America's Great Depression (34 page)

We persuaded employers to “divide” time among their employees so that as many as possible would have some incomes. We organized the industries to undertake renovation, repair, and, where possible, expand construction.10

Standard Oil of New Jersey announced a policy of laying off its older employees last, and it increased its repairs and production for inventory; U.S. Steel also invested $10 million in repairs immediately upon conclusion of the conference.11 In short, the biggest businesses were the first to agree.

Happily, the depression was about over by the time these measures could take effect, but an ominous shadow had been cast over 7Hoover to Wesley C. Mitchell, July 29, 1921. Lucy Sprague Mitchell,
Two
Lives
(New York: Simon and Schuster, 1953), p. 364.

8Warren,
Herbert Hoover and the Great Depression
, p. 26.

9See Hoover,
Memoirs,
vol. 2; Warren
, Herbert Hoover and the Great Depression;
and Lloyd M. Graves,
The Great Depression and Beyond
(New York: Brookmire Economic Service, 1932), p. 84.

10Hoover,
Memoirs,
vol. 2
,
pp. 41–42.

11See Joseph H. McMullen, “The President’s Unemployment Conference of 1921 and its Results” (unpublished M.A. thesis, Columbia University, 1922), p. 33.

Prelude to Depression: Mr. Hoover and Laissez-Faire
191

any future depression, a shadow that would grimly materialize when the 1929 crash arrived. Once again, these measures bore the characteristic Hoover stamp; the government compulsion and planning were larded with the rhetoric of “voluntary cooperation.” He spoke of these and other suggested measures as “mobilization of cooperative action of our manufacturers and employers, of our public bodies and local authorities.” And there came into use the now all too familiar war analogy: “An infinite amount of misery could be saved if we have the same spirit of spontaneous cooperation in every community for reconstruction that we had in war.” While the government did not greatly intervene in the 1920–1921 recession, there were enough ominous seeds of the later New Deal. In December, 1920, the War Finance Corporation was revived as an aid to farm exports, and a $100 million Foreign Trade Financial Corporation was established. Farm agitation against short-selling led to the Capper Grain Futures Act, in August, 1921, regulating trading on the grain exchanges. Furthermore, on the state level, New York passed rent laws, restricting the eviction rights of landlords; Kansas created an Industrial Court regulating all key industries as “public utilities”; and the Non-Partisan League conducted socialistic experiments in North Dakota.12

Perhaps the most important development of all, however, was the President’s Conference on Unemployment, called by Harding at the instigation of the indefatigable Herbert Hoover. This was probably the most fateful omen of anti-depression policies to come. About 300 eminent men in industry, banking, and labor were called together in September, 1921, to discuss the problem of unemployment. President Harding’s address to the conference was filled with great good sense and was almost the swan song of the Old Order’s way of dealing with depressions. Harding declared that liquidation was inevitable and attacked governmental planning and any suggestion of Treasury relief. He said, “The excess 12See Graves,
The Great Depression and Beyond.

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America’s Great Depression

stimulation from that source is to be reckoned a cause of trouble rather than a source of cure.”13

To the conference members, it was clear that Harding’s words were mere stumbling blocks to the wheels of progress, and they were quickly disregarded. The conferees obviously preferred Hoover’s opening speech, to the effect that the era of passivity was now over; in contrast to previous depressions, Hoover was convinced, the government must “do something.”14 The conference’s aim was to promulgate the idea that government should be responsible for curing depressions, even if the sponsors had no clear idea of the specific things that government should do. The important steps, in the view of the dominant leaders, were to urge the necessity of government planning to combat depressions and to bolster the idea of public works as a depression remedy.15 The conference very strongly and repeatedly praised the expansion of public works in a depression and urged coordinated plans by all levels of government.16 Not to be outdone by the new administration, former President Wilson, in December, added his call for a federal public works stabilization program.

The extreme public works agitators were disappointed that the conference did not go far enough. For example, the economist 13See E. Jay Howenstine, Jr., “Public Works Policy in the Twenties,”
Social
Research
(December, 1946): 479–500.

