1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

The Ludwig von Mises Institute

Advancing Austrian Economics, Liberty, and Peace

Advancing the scholarship of liberty in the tradition of the Austrian School

Search Mises.org

10

1931—"The Tragic Year"

The year 1931, which politicians and economists were sure would bring recovery, brought instead a far deeper crisis and depression. Hence Dr. Benjamin Anderson's apt term "the tragic year." Particularly dramatic was the financial and economic crisis in Europe which struck in that year. Europe was hit hard partly in reaction to its own previous inflation, partly from inflation induced by our foreign loans and Federal Reserve encouragement and aid, and partly from the high American tariffs which prevented them from selling us goods to pay their debts.

The foreign crisis began in the Boden-Kredit Anstalt, the most important bank in Austria and indeed in Eastern Europe, which, like its fellows, had overexpanded.[1] It had suffered serious financial trouble in 1929, but various governmental and other sources had leaped to its aid, driven by the blind expediency of the moment telling them that such a large bank must not be permitted to fail. In October, 1929, therefore, the crumbling Boden-Kredit-Anstalt merged with the older and stronger Oesterreichische-Kredit- Anstalt, with new capital provided by an international banking syndicate including J.P. Morgan and Company, and Schroeder of England, and headed by Rothschild of Vienna. The Austrian Government also guaranteed some of the Boden bank's investment. This shored up the shaky bank temporarily. The crisis came when Austria turned to its natural ally, Germany, and, in a world of growing trade barriers and restrictions, declared a customs union with Germany on March 21, 1931. The French Government feared and hated this development, and hence the Bank of France and lesser French banks suddenly insisted on redemption of their short-term debts from Germany and Austria.

The destructive political motive of the French government cannot be condoned, but the act itself was fully justified. If Austria was in debt to France, it was the Austrian debtors' responsibility to have enough funds available to meet any liabilities that might be claimed. The guilt for the collapse must therefore rest on the bank itself and on the various governments and financiers who had tried to shore it up, and had thus aggravated its unsound position. The Kredit-Anstalt suffered a run in mid-May; and the Bank of England, the Austrian Government, Rothschild, and the Bank of International Settlements—aided by the Federal Reserve Bank of New York—again granted it many millions of dollars. None of this was sufficient. Finally, the Austrian Government, at the end of May, voted a $150 million guarantee to the bank, but the Austrian Government's credit was now worthless, and Austria soon declared national bankruptcy by going off the gold standard.

There is no need to dwell on the international difficulties that piled up in Europe in latter 1931, finally leading Germany, England, and most other European countries to renounce their obligations and go off the gold standard. The European collapse affected the United States monetarily and financially (1) by causing people to doubt the firmness of American adherence to the gold standard, and (2) through tie-ins of American banks with their collapsing European colleagues. Thus, American banks held almost $2 billion worth of German bank acceptances, and the Federal Reserve Bank of New York had participated in the unsuccessful shoring operations. The fall in European imports from the United States as a result of the depression was not the major cause of the deeper depression here. American exports in 1929 constituted less than 6 percent of American business, so that while American agriculture was further depressed by international developments, the great bulk of the American depression was caused by strictly American problems and policies. Foreign governments contributed a small share to the American crisis, but the bulk of responsibility must be placed upon the American government itself.

Although we must confine our interest in this work to the United States, we may pause a moment, in view of its international importance, and consider the shabby actions of Great Britain in this crisis. Great Britain—the government that induced Europe to go onto the treacherous shoals of the gold bullion and gold—exchange standard during the 1920s, that induced the United States government to inflate with disastrous consequences, that induced Germany to inflate through foreign investment, that tried to establish sterling as the world's premier currency—surrendered and went off the gold standard without a fight. Aided by France instead of the reverse, much stronger financially than Germany or Austria, England cynically repudiated its obligations without a struggle, while Germany and Austria had at least fought frantically to save themselves. England would not consider giving up its inflationary and cheap credit policy, even to stay on sound money. Throughout the crisis of 1931, the Bank of England kept its discount rate very low, never going above 4? percent, and in fact, inflated its deposits in order to offset gold losses abroad. In former financial crises, the bank rate would have gone to 10 percent much earlier in the proceedings, and the money supply would have been contracted, not expanded. The bank accepted loans of $650 million from the Federal Reserve Banks and the Bank of France; and the Bank of France, forced against its better judgment by the French Government, kept its accounts in sterling and did not ask for redemption in gold. And then, on September 20, Britain went coolly off the gold standard, inflicting great losses on France, throwing the world into monetary chaos, and disrupting world markets. It is a final measure of the character of Governor Montagu Norman that only two days before the repudiation, he gave Doctor Vissering, head of the Netherlands Bank, unqualified assurance that Britain would remain on the gold standard and that therefore it was safe for the Netherlands to keep its accounts in sterling. If the Netherlands was tricked, it is possible that Montagu Norman's fast friends in the United States were informed in advance. For in the summer of 1931, Governor Norman visited Quebec, for "health" reasons, and saw Governor Harrison of the New York Federal Reserve Bank. It was shortly after Norman's return to England that Great Britain went off the gold standard.[2]

Throughout the European crisis, the Federal Reserve, particularly the New York Bank, tried its best to aid the European governments and to prop up unsound credit positions. In mid-July, the executive committee of the New York Bank had an all-day conference with the leaders of J.P. Morgan and Company, and there decided to follow the "lead" of the Bank of International Settlements, the "club" of European central banks. It therefore loaned money to the Reichsbank to purchase German acceptances, and made special loans to other Central Banks to relieve frozen assets there. The New York Federal Reserve loaned, in 1931, $125 million to the Bank of England, $25 million to the German Reichsbank, and smaller amounts to Hungary and Austria. As a result, much frozen assets were shifted, to become burdens to the United States. The Federal Reserve also renewed foreign loans when borrowers failed to pay at maturity.[3]

The American Monetary Picture

In the meanwhile, the depression grew ever worse in the United States, and not because of the European situation. Production continued to plummet drastically, as did prices and foreign trade, and unemployment skyrocketed to almost 16 percent of the labor force. The Federal Reserve Board (FRB) index of manufacturing production, which had been 110 in 1929 and 90 in 1930, fell to 75 in 1931. Hardest hit, in accordance with Austrian cycle theory, were producers' goods and higher order capital goods industries, rather than the consumer goods' industries. Thus, from the end of 1929 to the end of 1931, the FRB index of production of durable manufactures fell by over 50 percent, while the index of nondurable production fell by less than 20 percent. Pig iron production fell from 131 thousand tons per day (seasonally adjusted) in June, 1929, to 56 thousand tons daily in December, 1930, to 33 thousand tons in December, 1931, a drop of nearly 80 percent. On the other hand, retail department store sales only fell from an index of 118 in 1929 to 88 at the end of 1931, a drop of about 25 percent.

