By midsummer of 1929, it was clear that Hoover’s efforts to wrangle a runaway stock market had been no more successful than his bid for a short extra session. Secretary Mellon’s advice to investors to favor bonds, recognized by the press as a highly unusual and significant intervention for a Treasury secretary, had nonetheless been ignored. Henry Robinson reported to the president that bankers in New York had scoffed at the notion that the markets were unsound: stock prices, they insisted, were warranted by the potency of a more technologically advanced economy. The NYSE’s Whitney, who answered not to Hoover but to New York governor Franklin Roosevelt, had turned a blind eye to speculation. Editorial cautions against the risks of the stock exchange were meanwhile futile against the lure of massive returns.
Only one measure sponsored by Hoover met with even modest success: this was the wise and unparalleled effort of the Federal Reserve to directly pressure major New York banks to quit financing the brokers’ loans that were stoking speculation in stocks. As the majors stepped aside, however, smaller banks, foreign banks, investment trusts, insurance companies, and corporations, all of them beyond the reach of the Federal Reserve System, were delighted to walk in and offer demand loans to speculators at 20 percent interest. The majors soon broke ranks and resumed lending for stock purchases. That their interest rates were fantastically high made no impression on investors. “When the public becomes mad with greed,” lamented Hoover, “and is rubbing the Aladdin’s lamp of sudden fortune, no little matter of interest rates is effective.” He considered the New York bankers “iniquitous” for underwriting the speculation.1
The Federal Reserve, seeing share prices now almost double their mid-1927 level, and seeing brokers’ loans up 50 percent to $8.5 billion since mid-1928, was by early August forced to admit that its direct pressure tactics had failed to halt speculation. It raised its discount rate from 5 to 6 percent. Hoover, by now despairing that anything short of disaster would rein in speculators, did not support the move. He worried for the effect of the rate hike on legitimate business activity, with good reason. The nation’s business was reasonably stable: auto and machinery production had hit new highs in August, as did the iron and lumber industries. In retrospect, this would be identified as the peak of the business cycle, although policy makers had no way of knowing it at the time, lacking the tools to properly read the economic moment, let alone predict the economic future.2
There were almost immediate signs that the Fed had pushed too far with its rate hike. Interest-sensitive spending by companies and individuals stalled, and real output in the United States dropped almost 2 percent from August to October. Another unintended consequence of the increase was that foreign central banks raised their own interest rates in order to protect their gold supplies. These tight money policies helped push much of Central Europe further into depression.3
At first, the New York stock market seemed unfazed by the Fed’s turn of the credit screw. Share indexes continued to advance through August: Radio Corporation of America, General Electric, and other darlings of the new economy led the charge. Businessmen riding their suburban club cars back to the city after a sweltering Labor Day weekend read newspaper stories about Wall Street’s big winners, the fortunes they had made, and their foolproof methods of market forecasting. Everyone in the summer of 1929 was bullish on the markets, and bullish on America. The Dow Jones Industrial Average would close that very day, September 3, 1929, at a new high of 381.2, representing a stunning ascent of 500 percent from the start of the bull market in 1921.4
Prices would not hold that peak. They drifted lower in the coming weeks, with sudden plunges of as much as 5 percent, sufficient to rough up margin traders. Whether this retreat represented the correction that Hoover and other skeptics had expected, or whether there was more trouble to come, was anyone’s guess. On October 19, Thomas Lamont, acting head of J. P. Morgan and the leading financier in the nation, wrote Hoover a twenty-page letter advising faith in the markets and proclaiming it wonderful that small investors were continuing to put their life savings into stocks, allowing them to own pieces of America’s greatest companies. “This document is fairly amazing,” Hoover scrawled on the letter.5
Irving Fisher of Yale University, considered by some the greatest economist America has ever produced, declared in a New York speech of October 21 that share prices were not inflated, that stocks were not yet reflecting their real underlying values, and that history was a poor guide to the performance of the market:
During the past six years there have been pronounced changes in the tempo of production and trade, due to the vast increment of scientific research and application of inventions. Virtually every line of manufacture witnesses daily technical development that results in a greater total of products, at reduced costs, greater profits and lower prices to consumers.6
Within a couple of days, Fisher was proved wrong.
