Political reporters were eagerly anticipating Hoover’s western junket, which they viewed as the informal kickoff to the 1932 election cycle. A score of newspapermen boarded Hoover’s special train bound for Indiana and watched what looked to them very much like a campaign trip. The president appeared on the train’s rear platform and met state party chiefs, women’s committees, and other delegations at every major stop on the route to Indiana. He arrived in Indianapolis on Monday evening, June 15, for an address to the Indiana Republican Editorial Association and was greeted at the two-acre Manufacturers Hall on the state fairgrounds by a standing ovation. He was served a plate of fried chicken heaped so high and served by a waitress so fetching that he momentarily stopped scribbling notes on his speech, looked up, and beamed. He received another lengthy ovation when he stood to speak, and still more cheering when he invited the men in the crowd to take off their coats in consideration of the oppressive heat. He finally addressed his audience with more vigor than he had shown at any time since assuming office, and he gave them perhaps the best speech of his presidency.1
Hoover repeated his thesis that the depression was rooted in the Great War and told the editors that its spread around the world could not be explained simply in terms of shrinking global trade and lower commodity prices. The U.S. economy was sufficiently self-contained to withstand those blows. More virulent and damaging was the climate of fear Hoover had been striving to allay since the first days of the Great Crash.
Fear and apprehension, whether their origins are domestic or foreign, are very real, tangible, economic forces. Fear of loss of a job or uncertainty as to the future has caused millions of our people unnecessarily to reduce their purchases of goods, thereby decreasing our production and employment. These uncertainties lead our bankers and businessmen to extreme caution, and in consequence a mania for liquidation has reduced our stocks of goods and our credits far below any necessity. All these apprehensions and actions check enterprise and lessen our national activities. We are suffering today more from frozen confidence than we are from frozen securities.2
The president urged people to stop staring at “the empty hole in the middle of the doughnut,” an apt metaphor for his own private habit of mind. He asked them to remember America’s bounty of resources “in land, mines, mills, manpower, brainpower, and courage.” These resources combined with “patient, constructive action in a multitude of directions” would ultimately lead America to victory in “this battle upon a thousand fronts.”3
Government, he continued, had a role to play in aiding and guiding a recovery, and he recited the many activities of his own administration, but America was not going to legislate its way out of a global depression rooted in a world war. He attacked what had become a vogue that summer, in such publications as the New Republic, Harper’s, and Forum, for the replacement of capitalism with Stalinesque multiyear economic plans. These plans, said Hoover, “through which Russia is struggling to redeem herself from ten years of starvation and misery,” were dead ends:
I am able to propose an American plan to you. We plan to take care of a 20 million increase in population in the next 20 years. We plan to build for them four million new and better homes, thousands of new and still more beautiful city buildings, thousands of factories; to increase the capacity of our railways; to add thousands of miles of highways and waterways; to install 25 million electrical horsepower; to grow 20 percent more farm products. We plan to provide new parks, schools, colleges, and churches for this 20 million people. We plan more leisure for men and women and better opportunities for its enjoyment. We not only plan to provide for all the new generation, but we shall, by scientific research and invention, lift the standard of living and security of life to the whole people. We plan to secure a greater diffusion of wealth, a decrease in poverty, and a great reduction in crime. And this plan will be carried out if we just keep on giving the American people a chance. Its impulsive force is in the character and spirit of our people. They have already done a better job for 120 million people than any other nation in all history.4
Some groups believe this plan can only be carried out by a fundamental, a revolutionary change of method. Other groups believe that any system must be the outgrowth of the character of our race, a natural outgrowth of our traditions; that we have established certain ideals over 150 years upon which we must build rather than destroy….
Shall we abandon the philosophy and creed of our people for 150 years by turning to a creed foreign to our people? Shall we establish a dole from the Federal Treasury? Shall we undertake Federal ownership and operation of public utilities instead of the rigorous regulation of them to prevent imposition?…Shall the Government, except in temporary national emergencies, enter upon business processes in competition with its citizens? Shall we regiment our people by an extension of the arm of bureaucracy into a multitude of affairs?
The future welfare of our country, so dear to you and to me for ourselves and our children, depends upon the answer given.5
The speech hit unexpected notes for newsmen anticipating a partisan preelection speech. Hoover did not mention the Democrats, or the insurgents. Nor did he rail against his critics, or against Congress. Rather, he went out of his way to praise legislators who had collaborated in the fight against the depression. He was generous, buoyant, and undaunted. He stood on the higher ground on which he had always intended to lead, and in that troubled moment it struck editorialists as inspired. “If Americans like a public man who is not afraid,” wrote the New York Times, “they also like one who is not discouraged or despondent.” The president had every right to be “haggard with anxiety” over the state of the nation, yet he “so plainly inclines to hope rather than fear that it will tend to quicken the hopes and banish the fears of great numbers of his fellow-countrymen.”6
The next day was in many ways an even more surprising occasion. Hoover visited the lonely tomb of Warren Harding in Marion, Ohio, and performed the dedication that had been wanting through the Coolidge years. In a dark suit, with somber face, he laid a wreath and delivered a brave and touching encomium that did not shirk from damning the Harding scandals, or from acknowledging his friendship with Harding, or from defending Harding’s character. He presented the late president as a man betrayed by those closest to him:
There are disloyalties and there are crimes which shock our sensibilities, which may bring suffering upon those who are touched by their immediate results. But there is no disloyalty and no crime in all the category of human weaknesses which compares with the failure of probity in the conduct of public trust….The breaking down of the faith of a people in the honesty of their Government and in the integrity of their institutions, the lowering of respect for the standards of honor which prevail in high places, are crimes for which punishment can never atone.
