In his letters to Hoover during the campaign, Harding had left no doubt as to what would be the primary ambition of his presidency. He wanted to unite and lift the national spirit. This, he intuited, required normalcy, by which Harding meant relief from the addling effects of war and demobilization, and respite from two hectic decades of progressivism and the upheaval and uncertainty it had inspired.
Harding diligently worked the knots of America’s body politic from the moment he took office, soothing conservatives by resizing the federal government for peacetime and adopting a pro-business outlook, soothing his Republican base by raising tariffs and lowering taxes, soothing the left by releasing from prison the socialist icon Eugene Debs and other radicals rounded up during Palmer’s Red Scare, soothing the battered farm belt with an emergency tariff and federal protection for farm cooperatives, soothing labor with public works programs to ease unemployment and by cajoling the steel industry into abandoning its inhumane practice of twelve-hour shifts. Harding soothed the isolationist and nativist majority in America with tighter immigration policies and a foreign policy emphasizing legitimate national interests over crusading idealism. He soothed international tensions by normalizing relations with Germany and other former enemy states, and by convincing the world’s leading naval powers to reduce tonnage at his Washington Disarmament Conference, the first gathering of its kind and a remarkable, unexpected success.
Normalcy did not allow much scope for large ideas and grand ambitions. It was unclear at the launch of the administration how Hoover’s penchant for “bold diagnosis and strong action” could be satisfied within the president’s limited framework of political objectives. That Hoover oversaw a minor department made his hopes seem faintly ridiculous. Oscar Straus, who had managed a combined labor and commerce portfolio in Roosevelt’s cabinet, told Hoover that Commerce was a “dignified and agreeable” department of no consequence whatsoever. The new secretary was advised to satisfy himself working only two or three hours a day, “putting the fish to bed at night and turning on the lights around the coast.”1
Hoover got his first taste of his insignificance on the morning of March 8, 1921, when Harding first gathered his official family in the buff-colored cabinet room of the White House executive offices. The president stood majestically at one end of a long mahogany table to welcome his new colleagues; he faced his tiny, tight-lipped vice president, Calvin Coolidge, sitting at the other end beneath a portrait of Lincoln. After laying his ground rules, stressing collegiality and confidentiality, Harding asked each of his executives for a report on issues and policies. Hoover, whose department had been proclaimed as an independent entity in 1913 on the last day of the Taft administration, ranked lowest in seniority and reported last of ten. At age forty-six, he was also the second-youngest man in the room.2
Yet Hoover did not view his fief as low or menial. He had studied the Commerce Department’s enabling act, which gave him authority to “foster, promote and develop the foreign and domestic commerce, the mining, manufacturing, shipping and fishing industries, and the transportation facilities of the United States.” It was plain to him that he had oversight of the entire U.S. economy, and he was not about to ease up, whatever the public mood. He arrived in his office with a self-assigned mission to improve the business of America to the benefit of all its citizens.3
Like so many of the economic managers who had operated on a vast scale during the Great War, Hoover had come to understand the national economy as a single gigantic plant, rather than as a collection of local or regional markets and industries. He had been impressed at how the productive resources of a nation could be rationalized and organized to meet important public objectives. He wondered at the potential strength of an economy unencumbered by such wasteful phenomena as unemployment, labor conflict, and the dreary ebb and flow of business cycles, and what might be accomplished if some of the old wartime spirit and efficiency could be carried into peace. Bernard Baruch, the Democratic financier who had sat alongside Hoover in Wilson’s war cabinet as head of the War Industries Board, had come to many of the same conclusions. Their mutual experience, he said, pointed “to the desirability of investing some Government agency [with powers] to encourage, under strict Government supervision, such cooperation and coordination in industry as should tend to increase production, eliminate waste, conserve natural resources, improve the quality of products, promote efficiency in operation, and thus reduce costs to the ultimate consumer.”4
These were radical thoughts to conservative Republicans in Washington, who wished to erase every trace of governmental expansion from the Wilson years. Yet facts on the ground were providing momentum to the new thinking. The early decades of the twentieth century were remarkable for the emergence of a national consumer economy. American enterprise was becoming dependent on mass production and mass communication and on national distribution to national chains. The economy’s problems, whether coal shortages or rail strikes, had national consequences. “We have reached a stage of national development of such complexity and interdependence of economic life that we must have a national planning of industry and commerce,” said Hoover on taking up his post. “Government has a definite relationship to it, not as an agency for production and distribution of commodities nor as an economic dictator, but as the greatest contributor in the determination of fact and of cooperation with industry and commerce in the solution of its problems.”5
Commerce operated out of a blockish yellow building at Nineteenth Street and Pennsylvania Avenue. Hoover took an office on the top floor. He sat at an uncluttered desk with a battery of secretaries and aides-de-camp outside the door. They scheduled his appointments and telephone calls in half-hour slots from nine in the morning until early evening. His days continued to be bracketed by informal meetings over breakfast and dinner.