The American monetary picture remained about the same until the latter half of 1931. At the end of 1930, currency and bank deposits had been $53.6 billion; on June 30, 1931, they were slightly lower, at $52.9 billion. By the end of the year, they had fallen sharply to $48.3 billion. Over the entire year, the aggregate money supply fell from $73.2 billion to $68.2 billion. The sharp deflation occurred in the final quarter, as a result of the general blow to confidence caused by Britain going off gold. From the beginning of the year until the end of September, total member bank reserves fell by $107 million. The Federal Government had tried hard to inflate, raising controlled reserves by $195 million—largely in bills bought and bills discounted, but uncontrolled reserves declined by $302 million, largely due to a huge $356 million increase of money in circulation. Normally, money in circulation declines in the first part of the year, and then increases around Christmas time. The increase in the first part of this year reflected a growing loss of confidence by Americans in their banking system—caused by the bank failures abroad and the growing number of failures at home. Americans should have lost confidence ages before, for the banking institutions were hardly worthy of their trust. The inflationary attempts of the government from January to October were thus offset by the people's attempts to convert their bank deposits into legal tender. From the end of September to the end of the year, bank reserves fell at an unprecedented rate, from $2.36 billion to $1.96 billion, a drop of $400 million in three months. The Federal Reserve tried its best to continue its favorite nostrum of inflation—pumping $268 million of new controlled reserves into the banking system (the main item: an increase of $305 million in bills discounted). But the public, at home and abroad, was now calling the turn at last. From the beginning of the depression until September, 1931, the monetary gold stock of the country had increased from $4 billion to $4.7 billion, as European monetary troubles induced people to send their gold to the United States. But the British crisis made men doubt the credit of the dollar for the first time, and hence by the end of December, America's monetary gold stock had fallen to $4.2 billion. The gold drain that began in September, 1931, and was to continue until July, 1932, reduced U.S. monetary gold stock from $4.7 billion to $3.6 billion. This was a testament to the gold-exchange standard that Great Britain had induced Europe to adopt in the 1920s.[4] Money in circulation also continued to increase sharply, in response to public fears about the banking structure as well as to regular seasonal demands. Money in circulation therefore rose by $400 million in these three months. Hence, the will of the public caused bank reserves to decline by $400 million in the latter half of 1931, and the money supply, as a consequence, fell by over four billion dollars in the same period.

During 1930, the Federal Reserve had steadily lowered its rediscount rates: from 4? percent at the beginning of the year, to 2 percent at the end, and finally down to 1? percent in mid-1931. When the monetary crisis came at the end of the year, the Federal Reserve raised the rediscount rate to 3? percent. Acceptance buying rates were similarly raised after a steady decline. The Federal Reserve System (FRS) has been sharply criticized by economists for its "tight money" policy in the last quarter of 1931. Actually, its policy was still inflationary on balance, since it still increased controlled reserves. And any greater degree of inflation would have endangered the gold standard itself. Actually, the Federal Reserve should have deflated instead of inflated, to bolster confidence in gold, and also to speed up the adjustments needed to end the depression.

The inflationary policies of the Federal Reserve were not enough for some economists, however, including the price stabilizationist and staunch ally of the late Governor Strong, Carl Snyder, statistician at the New York Federal Reserve. As early as April, 1931, Snyder organized a petition of economists to the Federal Reserve Board urging immediate cheap money, as well as long-range credit expansion. Among the signers were: John R. Commons, Lionel D. Edic, Virgil Jordan, Harold L. Reed, James Harvey Rogers, Walter E. Spahr, and George F. Warren.[5]

The Fiscal Burden of Government

How did the fiscal burden of government press upon the public during 1931? The gross national product fell from $91.1 billion in 1930, to $76.3 billion in 1931. Gross private product fell from $85.8 billion to $70.9 billion; total government depredations, on the other hand, rose from $14.1 to $15.2 billion. Total government receipts fell from $13.5 billion to $12.4 billion (Federal receipts fell from $4.4 to $3.4 billion), but total government expenditures rose sharply, from $13.9 billion to $15.2 billion. This time, the entire rise in expenditures came in federal, rather than state and local, spending. Federal expenditures rose from $4.2 billion in 1930 to $5.5 billion in 1931—excluding government enterprises, it rose from $3.1 billion to $4.4 billion, an enormous 42 percent increase. In short, in the midst of a great depression when people needed desperately to be relieved of governmental burdens, the dead weight of government rose from 16.4 percent to 21.5 percent of the gross private product (from 18.2 percent to 24.3 percent of the net private product). From a modest surplus in 1930, the Federal government thus ran up a huge $2.2 billion deficit in 1931. And so President Hoover, often considered to be a staunch exponent of laissez-faire, had amassed by far the largest peacetime deficit yet known to American history. In one year, the fiscal burden of the Federal government had increased from 5.1 percent to 7.8 percent, or from 5.7 percent to 8.8 percent of the net private product.

Of the $1.3 billion increase in Federal expenditures in 1931, by far the largest sum, $1 billion, was an increase in transfer payments. New public construction also increased at the same pace as the previous year, by over $60 million; grants-in-aid to state and local governments rose by almost $200 million. Of the $1 billion rise in transfer payments, $900 million was an increase in "adjusted compensation benefits," largely loans to veterans.