Hoover was out of town when it happened, traveling to Dearborn, Michigan, for the dedication of the Edison Institute and a celebration of the fiftieth anniversary of its namesake’s invention of the incandescent light bulb. The event had been organized by Henry Ford, patron of the institute. Hoover admired both Ford and the eighty-two-year-old Edison, and he appeared to be in a good mood at a glittering dinner with the likes of Marie Curie and Orville Wright. In a broadcast speech, he gave America a glimpse of that rare phenomenon, the droll Hoover. He enumerated the benefits of electric light:
It enables us to postpone our spectacles for a few years longer; it has made reading in bed infinitely more comfortable; by merely pushing a button we have introduced the element of surprise in dealing with burglars; the goblins that lived in dark corners and under the bed have now been driven to the outdoors; evil deeds which inhabit the dark have been driven back into the farthest retreats of the night; it enables our cities and towns to clothe themselves in gaiety by night, no matter how sad their appearance by day. And by all its multiple uses it has lengthened the hours of our active lives, decreased our toil, and enabled us to read the type in the telephone book.7
The next day, Wednesday, October 23, the Dow Jones Industrial Average gave up 6.33 percent of its value in a wrenching trading session on Wall Street. Reactions to the Wednesday decline are perhaps the best measure of the severity of the stock market collapse we know as the Great Crash of 1929, which did not start until the following day, Black Thursday, October 24. Wednesday’s losses on the New York exchange, where trading volume exceeded 6 million shares, reached a sickening $4 billion, more than the annual federal budget. “The market crumbled,” wrote the New York Times. “Fear and apprehension swept feeble support aside and dropped prices lower and lower with practically each succeeding sale….In the last hour of trading, values fairly melted away.” Traders and the financial press spoke of a once-in-a-generation rout destined to rank among “the most tragic hours in the stock market’s history.” And they had only heard the overture.8
In Black Thursday’s sell-off, shares changed hands at a rate of 2.6 million an hour. A thousand brokers shouted and sweated at their posts on the littered trading floor. Newsreel cameras captured a massive crowd milling anxiously on the street in front of the NYSE’s noble white façade. Extra police and ambulances were called in answer to wild rumors of riots (nonexistent) and suicides (several but later in the week). Records were broken for shares traded, for price drops, for money lost, for telegraphs delivered and telephone calls made.
Late in the afternoon Thomas Lamont of J. P. Morgan emerged to say that he and other leading financiers had confidence in the market and the broader economy. This momentarily stemmed the panic, but in succeeding days the declines continued in almost ritualistic fashion. Unbridled fear brought more panic selling, brought more havoc on the trading floor, brought more smashed records, brought more sickening losses, brought increasingly dubious reassurances from financiers and public officials that the system was merely purging speculators and gamblers, that the session’s violent convulsions represented a market bottom, and that normalization was only a sunrise away.
So it went for a long and devastating week. Buyers of shares were knocked from tentative to frightened to scarce. The deluge of selling swept everything before it. Victims ranged from the humblest punters to chairmen of blue-chip boards. Losses totaled $30 billion, a sum nearly twice the national debt, a sum almost equivalent to what America spent in the Great War. Finally there was no last line of investors or bankers to offer reassurance, just surrender all around. The clerks and brokers who had spent long nights at their desks desperate to salvage something of their holdings finally gave up and went home, leaving the canyons of Wall Street in still and eerie silence.9
Wall Street’s periodic panics had always occurred offstage so far as Washington was concerned. The two hundred miles of coastline between D.C. and Lower Manhattan tangibly supported the laissez-faire attitude of political leaders toward the financial community, as well as money’s desire to be left to its own devices. Many in both capitals continued to believe that mutual aloofness desirable even as automobiles, air travel, radio, newsreels, and telephony were making the distance less relevant. Walter Lippmann thought it foolhardy of the administration to interfere with the natural laws of economics and try to guide business through its crisis. Hoover’s own Treasury secretary agreed. “Mr. Mellon had only one formula,” wrote Hoover years later. “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate….It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life.”10
Hoover had been arguing for more interaction between power and money since his first days as commerce secretary. He had no doubt that the growth of a national economy, the creation of the Federal Reserve System, and the expectations of the style of activist government he embodied warranted Washington’s intercession in an economic crisis.
Hoover viewed the Wall Street crash as an opportunity to implement the countercyclical policies he had advocated from his skunk works in the Harding administration during the downturn of 1920–21. He could distinguish himself from the inert Coolidge and win respite from the frustrations of the tariff debacle by launching himself directly and constructively into the path of an urgent problem. It was just the sort of emergency the American people had with so much confidence elected him to meet.