Hoover pulled as many of Commerce’s scattered bureaus into the building as would fit. He undertook what would over time prove to be a wildly successful bid to wring funds from Congress for departmental growth. With merit-based hiring still something of a novelty in Washington, he took a broom to political hacks in every corner of his dominion. He began recruiting administrative talent from the commercial world, most of them college-educated professionals. Responding to their leader’s call of service, these recruits worked at a fraction of the salaries available to them in the private sector. Hoover also assembled a panel of twenty-five distinguished leaders from industry, labor, and agriculture to help guide the department’s policy, the first time a brain trust had been applied to peacetime administration in Washington.6
The professionalization of his staff was a necessary first step in making Commerce the leader and facilitator of American business. It would show firms how to adopt a more scientific, data-based approach to management and supply them with up-to-date information on market activity, commodity inventories, employment, and other information critical to better business planning. This would allow for lower costs, improved quality, higher margins, and other elements of what we would now refer to as increased productivity. Working through industry representatives and trade associations, Commerce would encourage the adoption of common standards to conserve resources, reap the benefits of scale, and eliminate unnecessary competition. (The Germans may have lost the war, but their economic critique of the cigar shop and bakery on every corner had conquered important minds.) Additionally, Commerce would lead the charge to strengthen the national infrastructure: upgrading domestic waterways, reorganizing railroads, and vastly expanding regional electrical systems to lower the costs of business and increase the speed and efficiency with which it was consummated.
Hoover’s plan amounted to a complete refit of America’s single gigantic plant, and a radical shift in Washington’s economic priorities. Newsmen were fascinated by his talk of a “third alternative” between the “unrestrained capitalism of Adam Smith” and the new strains of socialism rooting in Europe. Laissez-faire was finished, Hoover declared, pointing to antitrust laws and the growth of public utilities as evidence. Socialism, on the other hand, was a dead end, providing no stimulus to individual initiative, the engine of progress. The new Commerce Department was seeking what one reporter summarized as a balance between fairly intelligent business and intelligently fair government. If that were achieved, said Hoover, “We should have given a priceless gift to the twentieth century.”7
Hoover repeatedly framed his objectives in high-flown terms, a habit that culminated in his declaration of “a new era in the organization of industry and commerce in which…lie forces pregnant with infinite possibilities of moral progress.” A bold vision, boldly expressed: Hoover had learned something from Woodrow Wilson.8
He nevertheless proceeded in a practical manner, moving swiftly to attack one of the biggest obstacles to his plans, the federal government’s profound ignorance of the American economy. Reliable data on employment rates, industrial output, and net financial reserves were nowhere to be had in Washington. A consumer price index had been launched only a year earlier. Politicians had a weak grasp of market economics and the real effects of their decisions. Businessmen had little sense of what was happening in the commercial world beyond their own operations.9
Knowing that he could not manage what he could not measure, Hoover made Commerce both a producer and a clearinghouse of relevant information on the U.S. economy. Once again, he turned to like-minded experts, this time primarily in the academic community. Hoover announced the Advisory Committee on Statistics and recruited to it such luminaries as Edwin Gay, the first dean of the new Harvard Business School; Edwin Seligman, the Columbia economist and a founder and past president of the American Economic Association; and Cornell’s Walter Willcox, a past president of the American Statistical Association and a former co-director of the U.S. Census. Another eminence, Julius Klein, the Harvard economist and historian, was recruited to head Hoover’s Bureau of Foreign and Domestic Commerce and allowed to increase its budget by a factor of six and its personnel by a factor of five. In short time, these and other initiatives turned Commerce into a vast reservoir of information on every aspect of economic life from steel to motion pictures. Its specialists sucked in information from across the country, analyzed it, and published an endless stream of reports intended to improve the economic intelligence of governments and business. The bet was that more accurate information would take emotion and guesswork out of planning, prevent overexpansion and speculation, and produce a more perfect market.
