AGD - Chaper VII: Prelude to Depression: Mr. Hoover and Laissez-Faire

The initial chapter of Part III - The Great Depression: 1929-1933 goes back further in American economic history, describing laissez-faire as the dominant political action (or: non-action) in prior depressions. 1929 was different: the ‘Hoover New Deal’ or short the ‘New Deal’ was an anti-depression program marked by extensive governmental planning and intervention. And this set in place despite laissez-faire leading to recoveries after a short period of time – the last recovery from depression happening in 1920-21 after just one year.

Hoover left office with 25 % unemployment, no recovery after three and a half year, and with no recovery in sight. 

The Development of Hoover’s Interventionism - Unemployment: Hoover was never a supporter of laissez-faire, and while rising in the ranks in US government, he supported and initiated several left-wing programs in the 1920 depression. Many programs where initiated as ‘voluntary’ measures that the government desired from companies, with the implicit threat that compulsory measures could follow (sounds familiar today). The kick-off to such policies was the Conference of Unemployment, initiated by president Harding in Sep. 1921 – a proponent of laissez-faire. But the conference was headed by Hoover, and soon new ideas where propagated. As a direct result, twice as many municipal bonds for public works were floated in 1921 and 1922. Still, the interventionist policies gained ground only slowly, the 1920/21 depression gone away in the meantime. Their ideas started to get adopted by some of the US states in 1924. Things changed, when Hoover became President.

The Development of Hoover’s Interventionism – Labor Relations: Hoover fought several battles on social improvements in the 1920s, most important the one against United States Steel to reduce working hours from 12 to 8. (While I happen to work 12 hours a day every now and then, I have some supportive feelings on labor hours below 10 a day. You can start endless discussions on this topic – but just imagine your working hours would be cut by 33 % tomorrow. How can you company sustain that? Why did that moral need arise just now? …)

The second major playing field of Hoover was the railway sector. Controlled by the Federal Government since WWI, he supported a plan for joint operation of railroads by employers, unions and the government. Together with the unions, he achieved the Railway Labor Act of 1926, which granted collective bargaining to the railway unions.

Hoover was trumpeting the ‘new economics’, stating that high income and wages would propel production, as consumption would lead to growth. Therefore high wages would lead to economic growth –and they should not be reduced in times of depression. The idea of real wages being a consequence of higher productivity and capital investment, he put aside.