The Use and Abuse of Monetary History
Liveblogging World War II: April 10, 1943

The Hoover Administration Was "Liquidationist"; Hoover Himself Was Merely Anti-Keynesian

NewImage

It is very important to note that Herbert Hoover in his Memoirs is an unreliable narrator, magnifying his differences with those upon whom he seeks to cast blame--not only their fair share of blame but his share as well--for the disaster of the Great Depression.

LK:

Social Democracy for the 21st Century: A Post Keynesian Perspective: Herbert Hoover Rejected Keynesianism: And he tells us explicitly that he did so in a speech in October 1936, when describing his time as president, recently cited by Daniel Kuehn in a really excellent post here. I cite the full quotation below:

During my four years powerful groups thundered at the White House with these same ideas [i.e., the ideas of Roosevelt’s New Deal – LK]. Some were honest, some promising votes, most of them threatening reprisals, and all of them yelling ‘reactionary’ at us.

I rejected the notion of great trade monopolies and price-fixing through codes. That could only stifle the little businessman by regimenting him under the big brother. That idea was born of certain American Big Business and grew up to be the NRA [National Recovery Act].

I rejected the scheme of ‘economic planning’ to regiment and coerce the farmer. That was born of a Roman despot fourteen hundred years ago and grew up into the AAA [Agricultural Adjustment Act].

I refused national plans to put the government into business in competition with its citizens. That was born of Karl Marx. I vetoed the idea of recovery through stupendous spending to prime the pump. That was born of a British professor. I threw out attempts to centralize relief in Washington for politics and social experimentation.

I threw out attempts to centralize relief in Washington for politics and social experimentation. I defeated other plans to invade State rights, to centralize power in Washington. Those ideas were born of American radicals.

I stopped attempts at currency inflation and repudiation of government obligation. That was robbery of insurance-policy holders, savings-banks depositors and wage earners. That was born of the early Brain Trusters.” (Hofstadter 1968: 259–260). http://newdeal.feri.org/court/hoover02.htm

So there you have it.

Even though Hoover in his autobiography said that he had rejected the “hard liquidationism” of Andrew Mellon, he was also adamant that he “vetoed the idea of recovery through stupendous spending to prime the pump.”

And he was not lying…

And:

Social Democracy for the 21st Century: A Post Keynesian Perspective: That “Liquidationism” Passage in Hoover’s Memoirs: [T]wo groups existed in the Hoover administration: (1) the hard liquidationists “headed by Secretary of the Treasury Mellon”, and (2) a second group including President Hoover, Under Secretary of the Treasury Mills, Governor Young of the Reserve Board, Secretary of Commerce Lamont and Secretary of Agriculture Hyde, who wanted to “use the powers of government to cushion the situation.”… Not “prevent,” “end,” or “reverse” the situation, but “cushion” or mitigate. This was not some announcement of interventions to stabilise GDP, real output or stimulate the economy, but mere measures to “cushion” or lessen its severity.

And the policy aims they advocated… strip out the actions that amounted to mere rhetoric… we get these:

(a) to avoid the bank depositors’ and credit panics… (b) to cushion slowly, by various devices, the inevitable liquidation… © to give aid to agriculture… (d) to mitigate unemployment and to relieve those in actual distress; (e) to prevent industrial conflict and social disorder; (f) to preserve the financial strength of the United States government, our credit and our currency, as the economic Gibraltar of the earth—in other words, to assure that America should meet every foreign debt, and keep the dollar ringing true on every counter in the world; (g) to advance much-needed economic and social reforms as fast as could be, without such drastic action as would intensify the illness of an already sick nation… (i) to adhere rigidly to the Constitution and the fundamental liberties of the people.”

Once thing should be perfectly clear, measure (f) amounted to supporting the gold exchange standard, and was in conflict with the other proposed aims. Aims (b) and (d) presuppose that a serious depression would occur, and Hoover never declared he wished to avoid depression or end such a depression quickly…. His main way of shunning “hard liquidationism” was merely mitigation of hardship and, above all, avoiding banking panics.

But were the aims and measures Hoover described actually carried out successfully? One can grant that (f) and (i) were more or less achieved. But the other aims failed badly: (1) the desire to stop bank runs and loss of deposits – or (a) – which must be judged a terrible failure… (2) there was severe asset price and commodity deflation, so the aim of (b) to “prevent widespread bankruptcy and the losses of homes and productive power” by some kind of “cushioning” was never achieved; (3) some limited aid was given to farmers, but does anyone seriously think Hoover saved American agriculture from devastation? (4) there might have been some mitigation of unemployment and relief to unemployed, but it was far short of what was necessary; (5) America erupted into social conflict and disorder so (e) and (g) were failures….

Hoover’s aims could never be realised with the feeble and limited interventions he actually pursued, and (arguably) his commitment to the gold exchange standard. And notice how Hoover never committed himself to any Keynesian solution to the crisis, never announced some massive fiscal expansion or doing “whatever it took” to stop the collapse. He explicitly said later that he utterly rejected the Keynesian solution:

I refused national plans to put the government into business in competition with its citizens. That was born of Karl Marx. I vetoed the idea of recovery through stupendous spending to prime the pump. That was born of a British professor. I threw out attempts to centralize relief in Washington for politics and social experimentation.” (Hofstadter 1968: 259–260). http://newdeal.feri.org/court/hoover02.htm

So Hoover’s rejection of Mellon’s extreme liquidationism was very limited indeed in its aims, and his rejection of the many later aspects of the New Deal as radical and opposed to “liberty” simply precluded any real policies that could have stopped and reversed the depression….

Moreover, Hoover never abandoned a concern for a balanced budget. By 1932, he could write of “the urgent need of the country for prompt passage of the emergency legislation and balancing of the budget” through tax increases (Hoover 1953: 136). And on 5 May 1932 he wrote a message to Congress

devoted solely to the necessity for balancing the budget as the next item on the recovery program…. Nothing is more necessary at this time than balancing the budget. Nothing will put more heart into the country than prompt and courageous and united action…. The details and requirements of the situation are now well known to the Congress and plainly require: 1. The prompt enactment of a revenue bill [i.e., tax increases]…. 2. A drastic program of economy [i.e., austerity – LK] which, including the savings already made in the Executive budget of $369,000,000, can be increased to exceed $700,000,000 per annum. (Hoover 1953: 139)….

[A] balanced budget and austerity were a fundamental part of his “recovery program”!

Comments