America's Great Depression (49 page)

Hence, the percentage of Federal depredation on the gross private product rose from 7.8 percent in 1931 to 8.3 percent in 1932, and the percentage depredation of state and local governments rose from 13.7 percent to 16.5 percent. All in all, total fiscal burden of government on the gross private product rose from 21.5 percent to 24.8 percent; total burden on the net private product rose from 24.3 percent to 28.9 percent.

One of the most ominous projects for Federal spending during 1932 was a Congressional move for a huge $2 billion veterans bonus, to be financed by an issue of new currency. It was, indeed,
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the struggle over, and final defeat of, this program in the Senate in June that did most to defeat a general clamor for much larger government spending. The agitation for a veterans’ bonus gave rise to a National Economy Committee, organized by Colonel Archibald R.

Roosevelt, to combat the proposal. The Committee later became the National Economy League, which grew active throughout the nation by mid-1932. Chairman of the League was Admiral Richard E. Byrd, who abandoned a polar expedition to take active part, and secretary was Captain Charles M. Mills. Begun by Colonel Roosevelt and Grenville Clark, the League acquired over 60,000 members in forty-five states. The League’s objective was to cut the costs of government: “We will not get back again to prosperity until high taxes are reduced.” Taxation, it declared, now cripples industry, and hurts rich and poor alike. Unfortunately, the League was not willing to suggest specific areas of reduced spending—aside from veterans’ aid. Captain Mills simply assumed that public works could not be reduced, since they were needed to relieve unemployment, and national defense could not be reduced—despite the fact that no country was poised to attack the United Sates.5

Other economizers were more stringent, and urged Hoover to balance the budget by reducing expenditures by $2 billion, rather than by raising taxes. These included the redoubtable Rep. James M.

Beck of Pennsylvania, formerly Solicitor General of the United States.6 But Hoover rejected the pleas of numerous businessmen and bankers, many of them adherents of the Democratic Party. To 5It was undoubtedly this vagueness that drew declarations of support for the League from such disparate figures as President Hoover, Governor Franklin D.

Roosevelt, William Green, farm leader Louis Taber, Calvin Coolidge, chairman of the Advisory Council of the League, Alfred E. Smith, Newton D. Baker, Elihu Root, and General Pershing. See Bank of the Manhattan Company,
Chapters in
Business and Finance
(New York, 1932), pp. 59–68. Also see National Economy League,
Brief in Support of Petition of May 4, 1932.
On this Committee and on the similar National Action Committee, see Warren,
Herbert Hoover and the Great
Depression,
p. 162.

6See James M. Beck,
Our Wonderland of Bureaucracy
(New York: Macmillan, 1932); Mauritz A. Haligren,
Seeds of Revolt
(New York: Alfred A. Knopf, 1933), pp. 274ff.

The Hoover New Deal of 1932

291

one protesting businessman who urged him to reduce expenses by $2 billion, Hoover answered with the typical hysteria of the bureaucrat:

Your thesis is that the government expenses can be reduced by $2 billion—the amount of the tax decrease.

This is . . . wholly impossible. It would mean we must give up the postal service, the Merchant Marine, protection of life and property and public health. We would have to turn 40,000 prisoners loose in this country; we would have to stop the maintenance of rivers and har-bors; we would have to stop all construction work going on in aid of unemployment; it would mean abolishment

[sic] of the Army and Navy. In other words it means complete chaos.

Let us waive the important question whether many of these functions are really so vital, or whether they may only be performed by the compulsory monopoly of the Federal Government.

Would a $2 billion budget cut have led to these effects? Taking the
fiscal
year 1932, the Federal expenditures (including government enterprises) of $4.8 billion equaled $59.50 per person in a “real” index based on the wholesale price level of 1926. During the 1920s, the Federal Government spent a real amount of about $25

per person, and from 1890–1916, spent approximately $10 per person. This means that the Federal budget could have been cut by $2.8 billion to maintain the services provided during the 1920s, and by $4.0 billion to maintain the services provided from 1890–1916,
not
a period that lacked protection, post offices, etc.7

While the economizers urged Hoover to cut expenditures and taxation, radicals urged a stepped-up program of government spending. William Trufant Foster, in a speech before the Taylor Society in the spring of 1932, called for “collectively” expanding currency and credit to restore the commodity price level of 1928.

