After the October 29th “Black Thursday” crash of the United States stock market, a joke illustrated the gravity of the financial collapse. Two men were sitting in a bar drinking. One turns to the other and asks, “What’s wrong with you?” “I’ve got diabetes at 35,” he answers. “Don’t worry,” the first man replies, “I’ve got Chrysler at 98.” The story reflected the abnormal over-valuation of stock before the crash and pointed to the fact that everyday Americans would be seriously affected by the greed of a few.
The Coming Crash and the Hoover Response
Both Presidents Calvin Coolidge and Herbert Hoover were fiscally conservative Republicans who adamantly opposed direct government assistance or intervention to alleviate private misfortunes. Coolidge, who rejected aid to distressed Texas farmers as well as the victims of flooding from the Mississippi River, even mistrusted private charities. Laissez faire was the modus operandi in business and finance while self-reliance represented the cornerstone of the American Dream.
Greed in the stock market, buying on margin, and greatly inflated stock valuations created a febrile system so when the market declined there was no stopping the deluge. Seventy-five percent of the market’s value disappeared on October 29, 1929, causing panic and prompting Communists and Socialists to predict the end of American capitalism.
Coolidge had been reelected in 1924, capturing more popular votes than the combined total of both rivals, John Davis and Robert La Follette. American voters went to the ballot box with their wallets and purses and in 1924 times were good. Consumerism and consumer credit was expanding and unemployment was low. Although by the Election of 1828 the signs of potential slowdown were evident, Herbert Hoover’s landslide victory over New York’s Alfred Smith further demonstrated American satisfaction with “a chicken in every pot and two cars in every garage.”
After the crash of 1929, unemployment rose from 2% to 12% as manufacturing and construction slumped dramatically. One third of America’s workforce would be without work and there were few areas of public or private assistance to turn to. Hoover’s most tangible response, coming late in his presidency, was the granting of a $300 million loan to the states. A more comprehensive and direct measure, foreshadowing Franklin Roosevelt’s New Deal, was offered by New York Senator Robert Wagner but was vetoed by Hoover.
Ideological Differences between Hoover and FDR
America had always experienced boom and bust cycles. Frequently, the economic “panics,” as they were called, were brief and the economy rebounded with longer periods of boom. Failing to grasp the full magnitude of the spiraling Depression, Hoover and the Republicans preached correction: given time, the market would recover. Direct government intervention smacked of socialism and was probably unconstitutional. Hoover, a self made man who earned an engineering degree at Stanford University, was wholly wedded to the notion of rugged individualism and self-reliance.
Franklin Roosevelt, however, was willing to reject the old models in favor of pragmatic, immediate solutions that his opponents dubbed reckless and dangerous experimentation. Roosevelt was ready to exploit prerogative presidential power, much like Teddy Roosevelt and Woodrow Wilson had done earlier in the century. But FDR knew that mere prayers and promises from business leaders would not put Americans back to work or end the closure of banks, which topped 5000 in the aftermath of the crash. Farmers also were hurting as agricultural commodity prices plummeted.
The proverbial “bottom line” was the necessity in restoring popular confidence among the American people in those institutions associated with a prospering society. It was this very notion of confidence that FDR addressed in his Inaugural Speech, declaring that the only thing Americans needed to fear was fear itself. Significantly, his first major act involved the banking industry. These are the learned lessons Americans in 2009 can take from a similar period of national history.
Sources:
Frederick Lewis Allen, Only Yesterday: An Informal History of the 1920’s (New York: Harper & Row, 1964).
J. Joseph Huthmacher, Senator Robert Wagner and the Rise of Urban Liberalism (New York: Atheneum, 1968).
Robert Goldston, The Road Between the Wars: 1918-1941 (New York: Fawcett Crest, 1978).
Gordon Thomas and Max Morgan-Witts, The Day the Bubble Burst: The Social History of the Wall Street Crash of 1929 (New York: Penguin Books, 1980).
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