When one walks around New York now, away from its more cosmopolitan paths, in streets where flow the business and industry of the city, one finds the unemployed on every corner, in almost every doorway where there is no activity. They saunter by silently, and strangely enough they seldom beg….These men want work, and they want it badly, so badly they don’t like to speak of their need.
That paragraph, written in the last weeks of 1930 by the legendary New York newsman Russell Owen, described a recent phenomenon on the city’s streets: the new unemployed, men who had little in common with the perpetually unemployed, the “floaters” and casual laborers who haunted the city’s breadlines and soup kitchens even in good times. These were “white collar” workers, former managers and supervisors, people accustomed to providing for families, and it was their presence on the street that “stamps this unemployment situation as somewhat different from that which existed in previous years.”
Although many of these men had sold their overcoats, wrote Owen, they were generally neat and well dressed. Some carried bundles under their arms with spare shirts, a clean collar, a bar of soap, and a canvas sheet under which to flop at night. They slept on benches or rode the streetcars until dawn and visited employment offices in daylight, or sold apples on street corners. They slid timorously into the doorways of Salvation Army shelters for their meals, lining up for bowls of soup, hats low over their eyes, staring straight ahead, silent, “bent on some inner misery of spirit.”1
Owen’s was among the very first in an emerging genre of stories describing a profusion of human damage that marked this depression as out of the ordinary. Now heading into its second winter, the slump was frighteningly deep and tenacious, compounding the suffering of the indigent and sharing their pain with classes of people generally buffered against severe loss and privation. The last weeks of 1930 mocked earlier assumptions of a quick economic rebound. In addition to the social trauma described by Owen, they brought an abrupt end to what had been the most reassuring trend of the decline. Hoover had been one of many to take solace in the absence of bank failures since the crash. A mid-November crisis in Nashville robbed him of that crutch.2
Caldwell and Company was the largest banking chain in the South, with $200 million in assets. It was also overextended and vulnerable to the drought and collapsing farm incomes. It closed its doors in mid-November and was followed in short order by more than a hundred associated institutions in Kentucky, Arkansas, North Carolina, and elsewhere in Tennessee. The closures shook the faith of depositors, who began pulling funds from even healthy banks throughout the region. Only the quick action of the Federal Reserve Bank of Atlanta, which pumped liquidity into the regional banking system, checked the spread of the panic.3
Before the dust had settled in Nashville, the sloppily managed Bank of United States, fourth largest in New York, began crumbling under the weight of a huge portfolio of unsalable real estate. Mounted police were called to keep stampeding customers from its doors. State banking officials sought a merger partner or a buyer of the institution’s assets, but as none was forthcoming they gave it up as insolvent. The Bank of United States became the largest commercial bank failure in U.S. history to that time. The Federal Reserve Bank of New York followed the lead of its southern cousin, making cash and liquid assets available to banks in its jurisdiction, and again a broader panic was avoided.4
The twin collapses at the end of 1930 confirmed in Hoover’s mind that the banking sector was a weak link—perhaps the weakest—in the American economy. There were some twenty-five thousand banks in America, most of them single, independent units, some with as little capitalization as a corner store. They were overseen by fifty-two separate regulators of varying quality, and even in good times they failed at a rate of five hundred a year. Hoover had asked Congress to study the banks in the wake of the crash of 1929. Specifically, he had wanted to understand if the growth of chain banking would increase the stability of the system, and if something might be done to prevent the flight of bankers from national charters to less restrictive state regulations, another development that diminished oversight. His request of Congress had gone unheeded, perhaps in part because Hoover was at the same time reassuring the country that the financial system was fundamentally secure.5
Unnerving as the problems in New York and Tennessee were, the fact was that they did not spread, indeed, they seemed to pass almost as quickly as they arrived, an immense relief to the president. It was not long before he could take the resolution of yet another potentially devastating situation as a sign of encouragement. It might seem strange to find positive signs in a round of bank failures, however brief, but by a compelling twist of logic the persistence of the depression, together with the fact that the recovery of the previous spring had proved a false dawn, made an imminent rebound seem all the more likely. Surely by the time a slump had produced new classes of vagrants and delivered seismic jolts to the financial sector, the worst had passed. Hoover was not at all alone with this line of thinking. “The depression,” wrote the Commercial & Financial Chronicle, “has continued so long and has proceeded so far that it seems hardly tenable to believe that the end is still far off.” The latest prediction of the Harvard Economic Review was for “the end of the decline in business during the early part of 1931” and steady revival for the remainder of the year. Few experts dissented from that outlook. Businessmen, too, were voicing a new confidence.6
