AGD Chapter VIII – The Depression begins: President Hoover takes command

When the Great Depression struck in 1929 and shortly after the stock market crash of 24^th of October, Hoover was ready to act despite opposition in the own administration. Later he would claim to be the first President to do so.

The White House Conferences: Hoover swiftly conducted several of those with financial and industrial leaders. The goal was to induce them to maintain wage rates, cut working hours but not lay-off people and expand investment ‘in a coordination of business and governmental agencies in concerted action.’
The concept was to keep real wages constant (allowing wage rates to fall only after a general price drop, and thus not at the given moment. Railroad, telephone, automobile and steel industry did fall in line amongst others. Henry Ford even announced a wage increase. De-fact, Hoover advocated for a wage floor at present levels, something the unions could only dream of with 7 percent of workers being organized. 

Inflating Credit: At the last week of October, the week of the crash, the reporting member banks of the Federal Reserve increased their deposits by almost USD 1.8 bn – a monetary expansion by 10 % in one week (1.6 USD bn thereof deposited in New York) while the FED doubled its holdings of government securities adding over 150 USD mn and discounting another USD 200 mn for member banks. The discount rate was lowered from 6 to 1.5 % by mid November. Bank reserves declined back to pre-crash levels by mid of November, 1929. But at the end of the quarter, total reserves where almost unchanged compared to mid-October, just the composition had changed. While the FED did its best to inflate, private reserves had fallen at almost the same amount.

Public Works: Hoover swiftly acted on this field, establishing a definite organization at the Dep. of Commerce, funding the Federal Buildings program by additional USD 400mn, grating subsidies to the ship construction industry and asking for further USD 175 mn for public works. 

The New Deal Farm Program: Subsidizing the US farmers had a history reaching back to 1914 and gained speed from 1920 onwards, with Hoover being part of it. Farm groups had formed a pressure group in Congress by 1921, strong enough to influence the outcome of several law acts. (Very nice are the stories for farmer complaining about low feedstock prices, consumers about high meat prices – and the tiniest group with least voting power – the meat packers and stockyards – ending up being regulated.) Page over page the different interventional acts are described: cheap loans to farmers by creating special Federal Land Banks; the Packers and Stockyards Act, prohibitive taxes on trading agricultural goods (Futures Trading Act: unlike today, where traders are the ones to blame for high oil prices, they have been blamed for low ag prices then), loans to food exporters, 10 percent cut in freight rates for agricultural goods enforced on the railroads, exemption of cooperative marketing associations from antitrust laws, …

In June 1929 the Agricutural Marketing Act was passed, establishing the Federal Farm Board (FFB). Hoover appointed the chairman of the board and it was funded with USD 150 mn. As the depression struck, the FFB started to fight falling wheat prices. Those had been heading downward for a year, so the board advised farmers not to send their stock to the market and used its funding to grant loans for the meantime. The Farmers National Grain Corporation was established to centralize cooperative marketing … a wheat cartel. Finally, direct intervention was administrated and wheat just bought from the market. Soon enough the FFB needed more money.
This led to additional acreage in the next year, a drop in export market share of the US farmers and – with the high stocks of the FFB hanging over the price level – finally a further sharp price drop in 1930. When the FFB recognized, that output had to be reduced, tours of FFB members to farmers took place. They should be talked into lowering their acreage but showed little understanding, as they would thus reduce the calculation basis for their subsidies. When the GSC (successor of the FFB) started to dump wheat on international markets, prices came down further. At the end of 1931, trading losses totaled over USD 300 mn and 85 mn bushels had been given for free to the Red Cross.

Rothbard then follows with similar success stories on the cotton market. Full scale intervention did not happen on other markets, but at least 15 are listed (grapes, butter, diary, eggs, apples, …) where the FFB tried to catch ground on smaller scale.