities and injustices of centuries.” He warned that “individualism run” riot would galvanize the downtrodden and bring socialism to the west.

Path to Social Tranquility

Corporatism was the path to social tranquility. Williams points out that Hoover, under the banner “Progress is born of Cooperation,” proposed that government facilitate the formation of trade associations, farm cooperatives, and labor unions, with collective bargaining an indispensable part of the program. The associations would generate codes of fair conduct and competition that members would be expected to observe in order to tame the economic wilderness. According to Ekirch, at the end of Hoover’s tenure in national office, over 2,000 trade associations had been created. “We are passing from a period of extremely individualistic action into a period of associational activities,” Hoover said.

“Led by sophisticated and responsible men, that is, by a class-conscious industrial gentry, and ultimately controlled by the citizen through his vote,” Williams writes, “the national government assumed the task of co-ordinating and balancing each of those major elements of the political economy [capital, labor, and the public] and of providing the assistance needed to sustain economic development.” For Hoover, the government’s role was support, for if it became too powerful, the result would be fascism, socialism, syndicalism, or a tyranny independent of capital and labor.

Williams emphasizes that Hoover saw foreign economic expansion as critical to the nation’s stability and success. Like so many businessmen, he believed that industry would overproduce for the domestic market and would need ever greater foreign outlets for the surplus — or else prices and profits would plummet. Hoover said, The hope of our commerce lies in the establishment of American firms abroad, distributing American goods under American direction. Considering Hoover’s commitment to having the national government support and guide economic activities, he clearly did not have Richard Cobden’s free trade in mind. Ever mindful that government is force, Cobden said in the previous century, “[T]hey who propose to influence by force the traffic of the world, forget that affairs of trade, like matters of conscience, change their very nature if touched by the hand of violence; for as faith, if forced, would no longer be religion, but hypocrisy, so commerce becomes robbery if coerced by warlike armaments.”

Yet to Hoover’s credit, he abhorred war, having seen the upheaval set off by World War I, and understood that “we gain in prosperity by a prosperous world [and] not by displacing others.” (This is an important insight, one that Hoover apparently lost when he signed the infamous Smoot-Hawley Tariff in 1930.) His was to be a benign, pacifistic imperialism in which the well-wishing United States would build up the infrastructure and living standards of foreign peoples.

A portent of the Hoover’s future arrived during the depression of 1921-22. Williams writes that as commerce secretary, by one observer’s reckoning, Hoover “held 900 separate conferences and organized 200 committees in his efforts to check the fall and organize recovery on an effective, efficient, and sustained basis. In the course of those efforts, he helped establish the principle that public works should be used ‘as a powerful stabilizing influence’ in future crises on grounds that ‘public construction is better than relief.’”

He resisted agriculture’s demand for export subsidies, fearing the precedent, and instead supported the formation of farm cooperatives and worked to get business and banks to underwrite the exports. Foreign markets were seen as critical, and for Hoover government had a strong role to play.

It must also be noted that as commerce secretary Hoover oversaw the nationalization of the airwaves. Although the principles of private property and the common law were being applied to the radio broadcast spectrum, Hoover pushed the Radio Act of 1927 through Congress, which declared the airwaves public property and established the rules for licensing their use to private companies. As a result of Hoover’s achievement, the government has had the authority to interfere with free speech.

Activist in the White House

When he came to the presidency in 1929, elected as the super-competent businessman-engineer, Hoover responded to the farmers’ continuing troubles by signing the Agricultural Market Act, which created the Federal Farm Board, an agency to lend money to farm co-ops and to form agribusinesses. When the stock market crashed late in his first year in office, Hoover showed his activist credentials and previewed what was to come in the New Deal. “The policies that Hoover did finally employ in his efforts to halt the depression provided the rudiments of Roosevelt’s program,” Williams writes. “Hoover’s analysis of the propensity of the corporation political economy to produce ‘a syndicalist nation on a gigantic scale’ was ultimately verified by the results of Roosevelt’s New Deal.”

Although he tried to meet the depression head on with activism (including the aforementioned Smoot-Hawley tariff), Hoover refused to go beyond certain limits, and he paid the price at the polls. “Before that defeat in 1932, however, Hoover had pulled out every antidepression tool the Progressives ever owned,” Williams writes. “He first tried, as had Theodore Roosevelt in the Panic of 1907, to coerce and wheedle financial leaders such as Andrew Mellon and Thomas Lamont into underwriting the stock market and thereby stopping the downturn…. Hoover then recommended or approved a wide spectrum of recovery measures. The Norris-LaGuardia Act of 1932 established the principle of collective bargaining as the law of the land. The Reconstruction Finance Corporation provided the model as well as one of the key instruments of most New Deal financing of domestic production and overseas economic expansion. Hoover asked also for a significant tax cut to encourage investment, a $423 million public works program, more credit for farmers, new guarantees for bank deposits, more liberal bankruptcy laws, and direct-relief appropriations.”

With the exception of the tax cut, this anticipated FDR’s “radical” program, which is why Rothbard dubbed Hoover the “first New Dealer.” But Hoover would not go far enough to satisfy the corporate elite, which was touting Mussolini-style corporatism. (See the syndicalist program pushed by GE president Gerard Swope in 1931. “There is nothing new or original in what I am proposing,” Swope said.) Rothbard writes: “When Henry I. Harriman, head of the U.S. Chamber of Commerce, came to Hoover and said that big business would support Roosevelt in the election if Hoover did not accept what would later become the NRA [National Recovery Administration, i.e., the government-led cartelization of industry], Hoover astonished many of his progressive supporters by drawing back in horror, rejecting it, and calling it ‘fascism.’”

So the corporate elite backed Roosevelt in the election of 1932. The irony was complete: Hoover’s image was of an irrelevant apologist for business, while the corporate leadership deserted him for the Democrat who would later rail against the economic royalists. In the end Hoover looked like an opponent of corporatism, but the old engineer was perhaps its key architect. We’re still recovering from his handiwork.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.