But these acts never touched the character of Warren Harding. He gave his life in worthy accomplishment for his country. He was a man of delicate sense of honor, of sympathetic heart, of transcendent gentleness of soul—who reached out for friendship, who gave of it loyally and generously in his every thought and deed.7
Hoover rounded off his tour with a nod to “our greatest American,” rededicating the magisterial granite memorial to Abraham Lincoln in Springfield, Illinois, on a blistering afternoon. The Lincoln Liberty Chorus, an all-black group from Chicago, opened with “Swing Low, Sweet Chariot” before Hoover reiterated his views on the necessity of obedience to and enforcement of the law. By happy coincidence, the morning headlines had announced that the gangster Al Capone had pled guilty to federal charges of tax evasion and conspiracy the previous day, a rare victory for Prohibition enforcement.8
The return train to Washington set what some reporters considered a land speed record from Springfield, no doubt at the president’s request. He was in a positive frame of mind. He had been encouraged by reports from midwestern business and political leaders that unemployment was dropping and that the crop season was promising. On the night of his speech in Marion, the statistician and investment guru Roger Babson, one of few men with a legitimate claim to calling the Great Crash, and Dr. Lewis H. Haney, director of the Bureau of Business Research at New York University, had both stood up at New York’s Hotel Astor to assure the Advertising Federation of America that the business cycle had bottomed out and prosperity was on its way. Hoover was eager to wrestle agreement on his moratorium from congressional Democrats and add a measure of international stability to these fresh signs of momentum.9
Over three days, Hoover in person and on the telephone canvassed support for the moratorium deep into the senior ranks of the House and Senate Democrats, as well as within his own party. Once again standing in the front line of a legislative charge, he made personal appeals for the necessary votes. He urged the moratorium as crucial to stabilizing Germany and Europe, financially and politically, and to protecting American banks with exposure to those markets. He asked members for their approval on the understanding that a formal vote would await the meeting of Congress in December. The response was better than the administration had anticipated. Republicans and Democrats both were overwhelmingly supportive.*1, 10
The White House was in a state of high excitement on the afternoon of June 20 as Hoover, confident of a majority in both chambers and fearing a leak to the press, invited reporters on short notice to a briefing at 4:30 p.m. With the “sense that it was a very historic occasion,” Stimson watched the president, purposeful, confident, “a man transformed,” read a statement proposing a one-year postponement of payments on intergovernmental debts and reparations. He placed the names of supportive congressmen and willing nations on the record. He assured the American people that he was not proposing cancellation of debts, merely postponement as “wise creditors” interested in peace and economic stability. As the reporters hustled off to meet their deadlines for Sunday-morning editions, Hoover called Joslin into his office: “Well, Ted, we’ve had a hard siege. Get your wife and the boys and we’ll go down to the camp for over Sunday.” And they did, although both of them would spend almost the whole of Sunday on the telephone speaking to Senators, advisers, and diplomats about the bombshell they had dropped.11
Given the vehement isolationism that had gripped the nation since Wilson’s return from Versailles, the reaction of Americans to the moratorium was amazingly positive. An impartial survey of two dozen major newspapers found them unanimously favorable to the president’s initiative. Congress, led by the mercurial Borah and other members of the Senate Foreign Relations Committee, was firm in its support. Wall Street, as expected, was full of praise for the president’s initiative. Another chorus of approval came from capitals around the globe, echoed in the international press, with the Times of London describing Hoover’s move as the most important act of statesmanship since the Armistice. The effect of what became known as the “Hoover Holiday” on the world’s bourses was almost magical. Paris, Berlin, and London jumped as a wave of buying hit bonds and securities. The Dow Jones Industrial Average gained more than 11 percent in two days of heavy trading, the swiftest two-session advance in a generation (leaving aside one violent fluctuation during the week of the Great Crash). The inculpation of debts and reparations in the global depression, if still not entirely understood, was now indisputable. After nineteen months of struggle and two false dawns, this was a welcome break.12
Joslin collected the piles of telegrams and cables flowing into the White House, every last one favorable, and arrived, his face beaming excitement, before the desk of the president. He began reading excerpts aloud. Hoover brought him up short. “Don’t forget for a moment,” he said, “that some people, a lot of people, will see another side to this picture. Everything is pleasing now, but there may well be a ground swell against my proposal.” It was, said Joslin, “like a dash of cold water.” The admonishment, however, was warranted. This would be Hoover’s third false dawn.13
For the moratorium to be effective, it needed to do more than jolt the global economy. It needed to convince businesses and financiers and governments that the run on Germany would stop in its tracks, that her financial system could henceforth heal itself from within, that the advances of the communists and Nazis in Central Europe were checked, that the economic drag of debts and reparations that had held the Continent back since the Great War was lifted, that sixteen governments, several of whom were paying more than 20 percent of GDP to service their war debts, would receive a sudden gush of cash, a gigantic stimulus to productivity and recovery, and that they would put it to good use, abandoning their mutual mistrusts and working toward common goals of peace and prosperity. It was a tall order.
