The Great Depression (17 page)

EDITOR’S NOTE

 

When the crash hit in 1929, President Hoover had taken the position that the unregulated, unabashed speculation in the stock market was to blame for the brutal economic downturn. But he never perceived any systemic problems with the nation’s production, distribution, and mass consumption. At first, Hoover attempted to resolve the nation’s financial crisis with policies to foster credit, convince businesses to maintain wages, and boost production. But joblessness, debt, and frozen bank savings meant that tens of millions of Americans had no money even for the basic necessities. Over time Hoover began to fixate on two alternative tactics to solve the nation’s financial troubles: balancing the domestic budget and boosting international trade with the United States. In the waning months of his presidency’s befuddled attempts to pull the nation out of the Great Depression, Hoover urged Congress, the public, and even President-elect Roosevelt to carry on with his fiscal agenda: balance the budget and forgive Europe’s war debt. Hoover thought the latter would get Europe back on the gold standard and in turn enable it to buy more American goods.

 

In fact, Hoover’s fear of an unbalanced budget could almost be considered an obsession. Between 1929 and fiscal year 1932, federal revenue had dropped in half, while federal spending (on institutions like the Reconstruction Finance Corporation) ballooned by half. The fiscal budget of 1932 was about $2.735 billion. Between December 1931 and May 1932 President Hoover released more than twenty statements about “the absolute necessity of a balanced budget,” according to Schlesinger. Businesses, from the American Bankers Association to the head of General Motors, publicly supported this agenda. And Hoover, in turn, believed that satisfying this fiscal responsibility would provide the confidence that private industry needed to lend and borrow and consequently get people back to work.

 

For Hoover, economic recovery also hinged on salvaging international trade relations. By June 1931 President Hoover was convinced that it was an overproduction of cheaper goods abroad that led to the drop in purchases of American goods by foreigners and increased the purchasing of lower-cost foreign goods in the United States. While Schlesinger points out that the “actual decline in foreign trade balance in 1930 was less than $60 million,” it was Hoover’s own tariff policy that had largely caused this imbalance of trade. The Smoot-Hawley tariff act of June 1930 prevented countries like Britain, Italy, Spain, and France from trading freely in the United States. These countries in turn actually raised barriers against American goods as a means to protect themselves.

 

By the time Congress went into session on December 5, 1932, the lame-duck president was asking Congress to forgive Europe’s war debt. Since Europeans couldn’t sell enough goods on the American market to repay their loans when the United States was the creditor nation of World War I, Hoover believed that a debt settlement would be the way to strengthen the international gold standard and therefore resolve America’s economic problems. Instead, Congress decided to postpone any decision. On February 13, 1933, President Hoover would reiterate his agenda in his farewell address, mostly to polite silence.

 

In the meantime Michigan undertook dramatic action in an attempt to stem its banking panic. On February 14 Michigan governor William A. Comstock ordered an eight-day bank “holiday” to close the banks to help stabilize their thinning reserves and work on a reorganization. Nevada and Louisiana had initiated such “holidays” in 1932. But the situation in Michigan, with much of its mass of defaulted loans due to the faltering car industry, was much more dire. It involved fifty-five banks, $1.5 billion, and nine hundred thousand depositors’ money. Car magnate Henry Ford was the primary depositor in the Union Guardian Trust Company, which teetered on the edge of closure. Two Hoover officials promised to provide government funds if Ford contributed $4 million to the Guardian and promised to keep his money in the bank. Ford defied them, and even threatened to pull his $25 million out of another struggling bank. As a result Michigan declared its bank holiday. Other states like Indiana, Arkansas, and Oklahoma followed. In the two and a half weeks between the beginning of Michigan’s bank holiday and President Roosevelt’s inauguration, more than thirty states would follow suit in what would be “the most exasperating two and a half weeks in financial history,” according to historian Elmus Wicker. But as Roth would come to learn too well, the bank-closure crisis did not end then.