While the data managers at Commerce were careful to present their findings in an objective, scientific manner, it was never difficult to identify the guiding hand of Hoover behind their work. His obsession with productivity was manifest in data demonstrating the woeful inefficiency of the U.S. economy. Commerce’s Bureau of Standards was appalled to learn that there were sixty-six sizes of paving bricks on the market, and thirty-two discrete ways to measure a one-inch board. Hoover’s experts turned up endless examples of needless variation in shapes, sizes, and specifications of thousands of products, from auto tires to men’s suits to baby bottle nipples. This rampant diversity raised costs on manufacturers and prohibited them from operating at scale. It was also deemed an inconvenience to consumers: who would not benefit from a standard electric light socket? While Commerce insisted that its standardization efforts were voluntary, Hoover used government purchasing power to hurry things along. He also organized more than a hundred conferences and commissions in Washington where industry leaders and trade associations discussed mutual problems, shared economic intelligence, and enlarged their sense of responsibility. They were advised of the interdependence of business, labor, and government and the need for all sectors of society to pull together in the common interest as they had done in wartime. They were lectured on the social and economic costs of nonstandardized practices and urged to introduce uniformity to their goods and processes, right down to the documents on which they worked. While the effect of the standardization blitz was unquantifiable, Hoover claimed it would save consumers $600 million a year, a huge sum at the time.10
He had barely started on these and many other initiatives in the Department of Commerce when, like virtually every other time in his life Hoover had launched an important (at least to him) venture, disaster struck.
The American economy has crashed at the rate of once or twice a decade since the early seventeenth century. Some crashes originate in commodity markets, some in stock markets, others in the banking sector, or foreign exchange. All of the crashes share a sudden shift from optimism to pessimism, from greed to fear and panic, with investors liquidating their assets into a failing market, losses mounting, lending seizing, business activity declining, and people suffering.11
The depression of 1921 began on Woodrow Wilson’s watch as the economy struggled to adjust to a postwar footing. A short burst of growth after Armistice Day was followed by a rapid decline. The nascent Federal Reserve noticed the burst, raised its discount rate to stifle the inflation it expected would follow, and failed to register the downturn. Its rate hike hit just when lower rates were needed to stoke a recovery. The combination of high rates and dwindling demand caused agricultural markets to plummet and the economy to choke in the weeks after Harding’s inauguration. GNP would soon be down 16 percent from an end-of-war high. Prices and wages began falling precipitously, as did employment, leaving a third of industrial workers on the street within a year.12
Orthodox opinion in both parties dictated that a government beset by economic storms batten the hatches and wait them out. That is what Roosevelt had done in the Panic of 1907, and that is what every president had done before him. Cyclical fluctuations in income and output were viewed as inevitable and inescapable forces of nature; to challenge this perspective was to doubt the universal laws of economic and natural life. Treasury Secretary Andrew Mellon was as orthodox as they came, insisting on a minimal role for government generally: it was responsible for national defense, the currency, customs and excise, and little else. Washington spent roughly 3 percent of gross national product before the war, and Mellon aimed to return to that level from wartime highs of 23 percent by keeping spending tight and taxes low. This approach was just fine with Harding, whose economic philosophy was encapsulated in the headline of an article he wrote for a popular magazine: “Less Government in Business and More Business in Government.” He did not see it as Washington’s job to eradicate unemployment or bail out bankers or calm markets. He was predisposed to let the downturn do its worst. Prices and wages would eventually fall and good times would inevitably follow.13
A new school of economists with whom Hoover was aligned were inclined to challenge natural law. Impressed by Washington’s ability to manipulate the economy in wartime, they believed that with proper leadership and cooperation from industry and lower levels of government they could mitigate the effects of the business cycle, if not eliminate them entirely.