Expecting that the anticipated recovery might take weeks or months to gain traction, Hoover, before Christmas, still took the precaution of asking Congress for an emergency appropriation for further public works to bolster what was already “the greatest program of waterway, harbor, flood control, public building, highway, and airway improvement in all our history.” He also recommended loans to drought-stricken farmers to purchase seed. He hoped these initiatives would boost employment, stimulate agriculture, and forestall more ambitious relief plans in Congress. New spending proposals worth a total of $4.5 billion were floating around the Hill. Hoover thought any substantial increase in federal spending reckless in light of the probable upswing.7
He took a confident tone to the Gridiron Club at the end of 1930. After opening his speech with bitter teasing of the gallery for prioritizing news of political combat and personal grievance over the activities of “the honest, plodding public official, intent upon building up safety and welfare of the people,” he offered assurances that America’s prevailing troubles were momentary, and that no one would go cold and hungry over the winter. He professed astonishment at the pressure brought against him to reconsider the fundamentals of American government in relief of a passing economic storm. “Not an hour has gone by,” he said, without “some demand, backed by some important influence, that we should take over more and more responsibilities and more and more functions from the citizens, the States, and municipalities.” It was time “to abolish the illusion,” he said, that the national government was a remedy for every ill. No federal dole, he chided, could provide wage earners with the broadly distributed benefits of his program of wage maintenance and public works investment:
No proposal of charity by the Government can equal a small part of the sums attained by the thousand earnest local committees now engaged in relief of distress in our counties and towns. I do not believe they will fail and I believe that we shall again demonstrate the strength and devotion of our people to the fundamentals of our democracy.8
It was in this spirit that Hoover wielded his veto like a righteous sword over the final months of the Seventy-First Congress. The Senate passed a bill in the first weeks of 1931 providing for federal operation of a wartime dam and nitrate plant at Muscle Shoals on the Tennessee River. This was a pet project of Nebraska’s Senator Norris and his fellow insurgents, who wanted the government to use the facilities to make fertilizer and generate power, as well as to build transmission lines, all in competition with private industry. When it made its way to his office, the president smote it on grounds that close examination of “the capital invested, the available commercial power, the operating costs, the revenue to be expected, and the profit and loss involved from this set up, were discouraging, even before asking whether the Federal Government should or can manage a power and fertilizer manufacturing business.”9
Hoover proceeded to ask whether Washington should or could operate the Muscle Shoals plant. Here was the first hint of a new Hoover approach to legislative matters, an adjustment urged by the embarrassments of the first two years of his mandate. Rather than hold the battle on the field of economic feasibility, he frankly acknowledged that the question of government involvement in the power business was a political one, and that the Norris Bill had become a potent symbol for those favoring a more direct role for federal administrators in the economy. Regardless of the fact that the Muscle Shoals project had much in common with the Boulder Canyon project he had championed, he denounced the legislation on political grounds.10
There might be national emergencies, he said in his veto message, that require the government to “temporarily” enter a field of business, and there might be localities in which Washington would be justified in constructing dams and reservoirs to aid navigation and to control floods, and power production might be a “byproduct” of these efforts. But for the federal government to deliberately “build up and expand…a power and manufacturing business is to break down the initiative and enterprise of the American people; it is destruction of equality of opportunity amongst our people; it is the negation of the ideals upon which our civilization has been based.” He closed his message:
I hesitate to contemplate the future of our institutions, of our Government, and of our country if the preoccupation of its officials is to be no longer the promotion of justice and equal opportunity but is to be devoted to barter in the markets. That is not liberalism, it is degeneration.11
A second fight with Congress was over a bill from the House of Representatives proposing to let veterans borrow against compensation due them in 1945 for service in the Great War. The administrator of veterans’ affairs told Hoover that if the House had its way and soldiers were permitted to borrow up to 50 percent of the value of the promised payments, the drain on the public purse could reach one billion unbudgeted dollars. The president and his cabinet were united in opposition to the so-called bonus scheme, seeing it as a misguided product of effective lobbying. Most of the country’s 387,000 veterans were employed, and the government, having spent $5 billion on various pensions and disability allowances since the Great War, could not be accused of shirking its obligation to them or their dependents. Even if the administration, already running a significant deficit, wanted to spend more on relief, there were far better ways to spur employment and industrial activity than to write checks to hundreds of thousands of men able to care for themselves.