Public Works and Wage Rates

What of Hoover's cherished programs of public works planning and maintenance of wage rates? We have noted that Hoover established an Emergency Committee for Employment in October, 1930, headed by Colonel Arthur Woods. Woods was a trustee of the Rockefeller Foundation and of Rockefeller's General Education Board. Also on the committee were industrialists Sewell Avery, William J. Bault of Metropolitan Life, the ever ubiquitous Beardsley Ruml, and economists such as Professor Joseph H. Willits, Leo Wolman, J. Douglas Brown, W. Jett Lauck, Lewis E. Meriam, and Fred C. Croxton. The Committee strongly recommended increased expenditures for public works at all levels of government. The President's Committee was one of the major forces supporting the Wagner Employment Stabilization Act of February, 1931—its Public Works Section being especially active. And, in signing the bill, Hoover gave a large amount of the credit for the measure to none other than Otto Tod Mallery.[6] The President's Committee was the main government organ dealing with employers and urging them to maintain wage rates. Writing proudly of the Committee's work, one of its members later praised its success in inducing employers to refrain from those reductions in wage rates "which had marked similar periods" of depression.[7] It is, of course, not surprising that there were very few strikes in this period. In March, Colonel Woods proudly hailed the "new view" of industry—in accepting its "responsibility toward labor." Industry, instead of cutting wage rates, was now maintaining the purchasing-power of the workers as a measure of "enlightened self-interest." The Committee persuaded ten outstanding industrial and labor leaders to give public radio talks, explaining the brave new philosophy. The Committee was also gratified to see advances in public works construction during the year. The Employment Stabilization Act of February merely served to whet, rather than allay, the appetites of the public works agitators.[8] During the year, Senator Wagner suggested a $2 billion public works program, and Senator LaFollette urged a gigantic $5.5 billion outlay. At the end of the year 1931, 31 leading economists convened in New York City at a conference sponsored by William Randolph Hearst, and recommended a $5 billion public works program. It was to be financed by a bond issue. The economists emphasized that a rise in Federal public works outlay during 1931 had been offset by a decline in state and local construction, so that overall public construction was less than in the previous year. They urged a bold program, accompanied by credit expansion, and conducted in the good old spirit of a wartime emergency. Among the signers of this document were Professors James C. Bonbright, Phillips Bradley, Paul F. Brissenden, Thomas Nixon Carver, Paul H. Douglas, Seba Eldridge, William Trufant Foster, Arthur D. Gayer, John Ise, J.E. LeRossignol, W.N. Loucks, Robert M. Maclver, George R. Taylor, Williard L. Thorp, and Norman J. Ware.[9]

We might mention here that at the very time President Hoover was sponsoring make-work schemes, he stepped in to hamper private production in another field. In May, he ordered the cessation of the leasing of Federal forests for new lumbering, thus withdrawing forest land from production and aggravating the severe depression in the lumber trade.

On the state level, Governor Franklin D. Roosevelt of New York pioneered in public works planning, setting up a Committee on the Stabilization of Industry for the Prevention of Unemployment, with Henry Bruere chairman and Paul H. Douglas, technical adviser. The Committee recommended a state planning board for public works, and work-sharing among workers. Roosevelt also called a seven-state conference at the end of January, 1931, to urge Federal and state public works: the chief adviser was Professor Leo Wolman, and others were Professors William Leiserson and Paul H. Douglas. The next few days saw a Conference on the Permanent Prevention of Unemployment, convened by the social action departments of the Catholic, Protestant, and Jewish churches. At this conference, Edward Eyre Hunt, of the President's Emergency Committee for Employment, called for public works; William T. Foster urged an increase in the money supply, John P. Frey of the A.F. of L. called for yet higher wages as a remedy for the depression, George Soule urged socialist planning, Professor John R. Commons and John Edgerton of the NAM quarreled over compulsory unemployment insurance, and Senator Wagner boosted his bill for public works and stabilization.

During early 1931, California set up a State Unemployment Committee to aid localities and stimulate public works, and Pennsylvania presented a planned program of public works. Maryland speeded its public works program, Massachusetts floated a bond issue for public works, and Michigan continued highway construction during the winter—normally a slack season. Michigan insisted that contractors not cut the wage rates paid to their workers. Minnesota went so far in a make-work policy on its public work programs as to stipulate that "wherever practical, and whenever the cost is substantially the same, work should be performed by hand rather than by machines in order to provide for the employment of a greater number of persons."[10]

Maintaining Wage Rates

The maintenance of wage rates in the face of steadily declining prices (wholesale prices fell by 10 percent in 1930, by 15 percent in 1931), meant that the real wage rates of the employed were sharply increasing, thereby greatly aggravating the unemployment problem as time went on. Summing up the wage question at the end of 1931, Professor Leo Wolman pointed out that business leaders, as well as government, were still under the influence of the prevailing doctrine of the 1920s: that "high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business." During the depression, business leaders typically continued to say: "reducing the income of labor is not a remedy for business depression, it is a direct and contributory cause"; or

in this enlightened age when it is recognized that production is dependent upon consuming power,[11] it is my judgment that large manufacturers and producers will maintain wages and salaries as being the farsighted and in the end the most constructive thing to do.[12]

Until the end of 1931, most businesses, and particularly the large firms, staunchly resisted wage cuts. Some small firms in textiles and coal reduced their wage rates, but the large firms in the basic steel, public utility, and construction industries "publicly announced their adherence to a policy of high wages and their unwillingness to reduce prevailing standards." Wolman concluded that "it is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930-31."[13] He noted, however, that pressures to cut wage rates were building up almost irresistibly, and that some construction labor had been able to maintain their employment by accepting sub rosa wage cuts. Wage cuts responding to severe losses at the end of 1931 took place secretly for fear of the disapproval of the Hoover administration.[14]

Secretary of the Treasury Mellon summed up the administration's philosophy on wage rates in May, 1931:

In this country, there has been a concerted and determined effort on the part of both government and business not only to prevent any reduction in wages but to keep the maximum number of men employed, and thereby to increase consumption.

It must be remembered that the all-important factor is purchasing power, and purchasing power . . . is dependent to a great extent on the standard of living . . . that standard of living must be maintained at all costs.[15]

The Federal government also did its part by enacting the Bacon-Davis Act, requiring a maximum eight-hour day on construction of public buildings and the payment of at least the "prevailing wage" in the locality.

It is no wonder that British economist John Maynard Keynes, in a memorandum to Prime Minister Ramsay MacDonald, reporting on a visit to America in 1931, hailed the American record of maintaining wage rates.[16] Meanwhile, several Governors (of New York, North Carolina, South Carolina, Texas, and Wyoming) went beyond the Hoover voluntary work-sharing program to urge maximum-hour legislation.