With no other means of measuring the depth of the damage, Hoover ordered staff to produce studies of previous market debacles, with emphasis on the Panic of 1907. In that instance, a market crash had led immediately to runs on banks and trust companies, a spike in interest rates, a liquidity crisis, and a litter of financial failures. This precedent convinced Hoover that the crisis needed to be contained to the stock market. During and immediately following the crash, he reassured Americans that the underlying U.S. economy was sturdy. He reminded them that the Federal Reserve System had been created after the Panic of 1907 in part to give policymakers the tools to prevent a stock market crisis from extending to broader industrial activities.11
The Federal Reserve Bank of New York did rise to the occasion in 1929, making capital available by purchasing government securities on the open market, expediting lending through its discount window, and quickly lowering its discount rate back down to 5 percent, and to 4.5 percent by mid-November. These measures helped to keep commercial banks open for business and limited the damage. The president rightly credited the Fed with prompt and effective action.12
With the banks steady, Hoover identified panic as America’s next major threat. “We are dealing here with a psychological situation to a very considerable degree,” he said. “It is a question of fear.” Ordinary citizens were worried about their savings, their jobs, and how to pay their bills. If nothing was done, consumption would fall, production would slow, unemployment would creep up. Hoover determined to “disabuse the public mind” of the notion that there had been “any serious or vital interruption in our economic system.”13
He spent the first two weeks of November in private consultation with financiers, his cabinet, and other administration officials, devising a program to buoy public confidence. By November 14, with Wall Street still face down in the gutter, he was ready for action. As an initial step, Secretary Mellon and a bipartisan group of congressional leaders committed themselves to a 1 percent cut in personal and corporate taxes in the December session as proof of their faith in the economy and as an aid to recovery. These measures, together with the Fed rate cuts, seemed to have the desired effect. The Dow promptly picked itself up, dusted itself off, improving on its previous day’s close of 198.7 points (roughly half of the early September peak). This suggested a floor had been reached.14
The following day, Hoover summoned business, farm, and labor leaders to Washington to enlist their support in shifting the economy’s attention from stock speculation to constructive capital investment. “The postponement of construction during the past months,” said the president, “including not only buildings, railways, merchant marine and public utilities, but also Federal, State and municipal public works, provides a substantial reserve for prompt and expanded action.” The coordination of business and government, he promised, would ensure the construction trades were activated at scale and with dispatch. Hoover made it explicit that his initiatives were designed to boost confidence. In market booms, he said, a climate of excessive optimism prevails, to be followed in the inevitable bust by a reverse into excessive pessimism:
They are equally unjustified but the sad thing is that many unfortunate people are drawn into the vortex of these movements with tragic loss of savings and reserves. Any lack of confidence in the economic future or the basic strength of business in the United States is foolish. Our national capacity for hard work and intelligent cooperation is ample guarantee of the future.15
Hoover’s intention was to teach the public that downturns were regularly recurring economic phenomena better answered with rational plans than with pandemonium. “The problems with which we are confronted,” he said, “are the problems of growth and of progress. In their solution we have to determine the facts, to develop the relative importance to be assigned to such facts, to formulate a common judgment upon them, and to realize solutions in a spirit of conciliation.” To further demonstrate his composure, Hoover would speak of a “depression” rather than use the customary terms “crisis” or “panic.”16
On November 19, Hoover sat at the head of his cabinet table in front of eight railway leaders whom he hounded into agreeing to spend a billion dollars on capital projects in 1930. The next day, the same table saw an all-star gathering of business leaders, the greatest show of corporate muscle in the capital since the Great War. Henry Ford, Pierre du Pont, Julius Rosenwald of Sears Roebuck, Walter Teagle of Standard Oil, Owen D. Young of General Electric, and Alfred P. Sloan of General Motors heard Hoover ask for restraint from application of the usual corporate responses to economic storms, namely retrenchment, layoffs, and wage cuts. He wanted them to maintain wages in order to sustain consumption, at least until the cost of living fell. He told them that if they would forgo layoffs he would request that labor forgo the sort of strike actions that had unsettled the country in the depression of 1921. The tycoons agreed and turned the cabinet table over to a caucus of union chieftains led by William Green of the American Federation of Labor. They, too, fell into line and promised labor peace. Hoover insisted that all of these agreements were voluntary and, but for the full weight of his office, they were.17
Hoover did not dwell on the stock market crash in his State of the Union address of December 3. He invited legislators and the public to take the market meltdown in stride. There was no cause for panic or fear. In the past year the nation had grown in strength, advanced in comfort, gained in knowledge, maintained its moral and spiritual foundations, and worked harder than ever before to establish peace in the world. The rational expectation for the year ahead, he said, was more of the same.18
Two days later he told members of the U.S. Chamber of Commerce that while there would necessarily be some unemployment as a result of the market crash, it was their responsibility to ensure that the first shock of adjustment fell as much as possible on profits and not on wages. This would contribute to the dampening of “undue pessimism” in the economy. It was also the right thing to do: “The very fact that you gentlemen come together for these broad purposes represents an advance in the whole conception of the relationship of business to public welfare. This is a far cry from the arbitrary and dog-eat-dog attitude of the business world some thirty or forty years ago.”19