Hoover claimed that the bonus bill would do the veterans more harm than good in the long run: “The future of our World War veterans is inseparably bound up with the future of the whole people.” Improvident use of federal funds would inflict “injury to the country as a whole” and leave all Americans, including veterans, in worse shape. In a demonstration of veterans’ enormous influence, Congress immediately summoned the votes to pass the Bonus Bill over Hoover’s objections.12
His third veto gored the handiwork of Democratic senator Robert Wagner, who introduced a bill for a system of federal employment agencies. This was a delicate situation for Hoover. Wagner was a man close to his own heart, a champion of scientific measurement of social phenomena and a supporter of countercyclical public works spending. He liked to quote Hoover’s speeches from the 1921 President’s Conference on Unemployment and he cited as precedents for his proposed emergency relief to drought sufferers Hoover’s humanitarian efforts in Belgium and Russia. Hoover, moreover, was on record as wanting to improve federal employment services.
His objections to Wagner’s bill were, again, political. The senator and like-minded Democrats were working in lockstep with the insurgents, and Hoover was loath to allow them any semblance of momentum in the waning days of the lame-duck session and on the eve of an anticipated recovery. He blocked the bill on grounds that it would abolish existing federal employment offices and take months if not years to replace them with new services.13
The vetoes came at a cost. Borah, favoring a more aggressive use of government resources to combat the depression, denounced each in turn and also attacked Hoover for indifference to the suffering of southern drought victims in another of his floor-shaking speeches in the Senate. Borah quoted a letter from a Red Cross worker in the South who visited the home of a widow with four emaciated children with nothing to eat but rancid food. Here, shouted Borah, was a family being fed “in a way that no one would feed his dog.” Why was Hoover, who had famously relieved drought sufferers along the Volga, refusing to do more for the hungry and needy of America? Borah demanded a gift of $25 million to the Red Cross for drought sufferers and another special session of Congress to deal with drought relief. A majority of his colleagues rose to their feet in a roar of approval. Republican members sat in silence and offered no reply.14
Hoover stated the obvious in conversation with Stimson. Borah, he said, was “very bitter” toward him. He also told Stimson that he had it on “very good information” that the Idaho grandstander was maneuvering to organize a third party comprised of progressive Democrats and Republican insurgents. Stimson thought him paranoid and crazy. In fact, Hoover’s intelligence was accurate. Senators Borah and Norris, and a coterie of progressives from both the Democratic and Republican parties, met the second week in March to devise a policy platform intended as the foundation of a new party with an eye to the 1932 presidential race. What Hoover overestimated was the ability of this pack of mavericks to work constructively in harness. The progressive conference went nowhere.15
The White House had little in the way of an immediate answer to Borah’s attack. It released a calm statement reiterating Hoover’s faith in private drought aid, and he promised to lay the matter before Congress in the event that local efforts proved insufficient. He waited a week, and then a few days more, to offer a fulsome, if indirect, riposte to Borah.16
Hoover had developed a habit of using public holidays and historical anniversaries as opportunities to explain to the public the philosophical underpinnings of his policy. Perhaps no date in the calendar held more significance for him than February 12, the birthday of the founder of the Republican Party, and an occasion Hoover, alone among Republican presidents, always honored with a public speech. On this evening in 1931 he addressed national audiences over the NBC and CBS networks directly from the Lincoln Study. He spoke with reverence of sitting in the very room in which the great man had toiled by day and night that the Union might survive its most desperate trial. He said he could feel Lincoln’s spectral presence in the furniture and in his portrait over his mantelpiece. The speech reminded the American people that they had endured greater disasters than this depression, and identified one issue from Lincoln’s time as distinctly relevant to their own:
In Lincoln’s day the dominant problem in our form of government turned upon the issue of States’ rights. Though less pregnant with disaster, the dominant problem today in our form of government turns in large degree upon the issue of the relationship of Federal, State, and local government responsibilities.17
Recognizing that the federal government had assumed greater responsibilities than in Lincoln’s time, and that it might do more in the years ahead, Hoover nonetheless insisted that federal action, particularly in social and economic matters, be limited to supplementing rather than superseding lower levels of government. To do otherwise would threaten the principle of local government, which was the basis of self-government: “Where people divest themselves of local government responsibilities they at once lay the foundation for the destruction of their liberties.”18