Amid the chorus of approval on the Hoover wage program there were only a few cool, dissenting voices. John Oakwood wrote in Barron's that the modern industrialists and labor leaders are saying, in effect, that "they intend to keep up wage levels even if they have to close the mills." This may be fine for these leaders, but not so welcome to "employees who have been deprived of their jobs by such rigid policies." Oakwood pointed out that on the free market, selling prices determine costs and not vice versa, and that therefore falling prices must be reflected in falling costs, else there will be unemployment and declines in investment and production. Wage rates are a basic part of production cost. Oakwood went on to stress the essential distinction between wage rates and buying power from wages. He pointed out that an individual's buying power is really "his ability to create goods or render services that have an exchange value for other goods or services," and that the worker will always tend to receive in wages the worth of his particular productive service. True purchasing power is therefore exchange power based upon production; if a good is in great demand or in short supply, its purchasing power in terms of other goods will be high; and if vice versa its purchasing power will be low. During the preceding boom, credit expansion had caused a rise too high to be sustained, and the propaganda about a "new era" and a divinely-ordained American Standard of Living created the idea that this standard was some sort of vested divine right of the American worker. Hugh Bancroft, publisher of Barron's, wrote that it was particularly necessary for wage rates to decline in the producer goods' industries in view of the great decline in prices there, and noted that real wage rates for the employed had increased, so that the employed workers were profiteering at the expense of the unemployed. Wage cuts were necessary to the restoration of effective purchasing power.[17]

By the fall of 1931, economic reality was at last beginning to force its way through the tangle of mischievous fallacies, and the severe pressures, of the Hoover program. Wage rates, at long last, were beginning to fall. The U.S. Steel Corporation, over the opposition of its President, James A. Farrell, summoned up the courage to cut wage rates in September, whereupon William Green accused U.S. Steel of violating its 1929 pledge to the President.[18] And even Henry Ford, despite his philosophic devotion to the artificial wage maintenance policy, had to cut wages in the following year.

Immigration Restrictions

Suspension of immigration also helped to keep wage rates up, and Hoover moved diligently on this front as well. In his December, 1930, message, Hoover urged Congress to enact the suspension of immigration into law, where it would be more firmly rooted than in Presidential decree. Bills to eliminate all immigration except that of relatives of American residents were criticized by Secretary of State Stimson for not going far enough. Stimson suggested instead a general 90 percent reduction.[19] This new bill passed the House, but failed to reach a vote in the Senate.

Voluntary Relief

Direct relief was just about the one sphere where President Hoover seemed wholeheartedly to prefer voluntary to governmental action. The previous fall, Hoover had refused to call a special session of Congress for unemployment relief, saying this was the responsibility of voluntary agencies. In fact, the voluntaryist tradition was still so strong in this field that the Red Cross opposed a bill, in early 1931, to grant it $25 million for relief. The Red Cross declared that its own funds were adequate, and its Chairman told a House Committee that such a Congressional appropriation would "to a large extent destroy voluntary giving." Many local Red Cross leaders strongly opposed all federal aid, and even all public relief generally, and so the bill, after passing the Senate, was killed in the House.[20] Many private charity organizations, philanthropists, and social workers had the same views, and the New York Times hailed the "voluntary spirit" as opposed to public aid.[21] A social worker, writing of this period, has said in obvious bewilderment that:

the theory that England's depression, which began before the American disaster, had in some mysterious way [sic] been connected with their unemployment insurance system (or "dole") had been accepted by many people in this country.[22]

State and local direct relief, however, totaled $176 million in 1931, as compared to $105 million in 1930, and $71 million in 1929. The Federal Government, while not engaging in direct relief, continued to aid the farmers. In February, it appropriated $20 million for loans to assist local agricultural credit corporations and granted $2 million for loans to various farmers.

Despite his initial voluntaryism in this field, however, Hoover appointed an Emergency Committee for Employment the previous fall. He had appointed the committee reluctantly, and warned the members that unemployment was strictly a local responsibility.[23] The chairman, Colonel Woods, however, kept urging upon Hoover a highly interventionist program, including greater public works, as well as Senator Wagner's bills for public works planning and a national employment service. Woods finally resigned in April, 1931, and was replaced by Fred Croxton. In contrast to Woods, many business leaders, understanding the role of the British governmental unemployment "dole" in creating and perpetuating unemployment, attacked any idea of governmental relief. These included Henry Ford, the leaders of the National Association of Manufacturers and the Chamber of Commerce, and former President Coolidge.

Hoover in the Last Quarter of 1931

How, specifically, did President Hoover rise to the challenge of crisis in the latter part of 1931? In the first place, ominous signs began to appear that he was getting ready to weaken or abandon his devotion to the principle of voluntary relief. As early as June, 1930, the Conference of Governors had petitioned Hoover for a one billion dollar emergency federal relief appropriation. Hoover did not agree, but on February 3, he declared:

I am willing to pledge myself that if the time should ever come that the voluntary agencies of the country, together with the local and state governments, are unable to find resources with which to prevent hunger and suffering in my country, I will ask aid of every resource of the Federal Government.[24]

In mid-August, Hoover abolished the old Woods-Croxton Emergency Committee for Employment, and replaced it by a larger President's Organization on Unemployment Relief. Head of the new committee was Walter S. Gifford, President of American Telephone and Telegraph Company. Others connected with the new committee were: Newton D. Baker, Bernard M. Baruch, Fred C. Croxton, John W. Davis, Pierre DuPont, John Edgerton, William Green, Will Hays, Jacob Hollander, Alexander Legge, Wesley C. Mitchell, William S. Paley, Rabbi Abba Hillel Silver, Walter Teagle, William Allen White, Matthew Woll, and Owen D. Young. While Gifford was personally opposed to governmental unemployment relief, a subcommittee of the Organization on Unemployment recommended, at the end of October, encouraging everyone to buy, spurring confidence and combating hoarding, urging banks to lend liberally and employers to spread available work, increasing public works, and transferring surplus urban labor to the farms.[25]

As early as mid-July, Hoover returned to a favorite theme: attacking short-selling, this time the wheat market. The short-selling speculators were denounced for depressing prices and destroying confidence; their unpatriotic "intent is to take a profit from the losses of other people"—a curious charge, since for every short seller there is necessarily a long buyer speculating on a rise. When the crisis came in the fall, the Stock Exchange authorities, undoubtedly influenced by Hoover's long-standing campaign against such sales, restricted short selling. These restrictions helped drive stock prices lower than they would have been otherwise, since the short-seller's profit-taking is one of the main supports for stock prices during a decline. As soon as the crisis struck in the fall, Hoover reverted to his favorite technique of holding conferences. On September 15, he laid plans for a Conference on Home Building and Home Ownership to be held in December, to promote the widening of home ownership and to lower interest rates on second mortgages. The resolutions of the December conference originated many of the key features of later New Deal housing policy, including heavy long-term credit at low rates of interest and government aid to blighted, low-income housing.[26]