Virgil Jordan, economist for
Business Week
, urged expansion of public spending: “Just as we saved our way into depression, we must squander our way out of it.” This piece of advice was delivered 7Cf. M. Slade Kendrick,
A Century and a Half of Federal Expenditures
(New York: National Bureau of Economic Research, 1955), pp. 77ff.

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before the annual banquet of the Pennsylvania Chamber of Commerce. Also calling for increased spending and “cyclical” rather than annual budget balancing were such economists as Paul H.

Douglas, R.M. Haig, Simeon E. Leland, Harry A. Millis, Henry C.

Simons, Sumner H. Slichter, and Jacob Viner.8

PUBLIC WORKS AGITATION

While expenditures were leveling out, agitators for ever-greater public works redoubled their propaganda during the spring of 1932. Virgil Jordan, economist for
Business Week
, called for expanded public works, deficits, and pump-priming. W.T. Foster, Otto Tod Mallery, and David Cushman Coyle clamored for public works. Senators LaFollette and Wagner each sponsored huge public works bills, and they were supported by numerous economists and engineers. Senator Wagner sent a questionnaire on his $1 billion public works plan to numerous economists, and drew only a few dissents in the chorus of approval.9

Felix Frankfurter thought that the program should go even further. Several economists, however, advised caution or expressed outright dissent, thus causing at least a welcome split in what had looked to laymen to be a solid phalanx of economists favoring a 8See Lewis H. Kimmel,
Federal Budget and Fiscal Policy, 1789–1958

(Washington, D.C.: Brookings Institution, 1959), pp. 155ff.

9
Congressional Record
(May 16, 1932), pp. 10309–39. Among the supporters were such economists as:

Edwin W. Borchard

Harold G. Moulton

Paul W. Brissenden

E.M. Patterson

Morris L. Cooke

Selig Perlman

Richard T. Ely

E.R.A. Seligman

Ralph C. Epstein

Sumner H. Slichter

Irving Fisher

George Soule

Felix Frankfurter

Walton Hamilton

Frank W. Taussig

Horace M. Kallen

Ordway Tead

Frank H. Knight

Gordon S. Watkins

William M. Leiserson

Myron W. Watkins

W.N. Loucks

W.F. Willcox

Broadus Mitchell

E.E. Witte

The Hoover New Deal of 1932

293

huge public works program. John Maurice Clark wrote that he was not sure, and was worried about the effect on public confidence and the weakening of bank credit that would ensue. Also worried about confidence and cautiously opposed were Professors Z.C.

Dickinson, Henry B. Gardner, and Alvin H. Hansen. Firmer in opposition was Jacob Hollander of Johns Hopkins, who had signed the adverse report of the President’s Committee a few months earlier.

Hollander expressed concern over the credit structure and continued deficits. Edwin F. Gay of Harvard believed it imperative to economize and balance the budget.

Willford I. King, of New York University, warned that wages must fall in proportion to the decline of commodity prices, in order to eliminate unemployment. He cogently pointed out that government employment at existing high wage rates would perpetuate the unemployment problem. Unfortunately, however, King suggested monetary inflation to restore the price level to 1926 levels. M.B.

Hammond, of Ohio State University, delivered an excellent critique of the Wagner Bill. The proper course, he pointed out, was to economize, balance the budget, preserve the gold standard, and allow the needed price readjustments to take place: conditions will be stabilized as soon as prices in certain lines have become adjusted to price reductions which have already taken place in other lines. Large appropriations for public works would hinder such an adjustment and consequently would be unfavorable to efforts which private industry will otherwise make to resume operations.

