In the following paper. Father Ryan examines the conclusions to which (in his opinion) the public has arrived regarding the President. “The things that he has done and the things that he has left undone since last November have shown.” we are told, “that Mr. Hoover does not possess the superior qualities which were attributed to him during the presidential campaign.” Next week Father Ryan will discuss the President’s attitude toward problems not economic in character. In all likelihood The Commonweal will publish an article dealing with the same theme from a different point of view.—The Editors.
The remarkable recession of President Hoover’s popularity is due primarily to the stock market collapse which occurred last fall, and the industrial depression which began about a year ago. And yet neither of these disasters was set in motion by anything that Mr. Hoover did or left undone. That they occurred in the first year of his administration was simply his bad luck, just as their failure to occur a year earlier was good luck for Mr. Coolidge. Indeed, the over-expansion of business and the orgy of speculation in the fifteen months preceding the middle of November, 1929, are attributable in no small degree to the foolish predictions of continued prosperity uttered by Mr. Hoover’s immediate predecessor.
However, these events have been the occasion rather than the cause of the great decline which the President has suffered in popular esteem. It is his actions and omissions subsequent to the crash on the stock exchange that have provided the substantial and enduring cause. The things that he has done and the things that he has left undone since last November have shown that Mr. Hoover does not possess those superior qualities which were attributed to him during the presidential campaign and for some years previously.
In this connection, a curious slip has been made by the able and distinguished journalist who presents The Gentleman at the Keyhole to the readers of Collier’s. In his contribution to the issue for August 9, 1930, he writes: “The country insisted upon over-estimating him. It built up its idol of huge proportions and now it will see nothing but the feet of clay. No one could be quite the superman it made Mr. Hoover out to be.” As it stands, this statement implies that the country had arrived at its exaggerated estimate of Mr. Hoover spontaneously upon its own analysis of his achievements. Now, no one knows better than The Gentleman at the Keyhole that the inflated popular estimate was deliberately and systematically created by journalistic and political propagandists.
In any case, there is no doubt that many millions of Americans are now disillusioned on the subject of Mr. Hoover’s greatness. They have found, or think they have found, that he is neither a great economist nor a courageous and effective leader, nor a master of fundamental principles. Let us examine the facts which have brought about popular disillusionment under these three heads. Let us take up first the assumption that Mr. Hoover is a great economist.
Any trained economist must have realized that this assumption was false as soon as he read Mr. Hoover’s speech at Boston in October, 1928. This address contained so much that is superficial, so much sophistry, so many fallacies, so many half-truths, that no competent economist could avoid one of two conclusions: either Mr. Hoover was incapable of fundamental economic thinking, or he was trying to throw dust into the eyes of his audience. Inasmuch as the vast majority of the people are not trained economists, it is probable that not many of them put the proper estimate upon the Boston speech. However, a very large proportion of them have been able to evaluate correctly the economic weaknesses in the President’s attitude toward unemployment, farm relief and the Smoot-Hawley tariff act.
In December, 1928, Governor Brewster, of Maine, presented to the state governors assembled in New Orleans a comprehensive and fundamental plan for the prevention of unemployment. He more than hinted that his plan had the backing of the President-elect. Many newspaper editors drew the hasty conclusions that the new scheme was Mr. Hoover’s own invention. As a matter of fact, it can be found fully set forth in any standard economic text published the last quarter of a century. In essence it proposes an increase of public works during depressions and a decrease in periods of prosperity. Governor Brewster expressed the opinion that through the cooperation of federal, state, county and municipal authorities a fund of $3,000,000,000 could be made available for public works when business showed signs of becoming slack. Given the requisite previous planning and the intelligent expenditure bf this huge sum, and there is not the slightest doubt that a depression which threatened to be even greater than the one now afflicting us could have been halted before it got thoroughly started.
Unfortunately for the country and for Mr. Hoover himself, he did nothing toward putting the plan into effect. About four months after it was expounded to the governors at New Orleans, Congress was assem- bling in extra session to deal with farm relief and the tariff. Here was a golden opportunity to urge the public-works plan upon the consideration of the national legislature. Although the report of his Committee on Recent Economic Changes, to mention only one source of information, should have warned the President that the excessive capacity of our industries would soon bring about over-stocked markets, a serious decline in demand and an industrial recession, he did nothing to forestall or minimize these imminent evils. Less than four months later they were unmistakably operative.
To be sure, it is probable that Congress would not have heeded a recommendation to make the necessary provisions for a vast program of public works. This does not exculpate the President. If he had been the able economist and the courageous leader pictured by his propagandists, he would have put the plan before Congress in the hope of returning to it when the need became evident even to the average national legislator. Had he made this recommendation in April, he would have been in a position to repeat it with much more authority and persuasion at the opening of the regular session the following December. By that time the depression had become so palpable that it could no longer be denied or ignored. Inasmuch as Mr. Hoover failed to urge upon Congress in a practical way the plan that his spokesman had put before the governors in an academic way, he can justly be charged with some responsibility, not indeed for the beginning of the depression but for its depth and duration.
This responsibility has been considerably increased by the course that he followed since the disaster on the stock exchange. Very promptly and very laudably he summoned business leaders and labor leaders to confer on the critical situation. So far as they went, the conclusions and recommendations adopted by these conferences were entirely admirable. To keep up wages and purchasing power, to continue so far as feasible construction work in private industries, and to increase public building, were all helpful measures. Could they have been carried far enough they would have ended the depression within a month or two. As organized by the conferences, however, they proved utterly inadequate.