By October, as Britain left the gold standard and gold reserves dwindled, Hoover was subjected to contradictory pressures. On the one hand, Hoover recalls with distaste that he was advised by "bitter-end liquidationists" and "reactionary economists" to let "the liquidation take its course until we found bottom." On the other hand, Governor Eugene Meyer, Jr., of the Federal Reserve Board, had been agitating since summer to reenact a form of the old War Finance Corporation for government loans to the private economy, and now urged upon Hoover a special session of Congress for this purpose. The former was the type of wise advice that Hoover, devoid of laissez-faire principles or sound economic knowledge, was incapable of understanding. Instead, he could only worry about the immediate hardships that would arise from foreclosures, declines in security prices, and bankruptcies. Staunchly rejecting this "reactionary" advice, and yet reluctant to launch a government lending program, Hoover resolved on a "broad program of defense and offense" by mobilizing a quasi-"voluntary" lending agency to be financed by the nation's leading bankers. The first step was to call a secret conference of 40 leading New York bankers and insurance executives at Secretary Mellon's apartment on October 4. Such men as Thomas W. Lamont and George Whitney of J.P. Morgan and Company, Albert H. Wiggin of Chase National Bank, and Charles E. Mitchell of National City Bank, met with Secretary Mellon, Governor Meyer, Undersecretary Mills, and Hoover. Hoover presented his plan—to create a National Credit Corporation (NCC) with capitalization of $500 million to extend credit to banks in need and to permit banks to extend credit to needy industrial firms. The banks were to finance the capital for the NCC, and the NCC would be allowed to borrow up to $1 billion, with Federal Reserve assistance. The idea was that the strong banks would pool their resources to bail out the weak banks; with Federal help, the NCC was to rediscount bank assets not legally eligible to be rediscounted with the Federal Reserve. Insurance companies were asked not to foreclose mortgages and, in return, they would be helped by aid from the Federal Farm Loan Banks. Although both Mills and Meyer enthusiastically backed this program, the banks and the insurance companies balked at the shoring up of unsound positions. At this point, the iron fist became evident in the velvet glove of "voluntary industry-government cooperation" in the Hoover scheme of things. If the banks did not agree, Hoover threatened, he would obtain legislation to force their cooperation. The banks then agreed to set up the NCC, and the insurance companies agreed not to press foreclosure of mortgages. In return, Hoover promised that the NCC would be temporary, for the duration of the year, and that he would soon ask Congress to recreate a new and broader War Finance Corporation (WFC) for emergency loans (the old WFC had lapsed in the spring of 1929), to broaden eligibility requirements for bank rediscounts with the Federal Reserve System, and to expand the Federal Farm Loan Banks.[27]

In addition, Hoover induced Paul Bestor, head of the Federal Farm Loan Board, to promise to refuse foreclosing any mortgages unless the debtor wanted to leave his farm, and the President decided he would recommend an increased appropriation of $125 million for these land banks. Hoover also induced the Federal Reserve Board to encourage banks to lend to depositors on the latter's frozen assets in bankrupt banks.

The NCC quickly aided faltering banks in South Carolina and Louisiana, and, over a three-month period, loaned $153 million to 575 banks; but this hardly stemmed the tide of weakness and failure. Strengthening Hoover's aim to establish a government lending corporation—which was soon established as the Reconstruction Finance Corporation—was the advice of Eugene Meyer, Ogden Mills, Louis Wehle, formerly counsel of the old WFC, and Chicago banker Melvin A. Traylor. Meyer, in particular, put pressure upon the President, to the extent of preparing his own bill for Congress. Hoover was finally completely persuaded to push for an RFC by Meyer in early December.[28]

On October 7, Hoover called another White House Conference of the leading insurance, mortgage company, and building-and-loan executives. He proposed to them a grandiose program—a national system of Federal mortgage discount banks, with one central bank, like the Federal Reserve System, and with the capital subscribed by the government. The regional banks would discount mortgages and the central mortgage banks would stand behind the branches; all could issue debentures to raise more capital. This system would then stand behind all the mortgages of savings banks, insurance companies, and commercial banks. This grandiose statist and inflationist scheme was flatly rejected by the insurance companies and by most of the savings banks, although it was supported by the building-and-loan associations. Hoover therefore had to modify his plan, and to settle for a Home Loan Bank system, which Congress would later ratify, as a compulsory central mortgage bank for the building-and-loan (now "saving-and-loan") associations, and a voluntary bank for savings banks and insurance companies.

By early October, therefore, the forthcoming Hoover New Deal program for 1932 was already clear: the major measure, a new government corporation to make loans to business—a Reconstruction Finance Corporation (RFC) to replace the stopgap, largely banker-financed National Credit Corporation; the broadening of rediscount eligibility for the Federal Reserve; the creation of a Home Loan Bank System to discount mortgages; and an expansion of the Federal Farm Loan Bank System.

On October 27, a Presidential committee of business, agricultural, and labor leaders, as well as economists, endorsed the prospective Hoover program, and called also for expansion of credit, spreading of work, and especially public works. These included Leonard P. Ayres, Fred C. Croxton, William Green, Alvanley Johnston, and Wesley C. Mitchell. On December 21, however, a highly unusual event occurred; another Presidential Committee on Public Works condemned further public works, urged a balanced budget, and readjustment to new conditions. This committee included Leonard P. Ayres, Jacob Hollander, Matthew Woll, and others.

The Spread of Collectivist Ideas in the Business World

Meanwhile, strange collectivist plans for ending the depression were brewing in the business world. In September, Gerard Swope, head of General Electric, far surpassed the radicalism of his old public-works proposal by presenting the Swope Plan to a convention of the National Electrical Manufacturers Association. The Plan, which garnered a great deal of publicity, amounted to a call for compulsory cartellization of American business—an imitation of fascism and an anticipation of the NRA. Every industry was to be forcibly mobilized into trade associations, under Federal control, to regulate and stabilize prices and production, and to prescribe trade practices. Overall, the Federal Government, aided by a joint administration of management and employees representing the nation's industry, would "coordinate production and consumption."[29] To its grave discredit, the U.S. Chamber of Commerce endorsed this socialistic plan in December by a large majority, as a means of employing Federal coercion to restrict production and raise prices. Leading the march for approval was the new President of the U.S. Chamber, Henry I. Harriman, of the New England Power Company. Harriman wrote, in his report of the Chamber's Committee on the Continuity of Business and Employment, that "We have left the period of extreme individualism. . . . Business prosperity and employment will be best maintained by an intelligently planned business structure." With business organized through trade associations and headed by a National Economic Council, any dissenting businessmen would be "treated like any maverick. . . . They'll be roped, and branded, and made to run with the herd."[30] The president of the National Association of Manufacturers wanted to go beyond the Swope Plan to forcibly include firms employing less than fifty workers.