Hoover set these ideas in the larger context of his conception of government as outlined in American Individualism. The purpose of a national government, he said, is to provide ordered liberty and equality of opportunity so that every individual might rise to the level of attainment of which he or she is capable. It is on this fair playing field that the character of individuals is formed, and they make their character by shouldering responsibilities, not by escaping them. National governments destroy character when they direct lives, undermine initiative, and reduce citizens to servants of the state. This, said Hoover, was Lincoln’s understanding of government, and the critical test facing Americans in a depression was to respond in the spirit of that understanding, to preserve the principles of American life laid out by the Founders just as Lincoln had preserved them in his time. Half the world, Hoover observed in conclusion, was enmeshed in social and political revolution, fighting for or against new governments and ideologies. Amid this turmoil, America was a beacon of progress and stability. He counseled against despair. He told the people they need only have faith in one another and in the leadership of his government:
Never before in a great depression has there been so systematic a protection against distress. Never before has there been so little social disorder. Never before has there been such an outpouring of the spirit of self-sacrifice and of service….The resourcefulness of America when challenged has never failed….
Victory over this depression and over our other difficulties will be won by the resolution of our people to fight their own battles in their own communities, by stimulating their ingenuity to solve their own problems, by taking new courage to be masters of their own destiny in the struggle of life. This is not the easy way, but it is the American way. And it was Lincoln’s way.19
While economic news and the president’s vetoes made their share of headlines in the early months of 1931, the dominant story and the preoccupation of the administration was, in fact, Prohibition. George Wickersham’s National Commission on Law Observance and Enforcement delivered its report on Prohibition enforcement to the White House on January 7. Having heard that the commission would not take the clear dry position he wanted from it, Hoover dreaded receipt of the document. An ambiguous outcome would only exacerbate the debate and “split the Republican Party from top to bottom.” Hoover sat down and read all ninety thousand words of the report in a day, and his heart sank.20
Two members of the eleven-member panel wanted to repeal the Eighteenth Amendment, five were for its revision, and four advised further trial. One of the few points of unanimity was that “there is yet no adequate observance or enforcement” of Prohibition, hardly the endorsement Hoover wanted for his compliance campaign. Matters were further confused by the personal comments of several panelists appended to the general report suggesting that the commission had agreed upon immediate revision. It was, as one newspaper aptly noted, “a Wickershambles.”21
On an afternoon shortly after Hoover’s receipt of the report, Stimson walked in on a discussion of its merits between the president and Mark Sullivan. To the secretary’s suggestion that it was a fine piece of work, Hoover leaned back in his chair and said, “Well, we were just coming to the conclusion that it is a rotten report.”22
Stimson pressed his case. “You can’t afford a split on your own baby,” he said. It would look better for the administration to embrace the document for what it was. Most people, said Stimson, believed that the outcome was fixed, that Wickersham would deliver a dry report whatever the evidence. “It’s up to you to show that it isn’t a joke,” he told the president, but instead “a really thoughtful, analytical report and the best thing that has yet been put out on the subject.”23
Stimson was ingenuous: no amount of lipstick was going to save the Wickersham Report, and the president was in trouble. Like the eleven-member panel, Americans were hopelessly divided on the Eighteenth Amendment. Michigan was handing out life sentences for a fourth conviction of trading in liquor, and Kansas was threatening the death penalty for bootlegging gangsters, while the New York police commissioner reported thirty-two thousand speakeasies operating in his jurisdiction, and Maryland had quit enforcing the Volstead Act entirely. Wickersham found that “taking the country as a whole, people of wealth, businessmen and professional men, and their families, and, perhaps, the higher paid working men and their families, are drinking in large numbers in quite frank disregard of the declared policy” of Prohibition. The volume of alcohol consumption appeared to be growing, and social attitudes toward liquor, especially among women and the young, were notably looser than they had been a decade or two earlier. Hoover’s sincere efforts to improve enforcement had achieved nothing, as had his attempt to broaden the debate beyond wet versus dry.24