14See Lyons,
Our Unknown Ex-President,
p
.
230.

15In reality, public works only prolong the depression, aggravate the malinvestment problem, and intensify the shortage of savings by wasting more capital.

They also prolong unemployment by bolstering wage rates. See Mises,
Human
Action
(New Haven, Conn.: Yale University Press, 1949), pp. 792–94.

16The payment of charity wages as high as market rates began in the depression of 1893; public works as a depression remedy started on a municipal scale in the recession of 1914–1915. The secretary of Mayor John Purroy Mitchell’s New York Committee on Unemployment urged public works in 1916, and Nathan J.

Stone, chief statistician of the U.S. Tariff Board, urged a national public works and employment reserve in 1915. Immediately after the war, Governor Alfred E.

Smith of New York and Governor Frank O. Lowden of Illinois urged a national public works stabilization program. See Raphael Margolin, “Public Works as a Remedy for Unemployment in the United States” (unpublished M.A. thesis, Columbia University, 1928).

Prelude to Depression: Mr. Hoover and Laissez-Faire
193

William Leiserson had thought that a Federal Labor Reserve Board “would do for the labor market what the Federal Reserve Board did for the banking interests.” But the wiser heads saw that they had made a great gain. As a direct result of Hoover’s conference, twice as many municipal bonds for public works were floated in 1921 and 1922 as in any previous year; Federal highway grants-in-aid to the states totaled $75 million in the autumn of 1921, and American opinion was aroused on the entire subject.

It was no accident that the conference had arrived at its interventionist conclusions. As usually happens in conferences of this type, a small group of staff men, along with Herbert Hoover, actually prepared the recommendations that the illustrious front men duly ratified.17 Secretary of the crucial Public Works Committee of the Conference was Otto Tod Mallery, for a long time the nation’s leading advocate of public works programs in depressions. Mallery was a member and guiding spirit of the Pennsylvania State Industrial Board and Secretary of the Pennsylvania Emergency Public Works Commission, which had pioneered in public works planning, and Mallery’s resolutions thoughtfully pointed to the examples of Pennsylvania and California as beacon lights for the Federal government to follow.18 Mallery was one of the leading spirits in the American Association for Labor Legislation (AALL) an organization of eminent citizens and economists devoted to the promotion of government intervention in the fields of labor, unemployment, and welfare. The Association had held the first national unemployment conference in early 1914. Now, its executive director, John B. Andrews, boasted that the Presidential Conference’s recommendations followed the standard recommendations formulated by the AALL in 1915. These standard recommendations featured public works and emergency public relief,
at
17McMullen, “The President’s Unemployment Conference of 1921 and its Results,” p. 16.

18Pennsylvania had established the first public works stabilization program in 1917, largely inspired by Mallery; it was later repealed. Mallery had also been made head of a new Division of Development of Public Works by States and Cities During the Transition Period, in the Wilson administration. See Dorfman,
The Economic Mind in American Civilization,”
vol. 4, p. 7.

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America’s Great Depression

the usual hours and wage rates
—the wage rates of the boom period were supposed to be maintained.19 Neither was the Conference’s following of the AALL line a coincidence. Aside from Mallery’s critical role, the Conference also employed the expert knowledge of the following economists,
all of whom were officials of the AALL
: John B. Andrews, Henry S. Dennison, Edwin F. Gay, Samuel A.

Lewisohn, Samuel McCune Lindsay, Wesley C. Mitchell, Ida M.

Tarbell, Mary Van Kleeck, and Leo Wolman.20

It seems clear that the businessmen at the conference were not supposed to mold policy; their function was to be indoctrinated with the Hoover–AALL line and then to spread the interventionist gospel to other business leaders. Andrews singled out for particular praise in this regard Joseph H. Defrees, of the United States Chamber of Commerce, who appealed to many business organizations to cooperate with the Mayors’ Emergency Committees, and generally to accept “business responsibility” to solve the unemployment problem. President Samuel Gompers of the American Federation of Labor (A.F. of L.) also hailed the widespread acceptance by industry of its “responsibility” for unemployment, as an outcome of this Conference.