Also supporting the Swope Plan were Swope's friend Owen D. Young, Chairman of the Board of General Electric, President Nicholas Murray Butler of Columbia University, who had been thinking along the same lines, Royal W. France of Rollins College, Karl T. Compton, the leftist Stuart Chase, and Charles F. Abbott of the American Institute of Steel Construction. Abbott called the Swope Plan:

a measure of public safety. . . . We cannot have in this country much longer irresponsible, ill-informed, stubborn and non-cooperating individualism. . . . The Swope Plan, seen in its ultimate simplicity, is not one whit different in principle from the traffic cop . . . an industrial traffic officer. . . ! Constitutional liberty to do as you please is "violated" by the traffic regulations—but . . . they become binding even upon the blustering individual who claims the right to do as he pleases.[31]

Furthermore, former Secretary of the Treasury William G. McAdoo proposed a Federal "Peace Industries Board" to adjust national production to consumption, and Senator LaFollette organized a subcommittee to investigate the possibility of a National Economic Council to stabilize the economy—and Swope was a leading witness. H.S. Person, managing director of the Taylor Society, displayed the na?vete of the technocrat when he said, in a puzzled way: "we expect the greatest enterprise of all, industry as a whole, to get along without a definite plan."[32] The historian Charles A. Beard denounced laissez-faire and called for a Five Year Plan of industrial cartels headed by a National Economic Council. And the popular philosopher Will Durant called for national planning by a national economic board, ruling over boards for each industry. Supreme Court Justice Louis Brandeis suggested complete state control of industry on the legal ground of public convenience and necessity.[33]

Other business leaders were thinking along similar lines. Benjamin A. Javits had developed a similar plan in 1930. Dean Wallace B. Donham, of the Harvard School of Business, had the gall to cite the Soviet Union as showing the value and necessity of a "general plan for American business."[34] Paul M. Mazur, of Lehman Brothers, referred to the "tragic lack of planning" of the capitalist system. Rudolph Spreckels, president of the Sugar Institute, urged governmental allocation to each company of its proper share of market demand. Ralph E. Flanders, of the Jones and Lamson Machine Company, called for fulfillment of the "vision" of the new stage of governmental planning of the nation's economy. And Henry S. Dennison, president of the Dennison Manufacturing Company, developed his own Five Year Plan for a national cartel of organized trade associations.

One of the most important supporters of the cartellization idea was Bernard M. Baruch, Wall Street financier. Baruch was influential not only in the Democratic Party, but in the Republican as well, as witness the high posts the Hoover administration accorded to Baruch's prot?g?s, Alexander Legge and Eugene Meyer, Jr. As early as 1925, Baruch, inspired by his stint as chief economic mobilizer in World War I, conceived of an economy of trusts, regulated and run by a Federal Commission, and in the spring of 1930, Baruch proposed to the Boston Chamber of Commerce a "Supreme Court of Industry." McAdoo was Baruch's oldest friend in government; and Swope's younger brother, Herbert Bayard Swope, was Baruch's closest confidant.[35]

Collectivist ideas had apparently been fermenting in parts of the business world ever since the depression began, as witness the reaction of a writer in a prominent business magazine to the White House Conferences for concerted maintenance of wage rates at the end of 1929. Hailing the conference as Hoover's "splendid adventure in economic democracy," the writer called for national economic planning through nationwide trade associations and suggested coordination of the economy by "collective reason."[36]

So far had the business world gone, that a report for the left-wing National Progressive Conference of 1931, praised the Swope Plan, albeit suggesting a less "pro-business" and more egalitarian twist to the scheme of centralized planning.[37] The entire collectivist movement in business was well summed up by one of Franklin D. Roosevelt's more extreme Brain Trusters, Rexford Guy Tugwell, when he wrote of Harriman, Swope, and the rest that they

believed that more organization was needed in American industry, more planning, more attempt to estimate needs and set production goals. From this they argued that . . . investment to secure the needed investment could be encouraged. They did not stress the reverse, that other investments ought to be prohibited, but that was inherent in the argument. All this was, so far, in accord with the thought of the collectivists in Franklin's Brains Trust who tended to think of the economy in organic terms.[38]

In short, Virgil Jordan, economist for the National Industrial Conference Board, was not far from the mark when he wrote that businessmen were ready for an "economic Mussolini."

Despite all the pressure upon him, Herbert Hoover staunchly refused to endorse the Swope Plan or anything like it, and sturdily attacked the plan as fascism.[39] His speeches, however, began to be peppered with such ominous terms as "cooperation" and "elimination of waste." In the slide toward intervention, meanwhile, the Chamber of Commerce also called for public works and Federal relief, and a joint committee of the National Association of Manufacturers and the National Industrial Council urged public works and regulation of the purchasing power of the dollar.

The American Federation of Labor also adopted a radical Emergency Unemployment Program in October. As was to be expected, it hailed the Hoover policy of keeping wage rates high and cutting hours, and also advanced its own unionized version of fascism. It proposed that the government force employers to hire workers;

Industries and employers should therefore be given quotas of jobs to be furnished, according to their ability to provide work. The allocation of these quotas should be the task of a central board, representing the Government and all industrial groups.

This would ensure "effective organization of the labor market." In short, the A.F. of L. wanted to have an equal share in running a Swope Plan for industry.[40]

A further typically union scheme was to compel restriction of the labor supply, thus raising wage rates for the remainder of the labor force. It is a curious "cure" for unemployment, however, to compel large groups of people to remain unemployed. Thus, the A.F. of L. adopted as a slogan: "Keep young persons in school to avoid their competing for jobs," and urged employers to fire married women with working husbands; "Married women whose husbands have permanent positions which carry reasonable incomes should be discriminated against in the hiring of employees." It is a measure of how far we have traveled in hypocrisy that unions would not today publicly advocate these policies for such frankly ruthless reasons; instead, they would undoubtedly be cloaked in pieties about the glories of education and home life.