An honest reading of the report argued for Hoover to retreat from his firm dry position. Many in his circle, including MacLafferty, Edgar Rickard, and Jerry Milbank, head of the Republican National Committee, were nudging Hoover toward a compromise, whether it be legalizing low-alcohol beer or giving states more latitude in enforcement. Milbank worried that a staunchly dry position would make fund-raising a chore for the party. Hoover would not budge. He did not want to go down in history as the leader who had frustrated the cause his mother and her forebears had so long upheld, and politics also argued against a retreat. Support for Prohibition had won him Borah’s endorsement and had helped him get elected. The dry ranks, while undoubtedly thinning, remained considerable, and they could be counted on to vote Republican in 1932. Hoover was also tormented by the thought that Borah would use any moderation on his part as an excuse to raise a third party of dry Democrats and insurgents. When he could get his mind off Borah, he was convinced that Gifford Pinchot, recently sworn in as governor of Pennsylvania and reckoned as a Republican presidential aspirant, would exploit any softening of his position to pry away his dry support and steal his leadership. Neither scenario was likely. The fact that Hoover was so easily spooked was further evidence of his unfamiliarity with political strategy and the workings of his party.25
Feeling trapped, seeing no clear and politically advantageous way forward, Hoover tried a dodge. He forwarded the Wickersham Report to Congress with a message declaring it to be unambiguously dry and supportive of still more enforcement:
I am in unity with the spirit of the report in seeking constructive steps to advance the national ideal of eradication of the social and economic and political evils of this traffic, to preserve the gains which have been made, and to eliminate the abuses which exist, at the same time facing with an open mind the difficulties which have arisen under this experiment.26
Hoover made it clear that he opposed any manner of revision. His message only added to the confusion and disappointment surrounding the report and intensified the debate among wets and drys over whether to keep, dump, or rewrite Prohibition.
The president’s faith in the underlying strength of the American economy seemed to be rewarded in the first months of 1931. For the second time since the crash, there was evidence of recovery, as anticipated by Hoover, Harvard, and the Commercial & Financial Chronicle, among many others. Industrial production and business activity were picking up by most measures. Payrolls were gaining. Bank failures were fewer.27
There was more good news in that reports to the cabinet suggested Americans were receiving sufficient aid to make it through the winter. Predictions of starvation in New York had come to naught, and Arkansas, the epicenter of the drought and the most severely afflicted state in the Union, was from the perspective of its governor, Harvey Parnell, answering the call of the destitute with local charities and the Red Cross. Parnell saw no need for federal assistance. Having learned from the mirage of the previous spring to be cautious in his public declarations on the economy, Hoover said little at this point. He was keenly aware that the depression was not well understood. It seemed to have a mind of its own, bent on defying prediction.28
Just how strange and perplexing a phenomenon the depression had become was apparent at a series of meetings hosted by the League of Nations in Geneva in March. The economic councils and research institutes of fifteen nations had sent their best minds, including future Nobel Prize winners Friedrich Hayek of Austria and Bertil Ohlin of Sweden, to investigate the causes of the downturn.
Edward Eyre Hunt, a veteran of the Belgian relief and a favorite Hoover policy adviser, represented the United States, the only non-European country at the meeting. Summarizing the administration’s experience of the depression to date, Hunt emphasized how economic forecasts had driven policy:
The business leaders whom the President summoned to the White House conferences in November 1929, the economists who met in Washington in December of the same year, agreed that the depression would be like [the light recession of] 1923 rather than like [the deep recession of] 1921. Private as well as public policy under aggressive Government leadership was based upon the belief that the depression would be short. We had a false dawn in the spring of 1930. This, most of us believed, marked the beginning of the end. Instead it marked the beginning of still deeper depression.29
Hunt went on to say that there was general agreement in America that the economy was improving in the early months of 1931, although some worried that this might be another mirage. The government estimated that between 4.5 and 5 million Americans were unemployed, with many more working part-time. It was not confident of the accuracy of its numbers.