As it happened, the University of Chicago was at the moment of Hoover’s announcement entertaining an eminent English economist with a heavy brow, piercing dark eyes, and a bristling mustache. “A fine piece of policy,” was Keynes’s verdict on the moratorium. It would give affected countries breathing space and restart investment, “provided that it is accepted by other interested parties.” By other interested parties, Keynes meant France, the fussy nation.14
And there was the rub. Hoover needed instant acceptance of his proposal from all affected countries for it to have a chance at lasting impact. Public opinion in France would not accept further economic aid to Germany without political concessions. Even before Hoover had released his plan, the French were moving behind the scenes to, as Stimson said, “blackmail” Austria by linking approval of reparations relief to disavowal of a customs union with Germany. Once the initiative was public, Paris pretended to be surprised and denounced “America’s shock tactics.” Its real complaint was that Hoover’s scheme was being foisted on Europe, whereas previous renovations of the Versailles framework had been arranged through negotiation. There followed a long list of French reservations. Italy felt much the same way. Stimson felt as though the French dissenters were picking the pockets of the drowning man he was trying to pull from the water.15
The French, concerned for their security if Germany were unbound, stalled, haggled, and pushed their misgivings hard enough over the next several weeks to break the spell of progress. It became clear that the moratorium, when finally ratified, would be but a brief one-year recess and not an end to France’s demands to collect German reparations. Brüning did damage of his own by downplaying his ability to subsist without further international loans, contrary to Hoover’s assurances that the moratorium would deliver Germany from threat of default. These complications and the evident inability of the leading European nations to escape their “malign inheritances” quickly rekindled questions of Germany’s financial and political stability and the ability of its neighbors to manage their indebtedness and rally out of the depression.16
The rest of the summer brought bank collapses and forced banking holidays in Central Europe. Trouble spread across the Continent and even to Britain, which held a large share of Germany’s long-term debt. A run on the pound was soon under way.
The president’s answer to the discouraging outcome of the moratorium was to put in more hours at his desk, driving himself still harder in his “battle on a thousand fronts,” and what the rest of the world was coming to appreciate as the Great Depression. He read analyses of the causes and duration of every economic downturn dating back to the Napoleonic Wars. Late in the evenings, he snuck advisers, business executives, and congressmen past the press sentries at the entrance to the White House for private consultations. The workload left him more pasty and slumped than usual. “I am so tired that every bone in my body aches,” he confessed to staff. The benefits of his weekend respites at Rapidan now seemed to disappear within hours of his return to the office. “Worn, worried, and harassed,” was how Joslin described him.17
Hoover’s negativity was now accompanied by a higher magnitude of defensiveness and paranoia. In addition to brooding over the activities of the short sellers and the insurgents, he obsessed over his press coverage. He divined opposition to his economic policies and Prohibition stance even among Republican writers. He could not accept, as Joslin told him, that most of the reporters were honest men reporting on the administration as they understood it. Nor would he accept that his office’s constant requests for corrections and retractions of stories contributed to ill feelings.18
He saw larger conspiracies, believing that Owen Young, chairman of General Electric and a leading Democrat, had locked arms with the Hearst press, the Scripps-Howard newspaper chain, and the New York Times to foist upon the nation what Hoover believed to be “an impossible and wholly uneconomic plan” involving the replacement of free markets with a collectivist scheme amalgamating Mussolini and Lenin.19
The stresses on the administration began to produce fissures in the cabinet. In sullen moods, Hoover groused about the inadequacies of certain appointments, particularly Mellon. He had heard enough of the Treasurer’s impassive counsels of nonintervention, or what Stimson called his “long childlike narrations” on the economic situation.20
In his midseventies, richer than ever, Mellon took a long vacation on the French Riviera during the critical summer of the moratorium and devoted himself to wheedling Titians, Rembrandts, and van Dycks from the Hermitage Collection of Petrograd. Mills, his vigorous undersecretary, was doing all of the important work at Treasury. He and Governor George Harrison of the Federal Reserve Bank of New York had the president’s ear. Mellon still mattered to Republican businessmen, and to himself. It annoyed him that he was not permitted to speak without the White House preapproving his remarks, and that Hoover no longer consulted him on making appointments.21
Hoover’s relationship with Stimson, although far more productive and respectful, also showed strains. The secretary of state had an insouciant, optimistic manner alien to his boss. He also had a mind of his own, which at times tested Hoover’s patience. Dispatched overseas to finalize the details of the moratorium, Stimson was as assiduous in begging the president to modify his demands as he was in negotiating with the Europeans. “Goddamn it,” exploded Hoover, “I wish I had an ambassador over there who would do as I direct him, rather than a hard-headed Secretary who thinks he can do as he pleases.”22
“I don’t think he realizes how hard it is to work for him,” wrote Stimson in the same diary in which he complained of the president’s grim and grinding ways, of dull cabinet meetings that went on week after week, year after year, without a single joke.23
Despite these tensions, Hoover and Stimson generally found their way to common ground, something the president and Mellon seldom managed. Each showed an unusual solicitude for the other’s well-being in the face of their mutual challenges. Stimson had a weak constitution, finding it difficult to work hard for more than a few hours at a time. As the depression deepened, he confessed to feeling “dreadfully dull and stale.” He worried that he was “a loafer” compared to other members of the cabinet. Hoover, aware of Stimson’s infirmities, was careful not to push him too hard. “I must consider his physical disability,” he would say.24
Stimson, for his part, bled for Hoover and the load he was carrying. “How I wish that I could cheer up the poor old President,” he wrote in his diary, “and make him feel the importance of a little brightness and recreation in his own work. But after all I suppose he would reply and say that he gets his recreation in his own way, and that my way would not suit him at all.”25
Stimson joined Hoover at Rapidan the weekend of September 12, 1931, delighted to escape the still and steamy city for a couple of days. It was warm at camp, too, but comfortable enough to play deck tennis in the afternoons and to dine outdoors, under the trees, in the evenings. Stimson accompanied the president on long walks down sun-dappled trails where they filled their lungs with clean mountain air and added their voices to the birdsong and rustling leaves. Hoover guided the secretary by the arm and described the many ways he had been disgusted at France’s behavior in the moratorium negotiations. As the sun lowered, the men of the Rapidan party sat around the Town Hall, as the main camp room was called, telling stories and reminiscing.