The Seventy-First Congress immediately delivered to Hoover his requested reduction in corporate and income taxes. The administration announced an increase in the federal building program and the granting of seagoing mail contracts to encourage shipbuilding. It continued to urge businesses and lower levels of government to take advantage of low interest rates and idle labor and ramp up capital investment. By the end of the year, business and government at all levels were reported to have pledged more than $4 billion in new building to keep the economy moving.20
The sweep and speed of Washington’s response to the crash, which gave the impression that Hoover had “thoroughly anticipated the debacle and mapped out the shortest road to recovery,” was hailed in the press as an entirely new approach to management of the nation’s economic affairs. Said the Herald-Tribune in its year-end summary:
President Hoover’s prompt action to prevent the depression extending to business and industry saved the situation. The “panic” was checked in a few days. Wages were left unaffected; stabilization was insured; production was encouraged to continue as usual. This leadership was all the more notable, since it was practically the first of the sort ever to originate in the White House.21
The Evening Post believed none of the president’s remedies were as important as his leadership. He had succeeded in “imparting to the business of the country the idea that it was possible for it to avert the consequences of the Wall Street crash and that it was its duty and privilege to do so. What business entered upon with some misgivings when it was summoned to Washington, it will carry out with enthusiasm in somewhat the spirit with which it cooperated with the Government to win the Great War.”22
The Evening Post had a point. Some of Hoover’s moves were largely symbolic. Tax rates were so low at the time that a cut of one point, while proportionately impressive, made a small difference in a worker’s discretionary income. Hoover’s federal public works expenditures, even including $140 million pledged by Congress in the New Year, were piddling next to $2 billion spent at the state level and $9 billion in private construction. The fact was that the federal government, spending just 3 percent of GDP, was too small to influence business activity on its own. Nor did it have the capacity to suddenly ramp up billions in new spending, hence Hoover’s frequent encouragements to state and local governments to undertake public works. Providing leadership and inspiration to the investments of others was the most constructive thing he could do at that point in the crisis.23
It was the psychological dimension of Hoover’s approach to righting the economy that struck editorialists as radical, so much so that they struggled to articulate it. The Times said Hoover had attempted to work “a sort of mental transformation,” a change in “the mental attitude of a whole people,” substituting confidence and hope for fear and apprehension:
It is little to say that no President but Mr. Hoover would have gone about the business in the way chosen by him. No other President would have had the necessary knowledge or aptitude, born of practice, even if he had possessed the inclination. With extraordinary promptness and skill President Hoover made up his lists of railroad men, bankers, captains of industry, representatives of organized labor, whom he brought together at the White House day after day, not to lecture them, or impose his will upon them, but to elicit from them in friendly conference opinions and judgments which could be given out in summary to the whole country. It has been a fine piece of work, and there can be no doubt that a helpful spirit of reassurance has gone out from the White House to permeate the whole land.24
Economists joined journalists in congratulating Hoover on what was easily the most sophisticated response to a major economic event by any administration. “For the first time in our history,” wrote Keynesian forerunners William Trufant Foster and Waddill Catchings, “a President of the United States is taking aggressive leadership in guiding private business through a crisis.”25
At year’s end, just two months after what Keynes himself would call “one of the greatest economic catastrophes in modern history,” just two months after Wall Street was written off as a land of “vanished hopes, of curiously silent apprehension, and of a paralyzed hypnosis,” the country, while still cautious, appeared firm on its feet. There had been no bank runs or significant bank failures, no massive layoffs by leading employers, no unusual labor unrest, and no aftermath of public hysteria.26
Opinion was divided on the question of whether or not America was headed for a general recession. Professor Fisher did not believe so, and even among the bears, the consensus was that any downturn would be brief. All other corrections since the founding of the Federal Reserve had been short, however sharp, and they had not been met with the bold leadership of the Hoover administration.27
Handsomely as Hoover came through the crash, there was no question that it was a stroke of bad luck for his presidency. The Coolidge bull market was over, and it soon became clear that even if the havoc was contained, the economy was in a swoon. Industrial activity fell 9 percent in the last quarter of the year. Consumer demand slowed and commodity prices, too, were slipping.28
Shortly after lighting Washington’s community Christmas tree and making a national radio address, Hoover joined Lou for a families’ dinner party in the state dining room in the White House. The Marine Band played songs of the season while children played games. In the basement below, a switchboard operator noticed smoke curling into his room. He notified the duty policeman. By the time they located the source of the problem, smoke and flames were pouring out of the West Wing’s windows. Hoover was about to share his dessert with Susanne Boone, the physician’s daughter, when a staffer interrupted him with the news. He instructed the band to keep playing, grabbed his overcoat, and rushed out onto the frozen south lawn. He was preparing to direct the firefighting himself when Secret Service men reminded him of his eminence and hustled him off the scene. He reappeared moments later on the roof of the West Terrace, which connected the White House and the West Wing and afforded a premium view. He lit a cigar and watched calmly as Allan Hoover and members of the presidential staff pulled his personal files out of danger. Nineteen fire engines, representing practically the whole of the Washington brigade, arrived to battle the blaze. An unruffled Lou, seeing no reason to break off the party, distributed Christmas gifts to the children as the sirens wailed.