In a private memo to Hoover, Hunt wrote that the economists at the gathering were a surprisingly youthful group, with only a single bald head among them. They spoke English, and many had studied in the United States. Despite these commonalities, they could agree on little more than that the depression had started outside of the United States and that it was harsh. The list of possible causes of the depression ran to several pages. Poland, Finland, and Germany dated it from 1928, other countries from 1929, and Denmark from 1930. Some viewed it as a domestic problem, others as an international one. Some considered it the downside of a routine business cycle; others thought it represented structural economic change and a flaw in capitalism requiring a new economic system; some thought both. No one could adequately explain why prices were falling so sharply. There was no certainty around the role of capital movements, or the effect of the crash of 1929, the impact of tariff reforms, or the influence of political events and psychological factors. There was no unity on whether it was best to have workers fully employed and making goods at lower prices or to tolerate a 10 percent increase in unemployment and see goods sold at higher prices. There was no agreement on the afternoon of the second day on how long to adjourn for lunch, the Nordics wanting to get back to work, the Latins holding out for a three-hour break.*
Of course, Hoover’s understanding of what was happening in the economy was also flawed. Like every other responsible actor on the world stage, he took a gold-based monetary regime as something approaching divine law. He also harbored his share of bizarre ideas, including the conviction that his enemies had organized “concerted bear raids for political purpose” on New York stock markets and Chicago commodity markets. These raids, he believed, were designed to drive down prices, making money for the perpetrators and spreading distress to undermine his administration. At his request, the attorney general’s department investigated his suspicions, finding plenty of short selling but no illegal activity, and no plot to torment the president.30
These lapses notwithstanding, few men alive could match for depth and breadth Hoover’s perspective on the global economy. He attributed the depression to a combination of factors. Domestically, easy money, speculation, and an imbalance of production and consumption had led to the crash of 1929 and a rather predictable downturn in the business cycle during the first half of his term. Behind all this, and moving center stage in the second half of his term, were a multitude of global forces, most of them traceable to the Great War, its destruction of life, property, and productive capacity, and its legacy of economic instability and political hostility.
Germany and Austria, two countries groaning under the weight of reparations due the Allies, notwithstanding two rounds of renegotiations that had lightened their obligations, were in Hoover’s estimation ground zero in the global depression. Their troubles had been aggravated in 1928 by the Federal Reserve’s decision to raise its rates, a move that pulled funds home to America and deprived Central Europe of much-needed capital. In response, German chancellor Heinrich Brüning raised interest rates to defend his own currency, a move that inflicted more economic pain on his people, and still recovery eluded him. The unpopularity of his policies fueled his political opposition, most alarmingly Adolf Hitler’s National Socialist Party. To sustain his popularity, Brüning competed with the Nazis in expressing bitterness over the terms of Versailles. He expanded his navy in contravention of the treaty and talked of a customs union with Austria, which the French saw as a first step toward annexation, also forbidden by the treaty. Brüning further threatened to suspend payments on reparations, a move that seemed calculated to drive France mad.31
Hoover had been studying the German and Austrian problems along with other elements of what he called “the malign inheritances” of the Great War. He viewed its economic, political, and military legacies as inextricably linked. He had his Commerce Department furnish him with memoranda on the war debts of the combatant states, as well as their intergovernmental debts, volumes of trade, and past and present levels of military spending. He was aghast to find that the world was spending $5 billion annually on arms, 70 percent more than prewar levels. France had doubled its arms spending from pre-crash levels in reaction to what it considered the deliberate anti-Versailles provocations of Brüning and the rise of German extremism. Millions of European soldiers had yet to be demobilized despite the Armistice and the signing of the Kellogg-Briand Pact. This was “a gigantic waste,” said Hoover. The potential savings from rigorous demilitarization would buy a great deal of economic recuperation.32
He had already made headway in his campaign for disarmament. The London Naval Conference, a child of his meetings with Prime Minister MacDonald in the autumn of 1929, had seen the United States, Britain, Japan, Italy, and France agree to restrictions on submarines, destroyers, battleships, and other classes of vessels. Hoover hailed the agreement as a net savings of more than $2 billion and a diplomatic landmark representing “the final abolition of competition in naval arms between the greatest naval powers, and the burial of the fears and suspicions which have been the constant product of rival warship construction.”33