The reasons are obvious. An economist who knew human nature would not have expected a general fulfilment of the promise to maintain existing wage rates. An economist who was fully acquainted with the facts would have realized that industries unable to utilize all their present capacity would not undertake to expand their plants. Only the third element in the program of these conferences could have been made adequate to check the industrial decline. That was an increase in public works. To become really effective, this measure would have had to assume vast dimensions. A paltry increase of two or three hundred million dollars for federal buildings was clearly insufficient to relieve a depression that threatened to be among the greatest of recent times.
Nevertheless, Mr. Hoover seems to have persuaded himself that these puny devices would prove adequate. Toward the end of January the steel industry was able to show one week of increased output. Immediately the President announced that the trend of employment had changed in the right direction. His optimism was sadly discredited by all the industrial events and trends of the succeeding five or six weeks. On March 8 he again enacted the role of hopeful prophet, predicting a business recovery within sixty days. At the end of that period conditions were worse than they had been at the beginning. But Mr. Hoover’s faith remained unfaltering. Six days before the close of the disconcerting sixty days he said to the Chamber of Commerce of the United States: “I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover.” Referring to his conferences with industrial leaders last November, he made this astonishing assertion: “I believe I can say with assurance that our joint undertaking has succeeded to a remarkable degree.”
Again events have belied his optimistic prophecy. When he uttered it (May 2) business activity was only 12 percent lower than it had been twelve months earlier. At the end of July it had dropped to 19 percent below that of the same month in 1929. Mr. Hoover’s assertion that the efforts of the November conferences to check the depression had “succeeded to a remarkable degree,” is astonishing and inexplicable in the face of the facts. He must have been aware that the decline in business activity and employment had been continuous from the time of his conferences in autumn to the bright May day when he made this curious claim before the assembled representatives of American business.
A few days after this address he rejected a suggestion by the National Unemployment League that he ask Congress to authorize a very large expenditure for road building. Yet this was the only means whereby employment and purchasing power could have been sufficiently increased to bring the depression to an end within a reasonable time. Undoubtedly the President’s refusal to adopt this recommendation was determined by his knowledge that it would involve a very large issue of federal bonds and therefore a considerable increase in federal taxes. His decision may be good politics, but it is poor economics. If the public-works remedy is to be effective at the approach of or during a major industrial depression, it cannot be financed through any current surplus in the treasury. The necessary amount of money can be obtained only through a sale of public bonds. A brief analysis of the economics of the situation will show that there is no good reason for shrinking from this expedient.
Certain important industries began to curtail production about a year ago because they could not sell all their current output. Yet there was in existence a social surplus, a reserve of purchasing power, sufficient to take the excess products off the market and to keep these industries in continuous operation. It failed to do so because it was not suitably distributed. Those consumers who would like to buy more had not the money. Those who had the money lacked the desire for more. What was needed then, what is still needed, is a redistribution of this social surplus, this reserve purchasing power. Such a redistribution occurs to some extent through charitable assistance to the unemployed and the low income classes, and to a greater extent through the payment of unemployment insurance. All such provisions come out of the pockets of those who possess surplus incomes. Some of their purchasing power is transferred to those who desire to buy more goods. If this did not take place during a depression the condition of business would be even worse. Exactly the same principle and the same process are involved in the expenditure of public money for road building. In this case the social surplus is redistributed through taxation. Instead of investing their savings in industries which are already over-supplied with capital, men buy government bonds; later on they and the other possessors of a surplus are taxed to provide the interest and the sinking fund.
Such is the economics of the matter. We cannot have our cake and eat it. We cannot provide sufficient demand for goods to keep our industries going unless we redistribute the social purchasing power. We cannot go on indefinitely increasing our production, saying too much and spending too little. On the other hand, we can create public works in sufficient volume to redistribute purchasing power and to bring about a prompt revival of business only through heavier taxation of those who are able to pay. Moreover, the latter would gain more through the recovery of industry and the consequent increase of salaries, profits and interest, than they would lose through the increased taxation.
These elementary economic truths seem to have escaped President Hoover. At the moment when he was planning an increase of expenditures for public building last fall he was recommending a reduction of $160,000,000 in the federal income tax. Obviously the principles underlying these two measures are mutually contradictory. Instead of dissipating the $160,000,000 surplus through tax reduction, Mr. Hoover should have added it to the pitiably insufficient sum that he was devoting to public works for the relief of unemployment. He should have welcomed this opportunity. In advocating lower income taxes he seems to have been following the Coolidge-Mellon theory that business men would thereby be enabled and induced to put more money into industry. But industry did not need more money. It was already over-supplied. Not lack of money or credit for productive operations but lack of demand for goods already produced was the cause of the depression. Not more capital but more consumption was the fundamental need. The remitted income taxes became for the most part available to increase the existing superabundant supply of capital. Had the reduction not been made, $160,000,000 would have been available for increased public works, increased employment, increased consumption and increased business activity.
Quite recently Mr. Hoover has repeated this blunder. In order to avoid a threatened deficit in national finances, he has urged upon the various departments of the government a reduction in expenditures. At the same time he asserted that this course would not conflict with the program of providing employment through public construction. Well, an inherent contradiction cannot be annihilated by the simple device of denying its existence. Already it has become notorious that reducing expenditures in the departments means decreasing the number of employees and cutting down the outlay for materials. Part of the good effect of increased public construction is thus neutralized through decreased expenditures by the government departments. The President’s purpose is obvious. He shrinks from the thought of having to call upon Congress for an increase in federal taxes. As we have seen, however, it is only through increased taxation that the purchasing power of the community can be so redistributed as to bring relief from the industrial depression. Mr. Hoover’s course with regard to tax reduction and the decrease of departmental expenses is the authentic recourse of the politician. It exhibits neither the humane statesman nor the competent economist. In the meantime the depression is still with us and it still threatens to affect profoundly the coming November elections.