The fire was not declared out until 7:27 a.m. Fifteen firemen were injured in the fight. The cause was eventually traced to the overheated flue of an open fireplace in Secretary Newton’s office. The West Wing was gutted.29
Any hopes that the young Hoover administration could bury the ashes of 1929 and start afresh in the New Year were dashed by a glance at the legislative calendar, promising as it did the resumption of the tariff debate that had been left hanging at the end of the extra session. Hoover’s State of the Union address had failed to give Congress any new direction in the matter beyond asking that the legislation be expedited. Senators therefore contented themselves through January and February with sitting on their hard leather seats reading newspapers while colleagues stood one after another to beg a few more points of protection for camphor, bread, lard, lumber, etcetera. Hoover held himself as still as Coolidge ever had.
It was still more logrolling that finally broke the Senate deadlock. Grundy and an army of lobbyists struck enough deals for higher rates with enough insurgents and Democratic senators to win the advantage for protectionist Republicans. Smoot’s bill was approved in the Senate on March 25, 1930. A House-Senate conference returned the president’s flexibility provision to the legislation and removed the agricultural debenture. The unified bill put rates closer to the House version than the Senate version. It remained to be seen if the president would approve.30
Despite having passed both chambers, what would come to be known as the Smoot-Hawley tariff bill was less popular than ever. Borah and the Democrats continued to attack it as a betrayal of agriculture. Republicans disliked it, although they could not agree why: committed protectionists believed that the industrial rates were too low while administration loyalists thought they were too high and a violation of their campaign promises to farmers. The general public agreed with Lippmann that the act was “a wretched and mischievous product of stupidity and greed.” Hoover’s correspondence secretary told him “there has seldom been in this country such a rising tide of protest as has been aroused by the tariff bill.” Editorial opinion in forty-three states opposed the bill and more than thirty foreign nations were bombarding the State Department with protests.31
Piling on to this dissent was a coalition of 1,028 economists, representing the very discipline that Hoover had piloted to the main stage of political discourse over the previous decade. It called the bill a mistake and urged that the president, Washington’s foremost promoter of expert opinion, veto it. The economists had strong arguments: tariffs were already high, and international relations would be embittered by new American barriers to trade.32
But Hoover had no intention of vetoing the bill. He had engaged in tariff reform for political rather than economic reasons, and politics urged his signature. To reject the bill at this late stage would be to repudiate the work of his congressional colleagues, and to frustrate the many Republican congressmen planning to run on the fruits of their high-tariff efforts. It would mean an ignoble capitulation to the insurgents and the Democrats who had been determined to thwart and embarrass the administration. It would mean that Hoover cared more about tariff rates, on which he had been silent, than he did about the flexible tariff and the removal of the debenture, both of which he had promoted, and both of which were reflected in the final bill. It would also mean that he had wasted much of the first half of his term on a great legislative misadventure. In a quiet White House ceremony at 1 p.m. on June 17, Hoover signed the Tariff Act of 1930 and made the following statement:
It contains many compromises between sectional interests and between different industries. No tariff bill has ever been enacted or ever will be enacted under the present system that will be perfect. A large portion of the items are always adjusted with good judgment, but it is bound to contain some inequalities and inequitable compromises….
I believe that the flexible provisions can within reasonable time remedy inequalities, and that this provision is a progressive advance and gives great hope of taking the tariff away from politics, lobbying, and logrolling.33
Despite the hubbub, the economic impact of Smoot-Hawley was negligible. It moved the average tariff on dutiable imports in the U.S. from already high to slightly higher. The legislation was responsible for a 5 percent decline in American imports, an insignificant amount when dutiable imports represented just 4 percent of GDP in 1929. It did spread discriminatory trade policies internationally, most notably in the British Commonwealth, although by the spring of 1930 the depression itself was responsible for most of the damage to global trade volumes. Farmers received no real benefit from the bill, not surprisingly, in that they faced almost no foreign competition.34
The real impact of Smoot-Hawley was political, and it was Hoover who paid the price. He had started off talking about taking the politics out of tariffs, and in the end the politicians had carried the day, exposing him as a weak and inexperienced legislative manager with no real control over his party. His claim of victory on the flexible tariff provision was mere face saving: the slightly improved process would prove just as cumbersome and seldom used as the old.
