Herbert Hoover: Friend or Foe of the Labor Movement
James E. Miller
Labor Relations
Dr. Carbo
“The Great Compression greatly reduced the resources of the elite, while the Great Depression shattered the nation’s belief that business knows best. Herbert Hoover became the very symbol of incompetence,”[i] as writes Nobel Prize winning economist, Princeton professor, and New York Times columnist Paul Krugman. Krugman, an unabashed liberal, goes by the public school textbook definition which describes Herbert Hoover, the 31st president of the United States, as a kind of laissez-faire non-interventionist when it came to the onset of the Great Depression. This inaction, in Krugman’s view, made the Depression worse. Numerous surveys of presidential scholars that rank which president is considered “the best,” such as those from Sienna College[ii] and The Times,[iii] often rank Hoover among the worst of all presidents due to the Great Depression occurring on his watch. While the premise that Herbert Hoover “caused” or was responsible for the Great Depression is true in some sense, the assertion that Hoover failed to act in a drastic way like his successor F.D.R. to mitigate the effects of the market crash are factually incorrect. In regard to the labor movement, which had been growing significantly since the beginning of the century, Hoover is also lampooned for failing to act on its behalf. With the biggest economic downturn in the country’s history taking a disastrous toll on the working class, the assertion that Hoover failed to help organized labor is also a piece of revisionist fiction
Franklin Delano Roosevelt is often accredited with taking the supposedly necessary actions of centralizing the federal government to fight the Depression while simultaneously empowering the growing labor movement. Through the “National Labor Relations Act,” Roosevelt emboldened the organized labor movement by essentially guaranteeing the ability to bargain collectively as a right for all workers, except those in the public sector. While the act was hailed by labor groups and unions alike, many saw it as not going far enough. Still, Roosevelt’s historical image has been one of being on labor’s side through the Great Depression and setting the foundation for unions to take a more prominent role in worker’s lives. The fact that the Great Depression dragged on for almost twenty years and unemployment and GDP percentages did not reach pre-depression levels till after World War II is disregarded when considering the precedence of the New Deal.[iv]
While F.D.R. will be forever regarded as transformative, Hoover in actuality took the first steps that lead up to the New Deal. Murray Rothbard, often referred to as the dean of the Austrian school of economics, defines the New Deal as an “antidepression program marked by extensive governmental economic planning and intervention-including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending.”[v] Using this definition, Hoover should be considered the first to implement the New Deal, not Roosevelt. While running for president in 1932 against Roosevelt, Hoover characterized his economic policy as “the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”[vi] This rhetoric may sound strange when compared to the advice of Hoover’s Treasury Secretary Andrew Mellon who famously declared “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down.”[vii] Mellon’s advice is quite the departure from Hoover’s actual policy, yet the liquidation statement is almost always attributed to his presidency anyway.