The A.F. of L. also endorsed compulsory unemployment insurance at this convention, in contrast to William Green's attack on the government dole at the 1930 convention as turning the worker into a "ward of the State." The railroad union leaders bellicosely threatened Hoover with "disorder" if he did not act to provide employment and relief.

Particularly enthusiastic among union leaders for the new drive for government "planning" were John L. Lewis, of the United Mine Workers, and Sidney Hillman, of the Amalgamated Clothing Workers. Both called for a national economic council for planning to include labor and management representatives. Schlesinger is certainly correct when he says that "Lewis and Hillman, in the end, differed little from Gerard Swope and Henry I. Harriman."[41]

The A.F. of L. also praised the Hoover administration for carrying out the following objectives during 1930-1931: maintaining wage rates on public buildings, reduction of hours in government employ without a reduction in pay, public works planning, raising of wages for some government employees, increased appropriation for border immigration patrol (thus "relieving unemployment" by preventing Mexicans from coming here to improve their condition), appropriations for naval ships, and requiring all new naval work to be done in navy yards and arsenals instead of on private contract.

Meanwhile, the states moved in to compel cartellization and virtual socialization of the crude oil industry. The oil-producing states enacted laws to enable governmental commissions to fix the maximum amount of oil produced, and this system is basically still in effect. The state laws were enacted under the public guise of "conservation," which is a pat excuse for any compulsory monopoly or cartel in a natural resource. In 1931, new oil discoveries in East Texas drove the price of crude down from one dollar a barrel to 2? cents a barrel, and cartelists and conservationists set up a hue and cry. The lead was taken by Oklahoma's Governor "Alfalfa Bill" Murray, who ordered a general shutdown of the crude oil industry until the price of oil should rise to the "minimum fair price" of one dollar a barrel. When some producers proved recalcitrant, Murray sent the Oklahoma National Guard into the oil fields to enforce his decree with bayonets. Soon, Texas followed suit, and the leading oil states of California, Texas, Kansas, and Oklahoma passed "conservation" and proration laws to fix production ceilings in a more orderly manner. Two emergency sessions of the Texas legislature were called to broaden the oil-regulating powers of the Texas Railroad Commission, after it had suffered unfavorable court injunctions.

The oil states also organized an Oil States Advisory Committee to decide on quotas—soon to become an interstate compact—and a "Voluntary Committee" of the Federal Oil Conservation Board aided in the effort. Some well owners found that they could evade the troops and decrees and smuggle "hot oil" out of the state, but this "loophole" of freedom was finally closed by the New Deal. To bolster the oil cartel, the Federal budget of 1932 included a tariff on imported crude oil and on petroleum products. This made the domestic cartel more effective, but it also reduced American exports of petroleum.[42] It is, of course, curious to find a restriction on imports imposed as part of a domestic resource conservation program, but we find the same phenomena today. If conservation were really the goal, then surely imports would have been encouraged to ease demands on domestic oil.

Let it not be thought that Hoover was idle in this movement. Even before the depression, he was considering coercive restrictions on oil production. The President canceled permits to drill for oil in, large parts of the public domain, and he and Secretary of Interior Ray Lyman Wilbur were in large part responsible for the new state "conservation" laws. Hoover and Wilbur also pressured private oil operators near the public domain into agreements to restrict oil production.[43]

As 1931 drew to a close and another Congressional session drew near, the country and indeed the world were in the midst of an authentic crisis atmosphere—a crisis of policy and of ideology. The depression, so long in effect, was now rapidly growing worse, in America and throughout the world. The stage was set for the "Hoover New Deal" of 1932.


  1. Benjamin M. Anderson, Economics and the Public Welfare (New York: D. Van Nostrand, 1949), pp. 232ff.

  2. The secret relations between Governor Norman and the head of the Federal Reserve Bank of New York continued during the depression. In August, 1932, Norman landed at Boston, and traveled to New York under the alias of "Professor Clarence Skinner." We do not know what transpired at this conference with Reserve Bank leaders, but the Bank of England congratulated Norman upon his return for having "sowed a seed." See Lawrence E. Clark, Central Banking Under the Federal Reserve System (New York: Macmillan, 1935), p. 312.

  3. Clark plausibly maintains that the true motive of the New York Federal Reserve for these salvage operations was to bail out favored New York banks holding large quantities of frozen foreign assets, e.g., German acceptances. Ibid., pp. 343f.

  4. See Winthrop W. Aldrich, The Causes of the Present Depression and Possible Remedies (New York, 1933), p. 12.

  5. Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), vol. 5, p. 675.

  6. See Irving Bernstein, The Lean Years: A History of the American Worker, 1920-1933 (Boston: Houghton Mifflin, 1960) and Dorfman, The Economic Mind in American Civilization, vol. 5, p. 7n. However, Hoover did veto a Woods-supported bill, passed in March, to strengthen the U.S. Employment Service. See Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), pp. 24ff.

  7. E.P. Hayes, Activities of the President's Emergency Committee for Employment, October 17, 1930-August 19, 1931 (printed by the author, 1936).

  8. The director of the new Federal Employment Stabilization Board, D.H. Sawyer, was critical of the time lag inherent in public works programs, and preferred to leave public works to the localities. In addition, J.S. Taylor, head of the Division of Public Construction, opposed public works in principle. Bernstein, The Lean Years: A History of The American Worker, 1920-1933, pp. 273-74.

  9. Congressional Record 75 (January 11, 1932), pp. 1655-57.

  10. Monthly Labor Review 32 (1931): 834ff.

  11. The truth is precisely the opposite; consuming power is wholly dependent upon production.

  12. Leo Wolman, Wages in Relation to Economic Recovery (Chicago: University of Chicago Press, 1931).

  13. Secretary of Commerce Lamont declared in April, 1931, that "I have canvassed the principal industries, and I find no movement to reduce the rate of wages. On the contrary, there is a desire to support the situation in every way." Quoted in Edward Angly, comp., Oh Yeah? (New York: Viking Press, 1931), p. 26.

  14. National Industrial Conference Board, Salary and Wage Policy in the Depression (New York: Conference Board, 1933), p. 6.