Ugly as it was, the end of the tariff fight was liberating for Hoover on several fronts. It brought an end to an embarrassing political spectacle. It signaled the finish of the Second Session of the Seventy-First Congress and the beginning of a five-month break in legislative activity on the Hill. It also removed a cloud of uncertainty from the economic horizon.35
There had undoubtedly been a slump in the first quarter of 1930. Automobile production, steel production, and petroleum production were all down, as were department store sales and wholesale prices. The depth of the decline, however, was difficult to ascertain. Hoover read economics texts by the dozen and continued to look backward at recoveries from previous downturns, studying month-by-month data to estimate where the nation might be in the business cycle. He recognized that this was an imprecise exercise and grew frustrated by the dearth of reliable economic data. As always, he turned to experts to fill the gaps, appointing, for instance, a committee of statisticians to advise the government on methods of determining true rates of unemployment, which were elusive at the time. As he waited for its work, he had no choice but to guess and, true to a defensive nature, he tended to choose the most optimistic slices of whatever data was available. In fairness to him, even the more pessimistic reckonings of unemployment in early 1930 indicated that unemployment was nowhere near the peaks of 10 percent or 12 percent reached during the depression of 1921. Nor did the GDP appear to be headed for anything like the 23 percent decline of that previous calamity.36
By June, with the weather warming and the White House gardens in full bloom, Hoover was increasingly optimistic about the overall state of the economy. Among other positive signs, business and political leaders appeared to be following his advice to increase capital spending. The $4 billion worth of projects that had been inaugurated by the end of January was augmented in ensuing weeks. By March, thirty-six states were reporting either no unusual unemployment or only moderate and declining unemployment. Joblessness amounting to distress was centered in just twelve states, and in all but one of them governors reported that conditions were improving. The stock market was up 16 percent over the first half of 1930, recovering the level it had held the previous spring. Commodity future prices were above actual prices. Foreign lending was back to the pace of 1929 and industrial production was accelerating. With the Federal Reserve discount rate at 3 percent and falling, credit seemed cheap, and there had been no major banking or industrial failures. Employers had more or less kept their commitment to hold wages, and labor was at peace. Weaknesses remained, notably in steadily declining price levels, but a corner appeared to have been turned.37
Hoover went out on a short limb and assured Americans that “we have now passed the worst.” He told the Chamber of Commerce at its annual dinner in the Washington Auditorium:
We are not yet entirely through the difficulties of our situation. We have need to maintain every agency and every force that we have placed in motion until we are far along on the road to stable prosperity. He would be a rash man who would state that we can produce the economic millennium, but there is great assurance that America is finding herself upon the road to secure social satisfaction, with the preservation of private industry, initiative, and a full opportunity for the development of the individual.38
In thanking the business leaders in his audience for their part in the fight against economic ruin, Hoover made a bid for the historic nature of their mutual campaign:
On the occasion of this great storm we have for the first time attempted a great economic experiment, possibly one of the greatest of our history. By cooperation between Government officials and the entire community, business, railways, public utilities, agriculture, labor, the press, our financial institutions and public authorities, we have undertaken to stabilize economic forces; to mitigate the effects of the crash and to shorten its destructive period. I believe I can say with assurance that our joint undertaking has succeeded to a remarkable degree.39
Hoover was not alone in his optimism. Salvation Army workers in the Bowery reported that breadlines, swollen by as much as 50 percent over the winter, were now closing. Summer bookings for European travel were at a record high. Financial forecasters, including Moody’s, predicted rapid economic improvement, and the Harvard Economic Society, which had in November declared that a serious depression was “outside the range of probability,” which had in January declared that “the severest phase of the recession” was over, which had in March declared that America was “definitely on the road to recovery,” now declared that a “vigorous” upturn was due in the third quarter. One of the better minds in the Democratic Party, Bernard Baruch, lamented to a friend that Hoover would “have a rising tide” before the 1932 election, “and then he will be pictured as the great master mind who led the country out of its economic misery.” That the predicted uptick in economic activity did not transpire in the summer of 1930 had little effect on the optimistic consensus. “Untoward elements have operated to delay recovery,” said the Harvard experts, “but evidence nonetheless points to substantial improvement.”40
Hoover spent the summer resisting further countercyclical measures on the understanding that recovery was on the way and that further effort would gild the lily. He instead directed his energies toward a drought that scorched large parts of the Midwest and the South in July and August, threatening the crops and livestock of a million farm families. At the drought’s epicenter in Arkansas, temperatures reached one hundred degrees every day but one in a forty-three-day period. Farmers spoke of apples cooking on the tree and corn popping on the stalk. Feed stock was destroyed in the hardest-hit states, and some two thousand farm families in Arkansas lost their food crops as well.41
It was the kind of emergency Hoover had addressed so many times before, and he approached it, said his friend Mark Sullivan, almost with a sense of relief: like the prison crisis of the previous summer, the drought was a tangible problem, something he could get his hands on, unlike financial panics or slippery tariff boosters. A presidential holiday to the Rockies was canceled. Governors of the affected states were invited to Washington to make “definite plans for organization of relief.” The Red Cross, among other charitable institutions, pledged $5 million in aid to afflicted families. Drought committees were set up in every state under the auspices of prominent citizens. Railways would haul feed to afflicted areas at half rates. Road-building projects were organized to create temporary work for busted farmers.42
In early September, a sudden deluge brought relief to the parched acres, and the drought receded from the nation’s front pages, although not before ensuring another harsh year for farmers in the months leading to the midterm congressional elections.