Stimson returned home refreshed and wiser to the camp’s salubrious benefits to himself and his leader. “The President strikes me as being in very much better condition,” he wrote. “His poise is better and he is more cheerful, and although he is oppressed by the terrible state of the country, he does not strike me as fretting as much.”26
The state of the country was, indeed, terrible. The slight optimism of spring, the third false dawn, was scorched through summer. Unemployment, still impossible to pinpoint, was undoubtedly worse. The most recent census report had put the number at 6 million, representing 30 million Americans if one counted their families. Hoover hated that sort of math, arguing that some families had more than one breadwinner, that some of the unemployment was seasonal, and that some of the jobless were perpetually unemployable:
Certainly we will have a serious problem but the envisaging of the problem in the light of large numbers is very seriously disturbing to public minds…and one result of that is the tightening of people’s belts who have resources and decreasing the purchasing in the country, and thereby increasing unemployment again.27
Among other indicators, the gross national product had slid from $105 billion in mid-1929 to $75 billion in late spring of 1931. Business activity had slowed to a crawl, whether measured by factory payrolls, construction contracts, or industrial production. The Dow Jones Industrial Average had drooped below 100 in the warmer weather and was now down 50 percent from April, and three-quarters from its 1929 high. Commodities found new lows: the price of wheat had fallen from 74 cents a bushel to 55 cents since April. The Farm Board, able to support prices early in the depression, had exhausted its funds and could do no more. Cotton was so weak that Hoover worried it could wipe out most of the banks in the South.28
The banks remained a major concern in every region of the country. A new wave of suspensions had hit the Chicago suburbs and parts of Pennsylvania. Hoover spoke privately in early September of “a suppressed panic” in the American financial system. He had data showing that skittish depositors, disturbed by the shakiness of banking globally, had pulled enormous sums from U.S. institutions. He believed a major run of failures was only a matter of time.29
The drought was now in its second year and aggravated by grasshopper infestations. Farmers in the central and northwestern states, from Iowa to Montana, were hardest hit. “Suffering within the areas affected is acute,” Hoover admitted. His official position was that the Red Cross and local community relief areas were managing the problem, and he continued to promise that every agency of local, state, and federal government would work to ensure that no one would starve or go hungry or cold in America. Privately, he was worried. He was painfully aware that he did not have much to show for his depression-fighting efforts to date. A third lean winter was in prospect. Congress would return in December, with cohorts in both chambers eager to blame him for the economy and to float their own ideas for how to fix it and relieve its victims. Some of his own appointees were asking him to provide direct aid to the unemployed. Not least of these was Arthur Woods, a former New York City police chief who had been coordinating national charitable relief on behalf of the administration.30
In the late summer of 1931, Hoover took the unusual step of asking his surgeon general to report on the state of public health in the depression. Hugh S. Cumming, a distinguished soldier and Virginia physician, was the nation’s fifth surgeon general and among the most credible voices in the American medical community. He had been guarding the health of the American people for eleven years, with special attention to its veterans, immigrants, prisoners, addicts, and lepers. He promptly answered the president’s query with a survey of populations in thirteen states representing 43 million people. He compared their health over the recent winter of 1930–31 against the full-employment winter of 1928–29. He found mortality rates had improved from 13.7 per thousand to 12 per thousand. Incidences of infant mortality and death by tuberculosis, diphtheria, typhoid, and smallpox were similarly reduced. “In view of the agitation in general with respect of the effect of economic conditions on health,” wrote Cumming, “public health workers have been surprised at the excellent health conditions that are found upon studying the available facts.”31
Hoover, relieved by these findings, could not resist the opportunity to polish them. “The public health,” he stated, “has apparently never been better than it has been over the past six months.” Of course, that he was reduced to investigating whether or not the economy was killing people was not in itself reassuring. “It would be hard to persuade the American people that destitution and anxiety are not detrimental to health,” said Lippmann.32
There were more defensive announcements. The White House released a statement from the Association of Community Chests and Councils advising the president that its organizations in 227 cities had “complete confidence that they, in cooperation with municipalities and other local agencies, will be able wholly to undertake the unemployment relief situation during the forthcoming winter.” Hoover reminded the nation that his government was spending heroically in aid to employment, pouring more than $700 million into construction and maintenance, an amount triple to precrash levels. These projects gave work to 760,000 Americans compared to 180,000 in normal years.33
Popular opinion on the need for federal relief was difficult to gauge. Hoover tried to convince Republican governors to stand up and say that federal aid was unnecessary. Only three of the “spineless” lot would oblige him. This might indicate that the governors believed more relief necessary, or it may have been a reflection on the state of their relations with the White House.34
The Community Chests, closer to the problem than the governors, believed they could manage the distress. A New York Times survey of the mayors of twenty-four major American cities found them almost unanimous in their determination to get through the winter without federal assistance. The two exceptions were Detroit, where auto production had screeched to a halt, and Minneapolis, struggling under a mountain of debt.35
The vast majority of mayors agreed with Hoover that economic relief was a municipal and state function. Most were offended by the notion that they did not have the situation in hand and needed to be rescued by Washington. “I will positively say,” harrumphed Philadelphia mayor Harry Mackey, “that no matter what the situation may be next winter, Philadelphia will take care of her own.” Replies such as these, wrote the Times, “reveal in an impressive way how deep-seated is the American sentiment in favor of self-help and local action.” The president’s ideas about American character and the role of the federal government appear to have been well within the mainstream of national opinion.36