  15. Angly, Oh Yeah?, p. 22.

  16. We might also note that Keynes found the attitude of the Federal Reserve authorities "thoroughly satisfactory," i.e., satisfactorily inflationist. Roy F. Harrod, The Life of John Maynard Keynes (New York: Harcourt, Brace, 1951), pp. 437-48.

  17. See John Oakwood, "Wage Cuts and Economic Realities," Barron's (June 29, 1931); and "How High Wages Destroy Buying Power," Barron's (February 29, 1932); Hugh Bancroft, "Wage Cuts a Cure for Depression," Barron's (October 19,1931) and "Fighting Economic Law-Wage Scales and Purchasing Power," Barron's (January 25, 1932). Also see George Putnam, "Is Wage Maintenance a Fallacy?" Journal of the American Bankers' Association (January, 1932): 429ff.

  18. See Fred R. Fairchild, "Government Saves Us From Depression," Yale Review (Summer, 1932): 667ff; and Dorfman, The Economic Mind in American Civlization, vol. 5, p. 620.

  19. Stimson also added a racist note, fearing that permitting relatives would allow the bringing in of too many of the "southern" as against the "Northern" and "Nordic" races. See Robert A. Divine, American Immigration Policy, 1924-1932 (New Haven, Conn.: Yale University Press, 1957), p. 78.

  20. On the vigorous attempts of the President's Emergency Committee for Employment to pressure the Red Cross into giving relief to coal miners, see Bernstein, The Lean Years: A History of the American Worker, 1920-1933, pp. 308ff.

  21. By June, however, the American Association of Public Welfare Relief was calling for a federal relief program.

  22. Edith Abbott, Public Assistance (Chicago: University of Chicago Press, 1940), vol. 1, pp. 657-58, and 509-70. Even voluntary relief, if given indiscriminately, will prolong unemployment by preventing downward pressure on wage rates from clearing the labor market.

  23. See Arthur M. Schlesinger, Jr., The Crisis of the Old Order, 1919-1933 (Boston: Houghton Mifflin, 1957), pp. 169, 507.

  24. Daniel R. Fusfeld, The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal (New York: Columbia University Press, 1956), p. 267.

  25. Monthly Labor Review 33 (1931): 1341-42.

  26. See Paul F. Wendt, The Role of the Federal Government in Housing (Washington, D.C.: American Enterprise Association, 1956), pp. 8-9.

  27. Nash maintains that it was Meyer who made the promise to the bankers after Hoover and Mellon had left. Meyer and Senator Joseph Robinson, Democratic Senate leader, urged a special session to enact a new WFC, but Hoover still held back. At this point, Meyer secretly put a staff together, headed by Walter Wyatt, counsel of the FRB, to draft what was later to become the RFC. Gerald D. Nash, "Herbert Hoover and the Origins of the RFC," Mississippi Valley Historical Review (December, 1959): 461ff.

  28. Nash, "Herbert Hoover and the Origins of the RFC"; and Warren, Herbert Hoover and the Great Depression, pp.[140]ff.

  29. See Monthly Labor Review 33 (1931): 1049-57.

  30. Quoted in Schlesinger, The Crisis of the Old Order, 1919-1933, pp. 182-83.

  31. J. George Frederick, Readings in Economic Planning (New York: The Business Bourse, 1932), pp. 332ff. Frederick was a leading Swope disciple.

  32. Ibid.

  33. See Fusfeld, The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal, pp. 311ff.; David Loth, Swope of GE (New York: Simon and Schuster, 1958), pp. 201ff.; Schlesinger, The Crisis of the Old Order, 1919-1933, p. 200.

  34. Wallace B. Donham, Business Adrift (1931), cited in ibid., p. 181. Nicholas Murray Butler also considered the Soviet Union to have the "vast advantage" of "a plan." See Dorfman, The Economic Mind in American Civilization, vol. 4, pp. 631-32.

  35. Later, the Swope idea took form in the NRA, with Swope himself helping to write the final draft, and staying in Washington to help run it. Swope thus became perhaps the leading industrialist among the "Brain Trust." Henry I. Harriman, another contributor to the drafting of the NRA, also turned up as a leader in the agricultural Brain Trust of the New Deal. Another Baruch disciple, and a friend of Swope's, General Hugh S. Johnson, was chosen head of the NRA (with old colleague George Peek as head of the AAA). When Johnson was relieved, Baruch himself was offered the post. See Margaret Coit, Mr. Baruch (Boston: Houghton Mifflin, 1957), pp. 220-21, 440-42; Loth, Swope of GE, pp. 223ff.

  36. Theodore M. Knappen, "Business Rallies to the Standard of Permanent Prosperity," The Magazine of Wall Street (December 14, 1929): 265.

  37. The report, "Long-Range Planning for the Regularization of Industry," was prepared by Professor John Maurice Clark of Columbia University, and concurred in by George Soule, Edwin S. Smith, and J. Russell Smith. See Dorfman, The Economic Mind in American Civilization, vol. 5, pp. 758-61.

  38. Rexford Guy Tugwell, The Democratic Roosevelt (New York: Doubleday, 1957), p. 283.

  39. Hoover relates that Henry I. Harriman warned him that if he persisted in opposing the Swope Plan, the business world would support Roosevelt for President, because the latter had agreed to enact the plan. He also reports that leading businessmen carried out this threat.

  40. Monthly Labor Review 33 (1931): 1049-57.

  41. Schlesinger, The Crisis of the Old Order, 1919-1933, p. 186.

  42. See George W. Stocking, "Stabilization of the Oil Industry: Its Economic and Legal Aspects," American Economic Review, Papers and Proceedings (May, 1933): 59-70.

  43. If the coal industry was not as successful as the oil in becoming cartellized, it was not for lack of trying. C.E. Bockus, president of the National Coal Association, wrote in an article, "The Menace of Overproduction," of the need of the coal industry

    to secure, by cooperative action, the continuous adjustment of the production of bituminous coal to the existing demand for it, thereby discouraging wasteful methods of production and consumption. . . . The European method of meeting this situation is through the establishment of cartels.

    Quoted in Ralph J. Watkins, A Planned Economy Through Coordinated Control of Basic Industries (mimeographed manuscript, submitted to American Philanthropic Association, October, 1931), pp. 54ff.

    Hoover also reduced production in other fields by adding over two million acres to the virtually useless national forests during his regime, as well as increasing the area of the totally useless national parks and monuments by forty percent. If Congress had not balked, he would have permanently sequestered much more usable land. See Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), pp. 64, 77-80.