Hoover was concerned for his party’s fate in the midterms. He did not much care what happened in the Senate, doubting that the chamber could do worse. The House was another matter: he was desperate to hold his advantage, feeling that anything less would reflect poorly on his performance and make it difficult for him to govern effectively. He understood that the usual dynamic was for incumbent parties to lose seats in the congressional election, but it was not historic norms, or the state of the economy, or the tariff outcome that seemed to him the greatest threat going into the election season. His deepest concern was over something new and, for Hoover, ominous in American political life.
James MacLafferty, a bouncy former California congressman who served as the administration’s liaison with the House, had a habit of stopping by the White House around 8 a.m. to catch the president before he started his day. He happened to be in Hoover’s office one August morning in time to hear an anxious rant about John J. Raskob’s Democratic National Committee and its determined efforts to “malign me and to undermine my influence.”
It had been customary for the national committees of the two great parties to remain silent and even shut down between presidential campaigns. Throughout the 1920s, the single permanent employee of the DNC had been an obscure and shiftless wreck of an ex-newspaperman who needed the paltry salary. After the 1928 election, however, the Democrats had retooled in a magnificent way. Raskob, as party chairman and chief financier, had committed $250,000 to what Scribner’s called “a first-class, high-grade, sixteen-cylinder publicity machine.” It would spend the entire interval between national elections attempting to reduce Herbert Hoover to human scale. Raskob rented a whole floor in the National Press building, filled it with clerks, secretaries, stenographers, and enough equipment to run a state-of-the-art media company. Installed at the center of this emporium was Charley Michelson, a fair-haired man with a patrician air that belied his frontier origins. A fine writer and a world-class controversialist trained in the Hearst stable, Michelson had abandoned the Washington bureau of the New York World to attack Republicans full-time. He was a thick cut above the hacks typically employed in political offices, and he had a $25,000 salary to prove it.43
Since Inauguration Day, 1929, Michelson had been bedeviling Hoover in an extraordinary and unprecedented manner. He had written many thousands of words magnifying Hoover’s mistakes and belittling his achievements. On learning that a colony of unemployed men in Chicago had dubbed their shanty town “Hooverville,” Michelson adopted the phrase and made it a national joke. He found more defects and weaknesses in Hoover than one man could possibly possess, and succeeded in imprinting in at least part of the public mind an image of an inept and indecisive leader bewildered by events and the responsibilities of office. The burden of practically every line Michelson wrote was to ask how a supposed economic genius had landed the country in a depression.44
What added immeasurably to Michelson’s potency was his novel method of distribution. Publicity offices of the major parties had traditionally produced reams of canned editorials and statements that only partisan newspapers would find publishable. Michelson, with no pride of authorship, put his words in the mouths of Democratic members of the Senate and House, who delivered speeches and granted interviews that landed Michelson’s barbs and insights on the front pages of even the quality papers. The Democratic base perked up. Wayward Democrats found their way back to the fold. More tension developed between Hoover, his partisans in the House and Senate, and the American people. Michelson was almost single-handedly bringing the party of Al Smith back from the dead at a time of unaccustomed vulnerability for Republicans.
Hoover had no answer for Michelson. The Republican National Committee had closed its national publicity office after Hoover’s victory. The committee was so weak in leadership that the president felt obliged to manage the congressional elections out of his own office. He and MacLafferty produced speaking notes blaming Democrats for the delay in passing the tariff and for the weakness of the economic recovery. MacLafferty repeatedly asked permission to unleash the Ku Klux Klan on Raskob, a noted Catholic. Hoover’s “natural sensitiveness was wounded” at this suggestion, said MacLafferty, who thought him weak. As a team, the president and his men were hopelessly outclassed by Michelson.45
At Hoover’s insistence, his office camouflaged its part in the congressional races, modest as it was. He did not want the accountability, and he did not want the bother. To campaign personally would have been to expose himself to the endless annoyances of receptions and parades, of glad-handing, posturing, and speechmaking on someone else’s behalf. He might have had to travel, and he might have to answer questions to which he had no answers: the future of Prohibition, for instance. He preferred to work at his desk on what he considered the real problems vexing the nation.
Congressional Republicans did not miss him in the campaign. Hoover’s leadership of the party was increasingly nominal. He had made little effort to know his caucuses and as a result he was unknown to them. He operated as though he did not need them and owed them nothing, and they learned to reciprocate. They did not fear him or crave his regard or affection. They were increasingly indifferent to him. Stubborn and inexperienced, he remained baffled that they could not face an issue as he faced an issue and see what he saw.