As 1921 progressed and bad news accumulated, the old orthodoxies became increasingly difficult to sustain, even for conservatives like Harding. The downturn was so stunningly swift and steep as to shake faith in the future of capitalism. Free-market nations, their credibility already weakened by the Great War, now faced aggressive new challenges to their legitimacy from the Bolshevik Revolution, socialist experiments in Europe, and radical agitation in the United States. Even within capitalist circles, there was a growing recognition that governments, having dislocated their economies to fight the war, had a responsibility to help pick up the pieces. It was noted that many of the newly unemployed were ex-servicemen; also that agricultural overproduction had been encouraged by the state.
Hoover toed the administration line in the initial months of the crisis, making positive speeches he would later describe as “whistling while passing the economic graveyard so as to keep up public courage.” The United States was fundamentally sound, he said. The economy had “turned the corner.” In fact, industrial activity remained prostrate and unemployment deepened. By August 20, 1921, he was ready to goad Harding into action. He suggested a presidential commission on unemployment comprised of men and women “representative of all sections, predominantly those who can influence the action of employing forces and who can influence public opinion.” The aim would be to properly determine “the facts and needs of the [unemployment] situation.” Harding was uneasy enough to agree.14
The Interior Building, the most modern of federal buildings, was chosen as the venue for what would become known as the President’s Conference on Unemployment. Sixty handpicked delegates from cross-sections of industry, labor, and government passed under the huge carved stone eagle at its entrance on the morning of September 26, 1921. Among them were Charles M. Schwab of Bethlehem Steel, Samuel Gompers of the American Federation of Labor, Detroit mayor James Couzens, and Ida Tarbell, the journalist and social reformer. The president welcomed them with a brief address in the auditorium at 10:15 sharp. His short, hackneyed speech made plain his ambivalence toward the conference. His office had been telling reporters for days that he doubted anything could be done to relieve unemployment. He had agreed to host the event only because Hoover wanted it, and he had confidence in Hoover.
The president ventured that simply measuring the size of the problem might be a good start to solving it (jobless estimates ranged from 2 million to 8 million at the time). He cautioned the delegates against tampering with America’s social, political, economic, and industrial systems: “the temple requires no remaking.” Depressions were natural and unstoppable forces, coming and going “as surely as the tides ebb and flow.” He warned against seeking “either palliation or tonic from the public treasury.” More government spending would be “a new cause of trouble rather than a source of cure,” as European experience had amply demonstrated. At the same time, Harding acknowledged that all Americans wanted to know “the way to speediest and dependable convalescence.” And lest anyone think him defeatist, he contradicted everything he had just said by asserting that there were no problems known to man “which we can not and will not solve.”15
Hoover took the podium next and offered some equivocations of his own. He echoed Harding’s claim that the depression was one of the “bitter fruits” of readjustment from war, and shielded the public purse: “It is not consonant with the spirit or institutions of the American people that a demand should be made upon the public treasury for the solution of every difficulty.” With this duty of presidential solidarity fulfilled, Hoover charged ahead with his own intrepid agenda for the conference:
There is no economic failure so terrible in its import as that of a country possessing a surplus of every necessity of life in which numbers, willing and anxious to work, are deprived of these necessities. It simply can not be if our moral and economic system is to survive. It is the duty of this Conference to find definite and organized remedy for this emergency and I hope also that you may be able to outline for public consideration such plans as will in the long view tend to mitigate its recurrence.”16
Unlike his president, Hoover, the trained geologist, the practicing engineer, had no doubt that the business cycle, a “natural” phenomena, was susceptible to human ingenuity. He told the delegates that downturns could be “modified and possibly controlled by practical remedies available through cooperative service on the part of those abundantly able and doubtless eager to render it.” It was their job to mobilize the assembled “intelligence of the country” to prevent the miseries and losses of future depressions and eliminate unemployment.17
