Hoover’s Great Depression
The roaring twenties were actually only five years long, 1922 to 1926, with an average rate of growth of 8.8% per year. Henry Ford’s Model T had met Texas oil. Before that from 1919 to 1921 the economy dropped 15% in the three year long post World War depression. Because politics and economics travel together so well, no wonder Wilson had great difficulty trying to join the League of Nations he had thought up. Then there was a two year no growth economy from 1927 to 1928. Hoover ran and won in 1928 on a platform of a new large tariff to protect Western timber and other goods from imports as a way to revive the stagnant economy. Congressman Hawley was from the timber state Oregon and Senator Smoot was from Idaho, and together with Senator Borah of Utah they introduced Hoover’s platform as the Smoot Hawley bill in a Special Session of Congress in September 1929. The economy recovered in 1929 growing at a 6.6% rate, but Hoover was determined to implement his campaign platform and called for the special session.
You see, the American Federal Government depended on tariffs for 85% of its revenue in the nineteenth century, so it seemed normal to tax that way. But Hoover was playing with dynamite this time, because the American economy was now the undisputed number one in the world, twice the size of the British or German economies. So depending on tariffs to protect the Northern manufacturing industry from the British Empire was one thing as a small power, but totally something else as a major power. As a major power raising tariffs invited European retaliation. The stock market shuddered twice in September 1929, and then collapsed four days after the bill was introduced October 24, 1929. The stock market could see the coming trade war. The economy was just fine continuing to grow for the first five months of 1930, and then collapsed after the June 11 signing of the bill against the protest of 1000 economists. The math of the drop in trade times a multiplier of eight to ten for the import/export sector does explain the drop of 30.2% of the economy from 1929 to 1933. So Smoot Hawley and the dry up of world trade are the principal causes of the Great Depression, and all the other reasons are secondary effects springing from this primary cause. The timing of the stock market, looking ten months ahead, and the actual decline not starting until the bill is signed into law, and the size of the declines in trade and economic growth, tend to prove that Smoot Hawley was the main cause. Another proof is the reaction after World War II when the economy was in a three year slump until the new postwar trade regime of the GATT went into effect on January 1, 1948 and the first post war growth year occurred in 1948 with over 4% growth in the reelection year boosting an unpopular Truman into reelection year success.
An editorial in the Eugene Register Guard in the early eighties reported a study of rural growth showed an eight percent drop each year in a community absent any new business to reverse the trend. So economies tend to drop eight percent a year when in freefall downward.
Hoover appointed a Blue Ribbon commission of businesspeople, the Hump Commission to recommend what to do. He ignored their advice to resort to more government spending in 1931 and doubled down on balancing the budget instead. As a result the economy dropped 9.9% in 1930, 7.3% in 1931, and 14.8% in 1932, so the economy took a sharp double down in 1932 thanks to Hoover’s balanced budget strategy, then finally stabilized in the transition year to Roosevelt, 1933 with a drop of only 1.9%. The agricultural nature of the tariffs lead to France, the largest agricultural economy in Europe, suffering the most in the thirties, while Britain and Germany suffered much less. Then the weak French economy fell quickly to the German attack in 1940.
When John Maynard Keynes came out with his theory in 1936, he was just following the common sense advice of Hoover’s Hump Commission. But he was advising Roosevelt, so he does deserve some credit for the recovery when Roosevelt pumped money into economy through various jobs programs.
Here are brief summaries of the US Presidents Economies 1910-2009
Here are the key statistics in the Depression analysis
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