One of the best comments on the proposal was delivered by William A. Berridge, economist for the Metropolitan Life Insurance Company. The bond issue for public works, he wrote, “would encroach seriously, and perhaps dangerously upon the supply of capital funds that private enterprise will need in order to help the country climb out of depression again.” The public works projects, he added, “would undoubtedly freeze up the country’s labor and capital in projects that would not contribute correspondingly to the productiveness and welfare of society in general.”
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America’s Great Depression

Further agitation for public works was carried on by the magazine
American City
, which called for a six-year program of low-interest loans to public works, and by Colonel John P. Hogan, who proposed a Productive Research Work Corporation, to be worth $1.5 billion, for loans to local governments for public works.10

Hogan’s scheme was endorsed by the Construction League of America, and by the Associated General Contractors of America, both naturally eager for government subsidies to the construction industry. In June, the construction industry sponsored a National Committee for Trade Recovery, to promote public works. Other zealots were J. Cheever Cowden, a New York investment banker, who proposed an annual $4–5 billion public-works program, Colonel Malcolm C. Rorty, who wanted $1 billion spent per year, Owen D. Young, Alfred E. Smith, and Franklin D. Roosevelt.

William Randolph Hearst suggested a $5.5 billion Property Bond issue for a Federal public-works program, and this was endorsed, in January, 1932, by thirty-one economists, including Thomas Nixon Carver, Paul H. Douglas, William Trufant Foster, Robert M.

Maclver, and J. E. LeRossignol.11

By the summer of 1932, three books had appeared that would form the bellwether of the Roosevelt New Deal. These called for heavy government spending, especially on public works, as well as for central planning of the economy; they were Stuart Chase’s
The
New Deal
, David Cushman Coyle’s
The Irrepressible Conflict: Business vs. Finance
, and George Soule’s
A Planned Society
. Their public works suggestions were endorsed by the
New Republic
and the American Federation of Labor. The U.S. Conference of Mayors urged a $5 billion public-works program, and the avowed Socialists Norman Thomas and Morris Hillquit topped everyone with a suggested $12 billion bond issue, one half to go for public works, and the other half for direct relief.

10See Joseph E. Reeve,
Monetary Reform Movements
(Washington, D.C.: American Council on Public Affairs, 1943), p. 19.

11On the economists’ petition, see Joseph Dorfman,
The Economic Mind in
American Civilization
(New York: Viking Press, 1959), vol. 5, p. 675.

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295

In the meanwhile, however, President Hoover himself was beginning to have doubts about one of his favorite policies: public works. In a conference at the end of February, Hoover admitted that his public works program, which had nearly doubled Federal construction since the start of the depression, had failed. It was very expensive, costing over $1200 per family aided, it was unavailable to the needy in remote regions and to those who were unable to perform such labor, which was, after all, unskilled make-work.

Hoover now was coming to favor more Federal grants-in-aid to states in
lieu
of more Federal public works. By May, Hoover had openly reversed his earlier position, and now opposed any further extension of non-self-liquidating public works. As a result, Federal public works only increased by $60 million in 1932, to reach the $333 million mark. Experience had led the President to curtail his public works experiment, and partially to renounce views that he had championed for over a decade. Public works was not to come really to the fore again until the Roosevelt administration.12

Despite this reversal, Hoover continued to insist on the merits of

“self-liquidating” public works, and induced the Reconstruction Finance Corporation (RFC) to lend abundantly for public dams, toll bridges, and slum clearance. In fact, Hoover still recalls with pride that he personally induced state and local governments to expand their public-works programs by $1.5 billion during the depression. He still points out proudly that the aggregate public works of the four years of his administration was greater than the public works in the entire previous 30 years, and he still takes credit for launching, in this period, Jones Beach, the San Francisco Bay Bridge, the Los Angeles Aqueduct, and Boulder Dam. He also signed a treaty with Canada, in July, 1932, to build a joint governmental St. Lawrence Seaway, but the Senate of that era wisely refused to approve this boondoggle and subsidy to one form of water transportation.

12See Vladimir D. Kazakévich, “Inflation and Public Works,” in H. Parker Willis and John M. Chapman, eds.,
The Economics of Inflation
(New York: Columbia University Press, 1935), pp. 344–49.