If the delegates needed any further evidence that the president’s conference was a Hoover production, the schedule itself provided it. There was no reception, no opportunity to mingle or chat. The two opening speeches and all other preliminaries were crammed into twenty minutes. By 10:45 a.m., the delegates broke into groups to begin committee work. By 11 a.m. the committee on organization was in session. At 2 p.m. the advisory committee had gathered. At 3 p.m., the entire conference met again, and by 3:30 it was divided back into ten committees, three of which worked late into the evening. The committee on public hearings began deliberations at 11 p.m. The New York Times remarked that Washington was unaccustomed to “promptitude, thoughtful preparation and absence of loquacity,” and ventured that if unemployment were attacked across the country in the same manner, the problem would soon cease to exist.18
For three weeks the delegates holed up in committee rooms, windows shut against the autumn rains. They studied data and analyses provided by the National Bureau of Economic Research, a new private think tank Hoover had contracted to handle the conference’s empirical work. The rest of Washington, wrote David Lawrence, looked on with “the usual skepticism that attends every endeavor of an experimental nature.” What could the conference actually accomplish, Lawrence asked: “Can it alter the laws of supply and demand?” He allowed that a better understanding of the causes of unemployment might suggest ways to alleviate the problem. Facts could replace fear and uncertainty and buttress public confidence. Merely getting the mortal enemies labor and business to agree upon a set of facts after the discords of 1919 and 1920 might put the nation on the path to healing. But would any of this find jobs for workers?19
The conference’s answers were rolled out at its close on October 13. Hoover’s experts had estimated the number of idle at between 3.5 and 5.5 million. They proposed emergency measures to help the country through the coming winter: shorter hours and job sharing in manufacturing; the creation of local employment agencies; the coordination of local charitable relief. They recommended the novel idea of moving public works projects scheduled for spring ahead to fall or winter to stimulate the construction industry, providing jobs and income that would in turn increase demand for other goods and services, helping the economy as a whole. Construction costs, it was noted, were lower in a downturn and governments should take advantage. Because municipalities and counties, responsible for streets and schools and water systems, were the largest public works spenders, most of the remedying would necessarily occur at the local level. The federal government, limited to interstate projects such as national defense and the postal system, represented only 10 percent of public-sector construction. That suited both Hoover’s and the public’s bottom-up ideals of federalism. Local governments were closer to the people, and without the power to coin new money they would never be tempted to inflate their way out of any debts incurred.20
Those recommendations, innovative, practical, achievable, were sufficient to exceed most expectations for the conference. The final report made positive headlines in major newspapers, and was mailed to three hundred mayors across the country as the Commerce Department publicity machine ramped up to convince governments, business, and the general public to take action on its proposals. To Hoover’s frustration, the conference produced none of the desired legislative results. Specifically, he wanted something permitting the countercyclical phasing of public works, an idea too advanced even for so progressive a senator as Nebraska’s George Norris, who said, “We had better let God run [the economy] as in the past.” Hoover’s partisans nonetheless declared victory: bond issues for local public works hit record highs within months of the gathering, and several federal departments advanced spending projects that had been lingering on drawing boards. The seasonal increase in unemployment through the winter of 1921–22 was less than usual, and by the second half of 1922 joblessness was on the decline. Hoover drafted a letter of self-congratulation that was released under Harding’s signature:
We have passed the winter of the greatest unemployment in the history of our country. Through the fine coordination and cooperation among federal and state officials, mayors and their committees of employers, relief organizations and citizens, we have come through with much less suffering than in previous years, when unemployment was very much less.21
In his own speeches, Hoover boasted that as many as a million and a half people had been put back to work without any wasteful public spending. This, he said, was a direct result of the comprehensive and effective initiatives of his administration. In fact, Hoover and his experts, along with virtually all other economists and politicians, misread cause and effect in the depression of 1921. Monetary policy had been instrumental in sinking the economy, and monetary policy was the primary factor in its improvement. Benjamin Strong, governor of the Federal Reserve Bank of New York, had reduced discount rates over the summer prior to Hoover’s conference, fueling recovery. Hoover’s program was too limited to produce the results claimed for it. He would emerge from the downturn with undue confidence in the economic benefits of voluntary measures.*1