The truth was that Hoover and his congressmen were looking past one another, playing different games. The latter, as a body, had an experience of politics that was more personal and tribal than anything the president knew. In Washington, they were each one of 531 elected members of Congress. The press did not camp on their doorsteps, they needed to shout to be heard, they accumulated influence on the Hill by force of personality, by strategic alliance, and by seniority. They maintained their relevance back home by pushing local priorities, by riding single issues, and by grabbing headlines. The game was not of their making. It was a consequence of the constitutionally mandated congressional system.
Hoover was so sincere and determined in his efforts to rise above partisan politics that it probably never occurred to him how injurious his antipolitical lectures were to fellow Republicans. He was forever contrasting the high-minded, knowledgeable, and dispassionate public servant with the noisy, vote-grubbing, lobby-haunting politician, the man “prolific with drama and the headlines,” the man of “reckless ambition” and “demagogic folly,” of “vainglory,” of “the hustings.” He seems not to have been entirely conscious of the fact that his answer to almost every problem, whether Prohibition, the tariff, or the economy, was to take the politics out of it and hand it over to the experts or commissions of impartial thinkers he considered to be free of political toxins. His conferences, of which there were as many as two dozen running at a time in Washington, were a deliberate effort to bypass Congress and treat problems of government in the efficient and evidence-based manner he believed necessary in an increasingly complex and fast-changing world.46
Hoover was neither the first nor the last political leader to recognize that his job would be easier without politics. Congress has always been a circus, and compromise with it has always been to some extent self-defeating, and the increasing complexity of government has long required the best intelligence the nation has on offer. Hoover had his points, yet they were all beside the point. He was again misreading the requirements of his position: he needed to lead his party, Congress, and the people, as well as to solve problems. His efforts to bypass necessary political institutions were doomed to failure. Taking the noise, the conflict, the special pleading out of the system was taking the air from the legislators’ lungs and denying electors their representatives. His choice was between political engagement and political defeat.
Election day, November 4, was dull and rainy across the Eastern Seaboard. The cabinet met and engaged in a morose discussion of Republican prospects. The secretaries blamed Prohibition as much as the economy for what they expected would be a poor showing. Stimson’s diary record of the conversation proves the extent to which Hoover had built his cabinet in his own image:
The sentiment of the meeting was that the prohibition question must be put up in some way to the electorate in the form of a new amendment put forward but not endorsed by the Administration or the Republican party, so as to give the people of the nation a chance to vote on the question again and settle it, and, if possible, take the embarrassing question out of politics.47
The Republicans lost fifty-two seats in the House but still held a one-seat majority when the polls closed. They lost eight seats in the Senate, leaving them tied with the Democrats. The vice president’s tie-breaking vote gave the GOP nominal control of the Senate, but the insurgents returned a sizable caucus, leaving real control as elusive as ever. More impressively, Republicans maintained a nine-point lead over the Democrats in the popular vote. Their losses were concentrated in farm states and in the South, where Democratic voters, no longer alienated by Al Smith, resumed their traditional allegiances. The elections, in sum, were a setback, not at all a repudiation.48
Hoover nevertheless took the outcome hard, reading it as a vote of nonconfidence in himself. MacLafferty rolled into the president’s office the morning after, bearing results that had missed the deadlines of the morning papers. “Well?” asked Hoover, his face pale and serious, his eyes red and tired “as if he had been concentrating on close work.” MacLafferty informed him that the Republican margin in the House was unlikely to hold and then took him state by state through the Senate races. “It looks bad,” said Hoover with discouragement in his voice. He got up from his chair and paced the floor.49
MacLafferty blamed the results on Michelson’s “dirty work,” and got no argument from his leader. They discussed the need for a new RNC organization and tried, with no success, to think who could chair it. “That’s the trouble,” said Hoover as he stopped pacing. “I canvassed lists for weeks to find the right man. Lists of lawyers, businessmen, and others. I simply could not find the man, it seemed impossible.” They also discussed Prohibition, with MacLafferty arguing that the Republicans needed to consider a repeal of the Eighteenth Amendment. He believed it had caused them more trouble than the economy in the midterms and that it would cause them more trouble still in 1932 when the Democrats were likely to run on a wet platform. Hoover countered that aping the Democrats would do nothing to sustain the authority of Republicanism.
Both the chairmanship of the RNC and the party’s Prohibition stance were left unresolved at the end of their conversation. MacLafferty left the White House shaking his head at Hoover’s lack of political guile and regretting that the president could not be excused from political duties. “What a pity,” he said, “that Herbert Hoover is not permitted to give all his thoughts and time to serving the people of our country instead of being plagued and tortured by those infinitely beneath him in character, ability and decency.”50