Nevertheless, Hoover continued to fret, fixating on what he called, in the infelicitous language of an engineer, “the probable volume of the load of distress which will need to be provided for.” Small businesses were laying off workers. Local and state governments, strapped for cash, were cutting payrolls and curtailing building programs, offsetting the impact of much of their relief work and Washington’s spending and hiring. Anxious to seize the initiative with Congress due back in December, and genuinely concerned with the mounting numbers of jobless Americans, Hoover launched a new program of his own.37
The President’s Organization for Unemployment Relief, headed by AT&T president Walter S. Gifford, was a voluntary nationwide campaign to raise funds to assist the unemployed. It coordinated charitable activities, stimulated local employment projects, placed workers in jobs, and provided relief to those unable to find work. Its advertisements appeared in publications and on billboards emblazoned with the slogan “Of Course We Can Do It.” Hundreds of benefit air shows and sporting contests were organized with a goal of doubling the relief funds available the previous winter.38
Within weeks of the announcement of Hoover’s program, New York governor Franklin Roosevelt, a leading candidate for the Democratic nomination in 1932, launched what he christened the Temporary Emergency Relief Administration (TERA). It provided $20 million in relief to the unemployed directly from the New York State Treasury. Roosevelt and his Democratic followers, then and ever after, positioned TERA as a bold and compassionate alternative to the thin gruel of Hoover’s plan. This was consistent with the Democratic National Committee’s emerging portrayal of Hoover as indifferent to human suffering and dogmatic in his insistence on a limited national government.39
In fact, there was little to choose between the positions of the two leaders. Hoover entirely supported direct relief at the state level. Roosevelt was vague on what he wanted Hoover to do at the federal level, and Democrats in Congress were by no means aligned with the New York governor on the need for Washington to do more. Both men were opposed to anything resembling a dole, or direct federal payments to the unemployed, hence the emphasis on “temporary” and “emergency” in the title of Roosevelt’s agency. As for the efficacy of their approaches, Roosevelt put $20 million into his fund for the entirety of New York State. Gifford’s Committee helped increase annual municipal relief spending in New York City from $9 million in 1930 to $58 million by 1932, and to quadruple private donations to a total of $21 million over the same period. Together the programs could barely keep up with the swelling ranks of newly unemployed New Yorkers.40
Hoover, while convinced of the rightness of his policy, was indignant at the suggestion that callousness or incompetence prevented him from doing more. He struck back at his critics, lumping Roosevelt in with a free-spending congressional minority eager to demonstrate its generosity at the expense of the public purse, and willing to “play politics at the expense of human misery.” These sallies boosted his morale. Still, he brooded, as did many Republicans, over the damage the depression and Democratic attacks had done to his chances for reelection in 1932, especially with the conventions ten months away.41
After three years in office, Hoover continued to pretend disinterest in his political fortunes. Joslin would try, from time to time, to turn the president’s attention to the coming election, only to incur his wrath:
I don’t give a damn, Ted, whether I am re-nominated or not. I shall not turn a hand to get another term. The convention can nominate me if it wants to or it can nominate some one else. It can do as it damn well pleases. Let’s not bring up the subject again.42
Joslin knew well that the president desperately wanted a second term. His inaugural had outlined two terms’ worth of initiatives, most of them sidelined by the long tariff fight and the depression. Items dear to his heart, such as child welfare, social reform, and a reorganization of the federal administration, would at this late stage almost certainly require a second term. He also yearned for a chance to demonstrate his ability under something approaching normal economic conditions.
Hoover’s true feelings about 1932 were better reflected in his actions than his words. In midsummer, he gave his blessing to the efforts of his aide, James MacLafferty, to assess the readiness of the Republican Party to fight a national election. MacLafferty gave up his Washington rental accommodations, put his household goods in storage, and drove his majestic Cadillac 314 coupe almost fifteen thousand miles in big loops across the map, fancying himself “a sort of political Lindbergh.” He attended more than 120 meetings of county Republican organizations and friendly service clubs. He preached the word of the administration and listened carefully to local assessments of the national political situation, Hoover’s performance, and Republican prospects.43
MacLafferty’s regular reports back to Robert Lucas, executive director of the Republican National Committee, carried discouraging news on both the state of the party and the president’s profile. As MacLafferty had expected, Republicans were deeply divided over Prohibition and reeling from the depression, which by now had made its way to almost every doorstep. What surprised him was the distribution of blame. While most Republicans were inclined to sympathize with Hoover over the hand he had been dealt, or to direct their anger toward Congress, and the Senate specifically, for frustrating administration policy, an unmistakable and vocal minority pointed fingers at the president. They had no coherent case against him: they blamed him for the drought, the grasshoppers, the price of corn, the lack of jobs, the failure of the Eighteenth Amendment, their own personal misfortunes, and the defeatist state of mind in the party. In some pockets of the country the animosity against Hoover amounted to “a pure and holy hatred,” and MacLafferty could say nothing to change minds.44
Equally inimical to the party’s hopes were the signs of disorganization and schism MacLafferty found everywhere he traveled:
Republicans seem not to be trained to meet political adversity. They have been used to success nationally and have gotten away with the “Republican Prosperity” talk. Now that they find adversity has come during a Republican administration they do not know how to act.45
MacLafferty’s reports suggested a significant decline in Republican fortunes since the midterm elections less than a year past. The president’s neglect of the party was draining its enthusiasm to stand with him, let alone fight for him. There was still time to bring most Republicans around, thought MacLafferty, who was far from ready to concede the 1932 election. He nevertheless warned Lucas that a great deal of work would be required to right the ship.