Misapprehensions were not the only legacy of the 1921 conference. Hoover, more than Harding appreciated, had saddled the federal government with a greater share of responsibility for the condition of the national economy. Once an administration had claimed to cure a depression, there could be no going back to the old practice of patiently waiting for ill economic winds to blow themselves out. All subsequent downturns would need to be met with a fight. Hoover would have counted this new attitude as progress. The larger purpose of the unemployment conference had always been, as per his opening remarks, to develop “such plans as will in the long view tend to mitigate” the recurrence of depressions.22
Hoover’s progress on the long view was not well recognized at the time but a large section of his final report was devoted to solving the business cycle. Four times since 1894, the delegates declared, peak periods of economic activity, featuring speculation, overexpansion, and extravagance, were followed by stagnation, unemployment, and suffering. “Both of these extremes are vicious, and the vices of the one beget the vices of the other. It is the wastes, the miscalculations, and the maladjustments grown rampant during booms that make inevitable the painful process of liquidation.” The report called for “exhaustive investigation” and a permanent research committee into downturns and counterbalancing policy solutions. Said Hoover in a speech to the Academy of Political Science weeks later: “There is a solution somewhere and its working out will be the greatest blessing yet given to our economic system.”23
The business cycle would remain an obsession for Hoover throughout his time in Commerce. He extended the work of the unemployment conference by founding a permanent research committee comprised of representatives from the Wharton School, the Harvard Business School, banks, trade associations, and the National Chamber of Commerce. It produced an elaborate study on business cycles and unemployment in 1923, complete with twenty-one supporting economic studies examining the government’s responsibility for the economy, the role of the Federal Reserve, and the possibilities of alleviating slumps. It was well circulated in government and the economics community.
While light in immediate impact, the 1921 conference was nonetheless a watershed in American history. In addition to inaugurating a century’s worth of struggle against the business cycle, it further legitimated the idea that public policy should be guided by experts working in the public interest and not left to politicians and other amateurs. Economists now migrated from the margins to the mainstream of public life; Hoover’s actions helped open the door to the central position they hold in our political dialogue today.
The conference was also a milestone in the acceptance of a data-driven approach to decision making in government. Hoover was hardly the only evangelist for scientific management in the early decades of the twentieth century. It was colonizing great swaths of American life. The intellectual godfather of the movement was Frederick Winslow Taylor, a trained engineer who published The Principles of Scientific Management in 1911 and went on to found the practice of management consulting. The leading industrial practitioner of scientific management was another trained engineer, Henry Ford, whose Highland Park assembly line had been launched in 1913.*2 Hoover’s contribution was to advance scientific management in the public sector. His faith that better data would lead to better decisions spread to every field of policy and every level of government work, as did his practice of hiring experts to define and quantify public problems and achieve practical solutions. Within a generation, it would be taken for granted that policy decisions needed to be informed by comprehensive analysis of economic and social data, or at least packaged in the language of empirical validity.
It did occur to some of the reporters covering the 1921 unemployment conference that the lead role ought to have been played by someone other than Herbert Hoover—James J. Davis, the labor secretary, for instance. A union man and national leader of the Loyal Order of Moose, Davis oversaw a department created to “foster, develop, and promote the welfare of working people…and to advance their opportunities for profitable employment.” Yet he had been slow to tackle the jobs problem, at least compared to Hoover. “At the conference on unemployment,” one observer said, “the best and only example of the unemployed present was the Secretary of Labor.”24
*1 Another misconception: Harding’s tax cuts and spending restraints, believed by some Republicans to have spurred the recovery, were neither steep nor timely enough to have made much difference.
*2 Hoover and Ford met briefly in Europe during the war. The substance of their conversation was not recorded, but they apparently had an intense meeting of minds on the subject of industrial efficiency.