Was President Herbert Hoover responsible for the Depression?
Most historians don’t blame President Herbert Hoover for causing the Great Depression. The Depression was caused by several factors, some of which were:
1. America’s reliance on the gold standard. The government was obligated to redeem paper money with gold. This put a limit on the amount of money the government could print. When demand for money was too high, the government had to raise interest rates to discourage people from taking interest-earning money and converting it to gold. This caused even less money to be available for circulation.
2. No cohesive economic policy. People who worked in finance believed that the government should stay out of the economy. They thought business slumps were a natural part of economics and would self-correct. In 1930 Secretary of the Treasury Andrew Mellon said that the depression wasn’t a bad thing. It would “purge the rottenness out of the system.” Hoover did not agree and got rid of Mellon shortly afterwards.
3. The banking system. There were too many banks, and too many of them invested their funds in the stock market. The Federal Reserve, which only covered one-third of the nation’s banks, was unable to save failing banks. As the banks failed, savings accounts were wiped out and the money supply shrank. This made it impossible for people or businesses to spend money or invest.
4. Stock market speculation. Before the stock market crash in 1929, people were able to buy stock using loans. They would then sell the stock at a profit, using part of the profit to pay their loan off. If the stock dropped in price, they would not be able to sell it and therefore couldn't pay the loan back. When the stock market crashed and all the stock values went down or were worthless, no one could pay off their loan.
Ironically, in 1925, then Secretary of Commerce Herbert Hoover warned President Calvin Coolidge that stock market speculation was getting out of control. Once he became president, Hoover tried to persuade Wall Street managers that they needed to act with more caution. But presidents traditionally didn’t interfere with Wall Street, so Hoover never did more than talk.
5. A drop in consumer spending. Even modern economists have a difficulty explaining why the economy did not bounce back in 1930. Robert Samuelson, a journalist today who writes on economic affairs, says a big drop in consumer spending kept the economy depressed. People lost confidence in the economy and stopped buying new household items. “Weak spending depressed prices which meant that many farmers, businesses, and nations couldn’t repay their debts,” Samuelson explained. Rising bad debts led to banks stop making new loans. Less credit meant less spending, lower prices, and more bankruptcies.
Hoover attempted to help. He ordered a speed up of federal construction projects, and passed a tax cut. Hoover had meetings with industrialists and business owners asking their help. When a delegation of bishops and bankers met with Hoover in June of 1930 to warn him about the spreading suffering, Hoover told them that his initiatives would eventually work and solve the problems. He was wrong, as joblessness, bank collapses, and bankruptcies continued to rise.
The American people were looking for someone to step in and solve the problems. When Hoover didn’t do this, he was blamed for both the Depression and for not stopping it. In the election of 1932, Hoover campaigned on his record saying at one point, “It could be so much worse.”
His opponent, Franklin Roosevelt, instead promised to make changes that would help “the forgotten man.” Roosevelt’s message appealed to the voters and he won by a large margin.
The Great Depression & WW II >> The Great Depression >> Government Responds >> Local Help
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