The “political Lindbergh” did not level with Hoover about the mood of their party. Aware of the president’s sensitivity to criticism, he picked out discreet ideas or messages he felt would be helpful and encouraging to him. For instance, he suggested the president be more aggressive in holding the Senate to account. Hoover listened carefully, and offered his own complaints about the state of the leadership of the Republican National Committee, its inability to pay for good staffers, and the difficulties of fund-raising. The two men agreed that the state of their national committee was disastrous compared to the super-charged machine Raskob and Michelson were operating. Even so, Hoover was reluctant to act on the matter. MacLafferty had to goad him into intervening to prevent an anticipated round of salary cuts at Republican headquarters.
Even as MacLafferty was making his way home to Washington, international events were conspiring to worsen the odds on Republican reelection, and to render Hoover’s estimates of the probable volume of the load of distress obsolete. Central Europe’s troubles had crossed the English Channel over the summer and Great Britain’s gold reserves were dangerously close to the legal minimum. Austerity measures designed to renew confidence in the pound had instead led to widespread protest and strike actions, including, remarkably, a pay-cut mutiny by the Royal Navy. With banks frozen and unemployment above 20 percent, British policy makers could see no way forward. Winston Churchill, now in opposition, warned in Parliament that the “hoarding” of gold by the United States and France at the expense of the rest of the world was dooming civilization to a “bleak, ferocious barbarism.”46
Hoover admitted to reporters in Washington in early September that as much as half the planet’s stock of gold was within U.S. borders. This he attributed to “the flight of capital from practically the whole world to the United States in refuge.” While agreeing with Churchill that the situation was abnormal and unprecedented, he rejected the charge of hoarding: “It is fundamentally due to the lack of confidence of people in their own governments and their own circumstances in their home countries.”47
On the evening of September 20, the British government staggered the financial world by announcing the indefinite suspension of its efforts to hold the pound at its traditional rate of convertibility. In short, it was off the gold standard. The pound lost a fifth of its value overnight. Overwhelmed by a new wave of fear and uncertainty, security and commodity markets closed from Amsterdam to Vienna. Only Paris remained open, and even there, trading seized. “It seemed,” said Hoover’s friend, the New York banker Jackson Reynolds, “like the end of the world, to financial thinking.” If Great Britain, still the leading nation in international finance, could be forced to capitulate, there was no safe haven for capital anywhere.48
Speculation followed as to whether America, with its large holdings of British and German paper, might be the next domino to fall. Central bankers, investors, and speculators, battered and risk averse, rushed for the exits without waiting for an answer. Thus began what the Federal Reserve Bank of New York called “the most rapid outflow of gold experienced by this country, and probably by any country.” No amount of reassurance from the leadership of the Federal Reserve System could stop the run. The Bank of England, after all, had been full of encouragement until hours before its surrender. A hike in discount rates from 1.5 percent to 3.5 percent provided a measure of protection for the dollar but not enough to change sentiment. Meanwhile, the higher rates produced further deflationary momentum in an already flaccid economy. Prices and industrial production sank again. Consumers and businesses were more reluctant than ever to borrow or spend. On the evening of September 22, the United States Steel Corporation announced 10 percent pay cuts to employees, a move immediately emulated by other major companies, breaking the agreement on employment that Hoover had enforced with corporate America for almost two years, and stirring more fear among the nation’s workers.49
The administration’s official response to Great Britain’s move was to proclaim business as usual. London, said Hoover, had not abandoned the gold standard, it had merely suspended its usual rate of convertibility in favor of a variable standard, a decision that might be reversed at any time in the future. Hoover reminded the press that Britain had found its way back to its usual mark after a similar situation during the war. In the meantime, business transactions would continue to be conducted in gold, and the president did not anticipate “any great effect in the United States.”50
In truth, Hoover considered Britain’s departure from gold a disaster, a massive breakdown in the machinery of international finance, with dreadful implications for his own banking system. He leveled with the press gallery in an off-the-record briefing, admitting that the crisis in London had rent the economic fabric of the world and that everything now depended on the United States, which he described as “the Verdun” of global stability. He asked the newspapermen to help him keep the country “steady in the boat” by avoiding alarmist reports. For the moment, they obliged.51
Despite his efforts at containment, the suppressed panic Hoover had identified weeks before London’s move now broke all restraints. U.S. financial institutions were hit with both barrels. There was an external shock as international investors and central bankers pulled gold and capital out of America, and as the value of German and English assets held by U.S. banks plummeted. There was a domestic hit as American depositors pulled their funds from risky banks and hid them in teapots and under mattresses. The net effect was a liquidity crisis of catastrophic proportions.52
Hoover never seriously considered following Britain’s lead and suspending the gold standard in the United States. Virtually all economic theory and every reputable economist agreed that its maintenance was a necessity. There was no recognized alternative to assessing the relative values of currencies, no other basis on which to conduct international trade. Untethered prices were considered arbitrary, unreliable prices. Without gold, as Hoover said, a merchant could not know on making a sale “what he might receive in payment by the time his goods were delivered.”*2 However desperate matters were at the moment of Britain’s breach, it was easy to imagine worse if the United States were to follow suit.53