Hoover did his best to intervene in the recession, attempting also to stimulate home construction and urging banks to finance more exports. Fortunately, however, Harding and the rest of the Cabinet were not convinced of the virtues of governmental depression “remedies.” But eight years later, Hoover was finally to have his chance. As Lyons concludes: “A precedent for federal intervention in economic depression was set, rather to the horror of conservatives.”21

19See John B. Andrews, “The President’s Unemployment Conference—

Success or Failure?”
American Labor Legislation Review
(December, 1921): 307–10.

Also see “Unemployment Survey,” in ibid, pp. 211–12.

20
American Labor Legislation Review
(March, 1922): 79. Other officials of the AALL included: Jane Addams, Thomas L. Chadbourne, Professor John R.

Commons, Professor Irving Fisher, Adolph Lewisohn, Lillian Wald, Felix M.

Warburg, Woodrow Wilson, and Rabbi Stephen S. Wise.

21Lyons,
Our Unknown Ex-President,
p. 230.

Prelude to Depression: Mr. Hoover and Laissez-Faire
195

It is, of course, a sociological law that a government bureau, once launched, never dies, and the Conference was true to this law.

The Conference resolved itself into three research committees, run by a staff of experts, with Hoover in overall command. One project bore fruit in Leo Wolman’s
Planning and Control of Public
Works
, a pro-public-works study published in 1930. A second committee published a study on
Seasonal Operation in the Construction
Industry
, in 1924, in cooperation with the Division of Building and Housing of the Department of Commerce. This work urged seasonal stabilization of construction, and was in part the result of a period of propaganda activity by the American Construction Council, a trade association headed by Franklin Delano Roosevelt. Its foreword was written by Herbert Hoover.22 The most important project was a study of
Business Cycles and Unemployment
, published in 1923.

Hoover invited the National Bureau of Economic Research (headed by Wesley C. Mitchell) to make a “fact-finding” study of the problems of forecasting and control of business cycles, and then appointed a Committee on Business Cycles to draft policy recommendations for the report. Chairman of the Committee was Owen D. Young, and other members included Edward Eyre Hunt, who had been secretary of the President’s Conference, Joseph Defrees, Mary Van Kleeck, Clarence Woolley, and Matthew Woll of the A.F. of L. Funds for the project were considerately supplied by the Carnegie Corporation. Wesley C. Mitchell, of the National Bureau and AALL, planned and directed the report, which 22The American Construction Council was formed in response to the hound-ing of the New York construction industry by state and Federal authorities during the depression of 1920–1921. The governments charged the industry with

“price-fixing” and “excessive profits.” Hoover and Roosevelt together formed the Council in the summer of 1922, to stabilize and organize the industry. The aim was to cartelize construction, impose various codes of operation and “ethics,” and to plan the entire industry. Franklin Roosevelt, as President of the Council, took repeated opportunity to denounce profit-seeking and rugged individualism. The

“codes of fair practice” were Hoover’s idea. See Daniel R. Fusfeld,
The Economic
Thought of Franklin D. Roosevelt and the Origins of the New Deal
(New York: Columbia University Press, 1956), pp. 102ff.

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America’s Great Depression

included interventionist chapters by Mallery and Andrews on public works and unemployment benefits, and by Wolman on unemployment insurance. While the National Bureau was supposed to do only fact-finding, Mitchell, in discussing his report, advocated

“social experimentation.”23

Meanwhile, Hoover had not been idle on the more direct legislative front. Senator W.S. Kenyon of Iowa, in late 1921, introduced a bill supported by Hoover, embodying recommendations of the Conference and specifically requiring a public works stabilization program. In the December, 1921 hearings, the Kenyon Bill was supported by numerous leading economists, as well as by the American Federation of Labor, the American Engineering Council (of which Hoover had just been named President), and the United States Chamber of Commerce. One of the supporters was Wesley C. Mitchell. The bill never came to a vote, however, largely due to healthy senatorial skepticism based on laissez-faire ideas.