Hoover and the Depression 677the candidates’ efforts to outdo each other in praising
the marvels of the American economic system.
“Glamour” stocks skyrocketed—Radio Corporation
of America rose from under 100 to 400 between
March and November. A few conservative brokers
expressed alarm, warning that most stocks were
grossly overpriced. The majority scoffed at such talk.
“Be a bull on America,” they urged. “Never sell the
United States short.”
During the first half of 1929 stock prices
climbed still higher. A mania for speculation swept
the country, thousands of small investors putting
their savings in common stocks. Then, in September
the market wavered. Amid volatile fluctuations stock
averages eased downward. Most analysts contended
that the stock exchange was“digesting” previous
gains. A Harvard economist expressed the prevailing
view when he said that stock prices had reached a
“permanently high plateau” and would soon resume
their advance.
On October 24 a wave of selling sent prices spin-
ning. Nearly 13 million shares changed hands—a
record. Bankers and politicians rallied to check the
decline, as they had during the Panic of 1907. J. P.
Morgan, Jr., rivaled the efforts of his father in that ear-
lier crisis. President Hoover assured the people that
“the business of the country... is on a sound and
prosperous basis.” But on October 29, the bottom
seemed to drop out. More than 16 million shares were
sold, prices plummeting. The boom was over.
Hoover and the Depression
The collapse of the stock market did not cause the
Depression; stocks rallied late in the year, and business
activity did not begin to decline significantly until the
spring of 1930. The Great Depression was a worldwide
phenomenon caused chiefly by economic imbalances
resulting from the chaos of the Great War. In the
United States too much wealth had fallen into too few
hands, with the result that consumers were unable to
buy all the goods produced. The trouble came to a
head mainly because of the easy-credit policies of the
Federal Reserve Board and the Mellon tax structure,
which favored the rich. Its effects were so profound and
prolonged because the politicians (and for that matter
the professional economists) did not fully understand
what was happening or what to do about it.
The chronic problem of underconsumption oper-
ated to speed the downward spiral. Unable to rid
themselves of mounting inventories, manufacturers
closed plants and laid off workers, thereby causing
demand to shrink further. Automobile output fell
from 4.5 million units in 1929 to 1.1 million in 1932.
When Ford closed his Detroit plants in 1931, some
75,000 workers lost their jobs, and the decline in auto
production affected a host of suppliers and middle-
men as well.
The financial system cracked under the strain.
More than 1,300 banks closed their doors in 1930,
3,700 more during the next two years. Each failure
deprived thousands of persons of funds that might
have been used to buy goods; when the Bank of the
United States in New York City became insolvent in
December 1930, 400,000 depositors found their
savings immobilized. And of course the industrial
depression worsened the depression in agriculture by
further reducing the demand for American food-
stuffs. Every economic indicator reflected the col-
lapse. New investments declined from $10 billion in
1929 to $1 billion in 1932, and the national income
fell from over $80 billion to under $50 billion in the
same brief period. Unemployment, under 1 million
at the height of the boom, rose to at least 13 million.
President Hoover was an intelligent man, experi-
enced in business matters and knowledgeable in eco-
nomics. Secretary of the Treasury Mellon believed that
the economy should be allowed to slide unchecked until
the cycle had found its bottom. “Let the slump liquidate
itself,” Mellon urged. “Liquidate labor, liquidate stocks,
liquidate the farmers.... People will work harder, live a
more moral life. Values will be adjusted, and enterprising
people will pick up the wrecks from less competent peo-
ple.” Hoover realized that such a policy would cause
unbearable hardship for millions. He rejected Mellon’s
advice to let the Depression run its course.
Hoover’s program for ending the Depression
evolved gradually. At first he called on businessmen to
maintain prices and wages. The government should
cut taxes in order to increase consumers’ spendable
income, institute public works programs to stimulate
production and create jobs for the unemployed, lower
interest rates to make it easier for businesses to bor-
row in order to expand, and make loans to banks and
industrial corporations threatened with collapse and
to homeowners unable to meet mortgage payments.
The president also proposed measures making it eas-
ier for farmers to borrow money, and he suggested
that the government should support cooperative farm
marketing schemes designed to solve the problem of
overproduction. He called for an expansion of state
and local relief programs and urged all who could
afford it to give more to charity. Above all he tried to
restore public confidence: The economy was basically
healthy; the Depression was only a minor downturn;
prosperity was“just around the corner.”
Although Hoover’s plans were theoretically sound,
they failed to check the economic slide, in part because
of curious limitations in his conception of how they
should be implemented. He placed far too much
reliance on his powers of persuasion and the willingness
of citizens to act in the public interest without legal