158 ChaPter 3
People did not have enough money, to put it simply, to buy the stuff they
needed. Trying to regulate production to maintain exports, and instituting
high tariffs made goods cost more, so production went down and prices went
up. But without adequate wages or jobs—and unemployment continued to
rise—none of these measures did anything but worsen the problem.
Unemployment rose from 5 million in 1930 to 11 million a year later.
Hoover had to break with his own ideas and get the government more
involved than ever in the economy, and two measures stood out. He finally
addressed the impact of the foreign economic crisis on the U.S. and he estab-
lished a government agency to provide help to both industry and labor—and
both were too little and too late. In 1931, Hoover acknowledged the huge
role of the depression abroad in the severity of the economic crisis at home.
The “debt-loan triangle” mentioned and shown above had made global recov-
ery impossible. So Hoover broke with Harding’s 1924 decision and proposed
a moratorium, or temporary suspension, of reparations and war debts, and then
extended it to include private debts too. In 1924, a moratorium might have
improved the crisis; by 1931, investment, trade, and employment had sunk too
low for it to matter enough to fix the global economy, and in Europe, espe-
cially Germany, conservative and far-right forces were gathering political
advantages and preparing for a continent- and then world-wide confrontation.
By December, 1931, Hoover, facing a re-election campaign the next year with
a desolate economy, was desperate. He thus went to Congress to establish a
Federal Land Bank, a system where financial institutions which held mort-
gages on farms and homes could receive cash from the government to pay off
farmers’ and workers’ debts instead of foreclosure [the liberal Democrats who
controlled Congress during the 2009 crisis made no such effort]. In that way,
Hoover hoped, banks could stay afloat and people’s property would be on
hand. More importantly, and a forerunner to many of his successor’s early pro-
grams, was Hoover’s creation of the Reconstruction Finance Corporation [RFC].
Hoover, who was active in economic planning for the Great War and in
development of trade associations, saw the RFC as a similar “public-private”
institution. The RFC would loan government money to banks, state and local
governments, railroads, mortgage associations, and others. It made funds avail-
able to banks that could not make loans or pay off depositors and, like the
Fed [then and now] bailed out the banks, the bigger ones, that were closest
to government officials. But there were, again, significant problems from the