Through the rest of September and into October, bank suspensions swept the nation at a rate of 125 a week, ten times the average during 1929. Depositors pulled their funds from weak and strong banks alike, forcing those institutions still open to call loans and to restrict short-term credit, measures detrimental to industry and commerce. Hoover understood that the banking system was desperate for liquidity. More credit would relieve the pressure from the banks, allowing them to resume lending for business purposes, encouraging businessmen to invest and consumers to spend money. He also knew that the necessary measures would not come from the Federal Reserve System, which did not see the restoration of confidence as its problem. In any event, many faltering banks were not members of the Federal Reserve or did not have eligible commercial paper to pledge as collateral to borrow from the system. The administration would need to step in. The question was how.54
Hoover wanted New York’s leading bankers to voluntarily fund a bailout of weaker banks, forestalling further suspensions. This was how a crisis had been averted during the Panic of 1907, when the legendary financier J. P. Morgan and his colleagues had pledged their own wealth to stabilize the financial system. Hoover engaged Federal Reserve chairman Eugene Meyer to help organize such a pool, although Meyer was never convinced that the bankers would respond favorably. He had an alternative in mind. He wanted the federal government to create its own fund for failing banks on the model of the War Finance Corporation, which had loaned to industry and bankers in aid of the war effort.
Hoover was not entirely averse to Meyer’s idea. He was uneasy, however, about setting a precedent of peacetime support for the banking industry, and he did not want to recall Congress in extra session to that purpose. Moreover, he believed the bankers would prefer to stand up, rescue their own industry, and do their part in promoting recovery, rather than fall back ignominiously on public assistance.
When the cabinet discussed the question of private versus public relief for the banking sector, the president pushed his views with unusual heat. He was inwardly furious at his Treasury secretary for having failed to assist institutions in his own backyard earlier in the summer. The Bank of Pittsburgh had suspended operations. It was the largest non-Mellon bank in the Steel City, and one that the Treasury secretary had long coveted. Leading Pennsylvania financiers had attempted to raise a subscription to save the bank, but Mellon refused to participate unless given complete control and the Bank of Pittsburgh went under, triggering a spate of failures in Pennsylvania. So far as Hoover was concerned, Mellon had put his personal interests ahead of the national interest and had made of himself an unhelpful and conspicuous example when banks across the country were struggling to maintain the confidence of their depositors. The people of Pittsburgh took the president’s side. The Mellon name would never entirely recover in the city.55
Hoover ultimately insisted on the administration adopting his privately funded bailout scheme. He arranged to meet with nineteen leading bankers, most of them from New York, on Sunday, October 4. Although his habit of sneaking businessmen and external advisers into the White House for evening meetings had served him well through the summer, he now changed venues. His chances of slipping Thomas Lamont of J. P. Morgan and William Potter of Guaranty Trust past the newspaper sentries at the White House were slim. They gathered instead amid the Gainsboroughs and Turners in Mellon’s opulent fifth-floor penthouse in the McCormick Building. It undoubtedly pleased the president that the Treasury secretary was thoroughly implicated in his project.
The bankers gathered just after dark, made quick introductions on Mellon’s priceless oriental carpets, and settled without further preliminaries into his eighteenth-century French furniture for a presentation by the president. “You know the picture better than I do,” he told them, before painting it for them anyway:
Owing to the prolonged business depression, the succession of events abroad, the failure of banks in constantly increasing numbers, and the destruction of confidence and increasing fear throughout the country, a situation exists which calls for concerted action on the part of our leading bankers and strong banks to avert a possible threat to our entire credit structure.56
Hoover counted 1,215 bank suspensions since the beginning of the year. These had tied up billions of dollars in savings and investments. Close to a billion more had been withdrawn from banks by skittish depositors. He discussed the problems of membership and eligibility that prevented the Federal Reserve from coming to the rescue of sick banks. He reminded the bankers that their industry had in the past met crises of confidence and liquidity themselves.57
What was needed, he said, was for the strong banks to recognize their obligation to weaker banks around the country and pledge 2 percent of their assets to a $500 million support fund that would lend to troubled institutions on less rigid terms than the Fed required. “I consider some such program essential in the public interest,” he said, adding that “if present tendencies are allowed to continue unchecked, there is no telling where the movement will stop.”58
Many of the bankers, having been tipped by Governor Meyer as to what the president wanted, had come to the meeting reluctantly. They were unenthused by Hoover’s proposal. They believed that 1907 was ancient history, and that the creation of the Federal Reserve System in 1913 had relieved them of collective responsibility for the financial sector in such crises. They asked why they should risk their own balance sheets in service of banks they viewed as not simply illiquid but insolvent. They saw Hoover’s plan as throwing good money after bad and suggested the government furnish the bailout pool.