He proposed to the International Chamber of Commerce that the naval agreement be followed by sharp reductions in total arms spending to allow governments to lower taxes, balance their budgets, invest in productive industries, and reduce tensions around the world. He also wondered if some sort of moratorium on reparations and international war debts, including the enormous sums owed to the United States, would further alleviate the pressures on European economies. It seemed a necessary measure, albeit one fraught with political danger, at home as well as abroad.34
America had yet to own up to the relationship between war debts and reparations, although the connection was obvious to the rest of the world. Throughout the 1920s, heavy lending by Americans assisted Germany in making its reparations payments to the Allies. France and Britain, in turn, relied upon German payments to service their war debts to the United States. And so the money passed from capital to capital in a circle of enablement and dependency that Americans, led by their politicians, most notably Coolidge, stubbornly refused to acknowledge. Even when the withdrawal of Wall Street credit disrupted the circle in 1928, leaving Germany exposed, Washington still wanted to collect the $10 billion owed it by the Allies. Why, asked Main Street, should taxpayers be left holding the bag for Europe’s war? Why should they contribute another cent to the sustenance of ancient, irredeemably corrupt, war-mad peoples on the other side of the Atlantic when their own economic futures seemed so uncertain?
Wall Street viewed the issue differently. The reduction or nullification of intergovernmental debts would lend a measure of security to its outstanding private loans to Germany. Financiers were all for cancellation, an attitude that did nothing to endear them to the people, or to the president. “Sitting in New York, as you do,” Hoover told Thomas Lamont of J. P. Morgan, “you have no idea what the sentiment of the country at large is on these inter-governmental debts.”35
Although conscious of the plight of Central Europe, Hoover did not move until a crisis approached. On May 5, his ambassador to Germany, Frederic Sackett, returned to Washington warning of a perilous state of affairs at his post. “The political disturbances are so extreme,” he said, “the misery of the people is so great,” and the pressures of reparations so high, that Germany was facing ruin or revolution without immediate assistance. Sackett’s bleak view was validated just six days later when Creditanstalt, known to Hoover as the most important banking institution in the old Austrian Empire, suddenly collapsed. Riots broke out in the streets of Vienna, and the country’s entire banking structure seemed ready to topple. The panic spread to Germany, causing more social unrest and threatening its much larger banking system. Money and gold fled both countries despite high central bank rates. Much of the specie landed in the United States, where, of all places on earth, it was least needed. New York markets watched the havoc and went weak in the knees. The Dow Jones Industrial Average, which had rallied in the first quarter of 1931, the second false dawn, now sank to a new low of 122 points, one-third of its pre-crash high.36
“Just as we had begun to entertain well founded hopes that we were on our way out of the depression,” wrote Hoover in the immediate wake of these events, “our latent fears of Europe were realized in a gigantic explosion which shook the foundations of the world’s economic, political, and social structure.”37
Only months into his new job, Hoover’s new press secretary, Theodore Joslin, was still grappling with the vagaries of his master’s moods and habits. He noted in his diary that while lesser matters prompted the president to shout “ ‘damn’ with the best of them,” the great pressures now descending on him seemed somehow to compose him. He went about his business without any outward evidence of disturbance except, in the most trying of moments, a slight twitch in his facial muscles. He complained only once, when Joslin one day walked into his office, found him pacing the floor, and asked what was the matter. “This is a cruel world,” said the president before quietly returning to his work.38
Henry Stimson returned to his office late on the unbearably warm afternoon of June 5 to find a telephone message from the president summoning him to the White House. Hoover was alone when he arrived. Secretary Mellon and his undersecretary, Ogden Mills, were called in from another room down the hall. Hoover launched directly into a description of the rapidly degenerating European situation. The failure of Creditanstalt, he said, had brought Austria and Germany to the brink of financial collapse, and an overthrow of the German government was a distinct possibility. The movement of gold to the United States was “paralyzing central banking institutions the world over.” He recorded what followed in his own aide-mémoire:
I had a definite proposal to lay before them. That was that we should postpone all collections on Allied debts for one year in consideration of all the Allies making similar postponements of reparations and all claims during the same period. I further explained that the world needed some strong action which would change the mental point of view, and that I felt perhaps such an action might serve this purpose of general reestablishment of courage and confidence.39
Hoover went around the table and asked his secretaries for their thoughts. Stimson was favorable. He predicted that the proposed moratorium would buoy public opinion on both sides of the Atlantic. Mellon opposed the whole scheme. Mills agreed with Mellon and pointed out that Hoover had no executive authority to effect such a bargain, and that it would be impossible to secure approval without a special session of Congress. Stimson lingered in Hoover’s office after the meeting and found the president determined to forge ahead whatever the obstacles. The Great War, he said, had been prolonged by a lack of initiative from all concerned parties. He wanted to meet the European situation head-on rather than let it come.40
Later that evening Hoover presented Joslin with several pages of notes summarizing his position. “This,” he said, “is the most daring statement I have ever contemplated issuing.” He wanted it known, however, that he had not yet decided to release it.41
The next week brought flurries of cables and transatlantic telephone calls among administration officials and European governments and bankers, as well as tense and private communications with Eugene Meyer of the Federal Reserve and Wall Street power brokers Owen Young and Bernard Baruch, among others. Hoover received daily briefings on the volumes of gold exiting Central Europe and on how Brüning was faring in the Reichstag.
In spare moments, the president and Stimson argued heatedly over whether to act alone and unconditionally or in concert with other nations, whether to hold reparations and international war debts separate or admit that they were related, whether to bind the moratorium to arms reductions or to keep those issues separate, whether to impose a one-year or a two-year moratorium. They challenged each other, they wrote and rewrote statements, they waffled, they switched sides, and they apologized for intemperate language. Their options and their outlooks changed daily, and sometimes hourly. In one moment they would be concerned about getting France, “the fussy nation,” to agree to a multiparty deal, and in the next they would fear France and England might forge their own bilateral agreement and dump an objectionable solution in America’s lap. Few things scared both men more than the prospect of the United States being transformed into a direct claimant against Germany for her reparations payments. Through it all, the situation continued to deteriorate. Germany announced that it could no longer afford to pay reparations, leading to a swirl of rumors that it would soon disallow foreign withdrawals of gold and capital.42
Stimson, like Joslin, spent a good part of his time in the executive presence trying to crack Hoover’s code. Being the better observer and having the advantage of sitting in the cabinet, he registered a greater range of emotional activity in the president than did Joslin. He watched Hoover agonize over every error, perceived error, and narrowly avoided error. He logged in his diary “discouraging, pessimistic blasts” and black moods during which the president would take the grimmest view of every problem, drawing down the administration’s “stock of optimism” and adding to the almost insuperable burdens of the cabinet and staff. That he was so sensitive to rumor, criticism, and opposition, losing whole nights of sleep when under attack, left Stimson pained and baffled. “If he would walk out his own way,” said the secretary, “it would make matters so much easier.”43
While Stimson would never entirely acclimate to Hoover’s dark moods, he did come to appreciate that they represented a psychological process more than the true state of his morale and his willingness to fight. He marveled at how the president’s public comments, the deliberately drafted products of careful reflection, continued to be upbeat and inspirational in the most trying of situations. Said Stimson:
In every important crisis which I have had with him and which we have faced together, he has always gone through a period in which he sees every possible difficulty and gets terribly discouraged over it, and seemed for a long time to be going backwards. When he finally does make up his mind and does act, he turns to it with great courage.44
It was not until Stimson’s spirit had been almost crushed that Hoover finally decided on a course of action for Central Europe. Over a weekend at Rapidan, he determined to push for a one-year moratorium on reparations and war debts. He gave up his Sunday, June 14, the last day of trout-fishing season in Virginia, to polish three speeches for delivery on a three-day swing through the Midwest in the coming week. On his return, he would seek bipartisan congressional support for the moratorium and then announce it to the world.
* There was relatively little discussion throughout the conference about monetary policy and the gold standard, which we now know to have been critical factors in the Great Depression.