This was a major miscalculation by Hoover. He had thought the bankers, a conservative lot, would be hostile to a direct and unprecedented federal intrusion into their sector. He had wielded the publicly funded option as a threat, and he was dumbfounded when the bankers welcomed it. He returned to the White House annoyed at the timidity and condescension of the Wall Street heavyweights, who had seen fit to lecture him on the basics of banking and finance. Meyer stayed behind at Mellon’s residence and convinced those gathered to subscribe to a pool as requested by Hoover. They agreed, huffily, on condition that a public solution would follow in the event of failure. The very existence of this backstop, obviously, did not bode well for their commitment to making the private fund work.59
The next day Hoover traveled to Shibe Park in Philadelphia for the third game of the World Series between the Athletics and the St. Louis Cardinals. He was enough of a baseball fan to have marked the occasion on his calendar the previous February, ensuring the day would be free. He considered canceling at the last minute under pressure of events but attended anyway on the theory that his presence would be reassuring to the public under the circumstances.60
Sitting with Lou in an open box, he threw out the first pitch without loosening his tie or removing the jacket of his three-piece suit. The ball sailed far over the head of catcher Mickey Cochrane. The crowd of thirty-four thousand greeted him warmly regardless of his aim, and he received more applause later on that Indian summer afternoon when he stood for the seventh-inning stretch. Several reporters heard isolated booing directed at the president, but he does not appear to have noticed (although he left the stadium with the chant of “We Want Beer” ringing in his ears). Sadly for the Athletics, who had come to view Hoover as a good-luck charm—they had not lost in his two previous visits to Shibe—the Cardinals managed a 5–2 victory.61
The following evening the president made another sortie in his battle to save the banks, hosting a meeting of thirty-two leading senators and representatives at 9 p.m. at the White House. There was no hiding from the press this time. Invitees had been contacted on short notice and told only that the agenda was of urgent national importance. An army aircraft was made available to anyone requiring travel assistance. John Nance Garner, in Uvalde, Texas, took up the offer and flew two thousand miles in fourteen hours to make the meeting. He arrived at the White House just before 9 p.m. and, like every other guest stepping out of a taxi or limousine, was greeted by an explosion of flashbulbs and a cordon of a hundred correspondents wanting to know more about the purpose of the gathering.62
The guests were ushered to the Lincoln Study, where Hoover did most of the talking. Once again, and with more drama than ever, he rooted the crisis in the malign inheritances of the Great War:
The nations of Europe have not found peace. Hates and fears dominate their relations. War injuries have permitted no abatement. The multitude of small democracies created by the Treaty of Versailles have developed excessive nationalism. They have created a maze of trade barriers between each other. Underneath all is the social turmoil of communism and fascism gnawing at the vitals of young democracies. The armies of Europe have doubled since the demobilization. They have wasted the substance which should have gone into productive work upon these huge armies and massive fortifications. They have lived in a maze of changing military alliances and they have vibrated with enmities and fears. They have borrowed from any foreign country willing to lend, and at any rates of interest, in order to carry unbalanced budgets….Nineteen countries in the world, in two years, have gone through revolutions or violent social disturbances. Whether or not Germany and Central Europe will avoid Russian infiltrated communism or some other “ism,” is still in the balance, and that does not contribute to a revival of world confidence.63
Hoover talked his way through the British debacle to the pressure on American banks, the “Damoclean sword over our credit structure.” There was utter silence in the room. “We are now faced with the problem,” he said, “not of saving Germany or Britain, but of saving ourselves.” His guests, he wrote later, seemed stunned.64
With help from Meyer and Ogden Mills, the president outlined his plans for a private fund in support of troubled banks, backed by a new federal agency if necessary. He unveiled plans to inject more capital into the Federal Farm Loan system to provide additional low-interest credit to farmers. He disclosed that he had asked the Federal Reserve banks to work with bankers in their districts to free some of the assets frozen by bank suspensions, putting money back in the hands of depositors. All of this was intended to liquefy the financial system, mobilize the banking resources of the country, and get the economy moving again.
Hoover asked approval in principle for his plans. Garner, who may have had a drink or two in the course of his long journey, spoke first. He abruptly declared his refusal to be bound in any manner by the administration’s plans. The room fell quiet. Apart from the cigar smoke swirling around Mellon’s chandeliers, nothing moved. The prospects for a rescue looked bleak.
After what seemed like an eternal pause, deliverance came from an unexpected quarter. Mississippi senator Pat Harrison was a Democrat and a respected member of the Senate Finance Committee. He spoke of the fragility of the economy and gave his blessing to Hoover’s plan. Joe Robinson, Senate Minority Leader, and his colleague Carter Glass, the leading financial mind in the Democratic caucus, added their approval. The moment was saved. Hoover produced a public announcement that he wished to release to the press. It denounced the “foolish alarm” behind the mass withdrawals from American banks, asserted that fear for the financial system was “wholly unjustifiable,” and outlined the president’s program. All in attendance except Garner and Senator Borah gave their assent. Around midnight, the guests trickling out of the White House divulged to reporters the purpose of the meeting and announced their support in principle for Hoover’s proposals.65
*1 The only Republican to give Hoover trouble was New Hampshire senator Henry Keyes, who, if Joslin is to be believed, refused to cooperate because the president had not permitted his wife, the novelist Frances Parkinson Keyes, to quote him in an article for Good Housekeeping. (Joslin Diaries, June 19, 1931, Herbert Hoover Presidential Library and Museum.)
*2 John Maynard Keynes was in 1931 developing a theory of monetary management independent of the gold standard. His ideas were not as yet fully developed or widely known, let alone accepted as workable by policy makers.