While Hoover’s presidential reputation is often the one most examined, it is relatively important to consider his previous roles before he became president. Doing so shows the kind of pro-labor policies he embraced throughout his political career. It is a little known fact that Herbert Hoover, on appointment from then-President Woodrow Wilson, actually directed a conference on labor-management relations from 1919 to 1920. The conference was also promoted by Secretary of Labor William B. Wilson who was previously an official of the United Mine Workers of America. This conference brought together industrialists, economists, and labor leaders and called for such things as expanded collective bargaining, the establishment of unemployment insurance, condemned unions controlled by companies, less working hours, and government-run arbitration boards for labor conflicts.[viii] All of these recommendations were things sought by the early labor movement and Hoover embraced them all.[ix]
Also in 1920, Hoover was able to put together a meeting between the heads of many leading industries at the time in a failed attempt to “establish liaison” between them and the American Federation of Labor. From 1919 to1923, he heavily promoted the universal establishment of unemployment insurance and tried unsuccessfully to persuade many corporations to do so.[x]
Upon being appointed Secretary of Commerce in 1921 by then-President Harding, Hoover set out immediately to establish an economic commission to deal with unemployment due to the economic downturn that was occurring at the time. In Hoover’s own words, “We persuaded employers to “divide” time among their employees so that as many as possible would have some income.”[xi] President Harding was opposed to this type of government intervention and pressed for liquidation which allowed the economy to recover and unemployment to drop significantly within that same year.[xii]
Despite the overwhelming evidence displaying Hoover’s support for pro-labor policies, Rothbard describes his battle with United States Steel as the “most important of Hoover’s activities in the labor field.” This battle, which was fought mainly with United States Steel chairman Judge Elbert H. Gary, revolved around what Hoover described as the “barbaric” twelve hour workday that was standard practice in the steel industry. By persuading then-President Harding to hold a conference of steel manufactures in May of 1922, Hoover and Harding both were able to convince those who attended to eradicate the twelve hour workday.[xiii] In order to convince the leaders in the steel industry to go along with him and the president, which was a fairly unprecedented move to have the president intervene in the private market during peace-time, Hoover did his best to initiate a press war to get the public to be on the anti-steel side. After a report by a Commission of Inquiry created by the Interchurch World Movement came out in favor of an eight hour work day in the steel industry, a number of newspapers such as The Nation and The Wall Street Journal began a kind of press war with each publication taking sides. Once Hoover entered the fray, he leaked information of meetings falling through between steel leaders and convinced the press that Harding was trying to negotiate an eight hour workday. In addition to this, Hoover was heavily involved in the issuing of report in favor of the eight hour day by the national Engineering Societies.[xiv]
The steel industry obviously fought back by issuing reports on their own in favor of the twelve hour day and its importance to the workers, but it was to no avail in the end. The American Association for Labor Legislation threatened federal legislation mandating shortened working hours and Harding sent a public letter written by Hoover to Chairman Gary pushing for the eight hour day. With such pressure, and implied threat, from the federal government, Gary gave in and U.S. Steel would be Hoover’s first significant victory when it came to coercing businesses to abide by the rules and regulations he determined were right.[xv]
When it came to the railroad industry and collective bargaining, Hoover had a hand, along with union lawyers Donald Richberg and David E. Lilienthal, in writing the Railway Labor Act of 1926. The act was inspired greatly by the Railway Labor Mediation Board, which was established to preserve unions in the railway industry after they were returned to the private sector following World War I. It basically guaranteed union arbitration through federal law and was pushed and promoted by unions for three years until its passage.[xvi] This was just another victory for the labor movement that Hoover played a role in.
When the stock market crashed on October 24, 1929, infamously known as “Black Tuesday,” the newly elected Hoover recalled at the time he was president, “the primary question at once arose as to whether the President and the Federal government should undertake to investigate and remedy the evils.” Judging by his previous record as Secretary of Commerce, it should come as no surprise that Hoover answered this by stating, “we had to pioneer a new field.”[xvii]
Lead by what he described as “new economics,” Hoover responded to “Black Tuesday” by convening “a series of White House conferences with leading financiers and businessmen” which began on November 18, 1929.[xviii] Throughout these meetings, Hoover convinced the top businessmen of the day to withhold from cutting wages of their employees and maintain their current investment spending despite the significant drop in demand due to the stock market crash. Hoover described the agreement of these businesses as “an advance in the whole conception of the relationship of businesses to public welfare.”[xix] This is a very far cry from the image of Hoover’s non-intervention and supposed capitalist views. The American Federation of Labor (AFL) celebrated the conferences in their journal American Federationist in 1930 where they wrote “the president’s conference has given industrial leaders a new sense of their responsibilities….never before have they been called upon to act together.”[xx] Preserving wages in a severe economic downturn alone should be considered a great achievement for the labor movement, but further evidence will later prove to the contrary.
According to Michael D. Yates, author of Why Unions Matter, many unions are typically opposed to free trade agreements such as the North American Free Trade Agreement.[xxi] This is understandable for groups that promoted domestic labor; free trade promotes cheaper goods being imported because it allows companies that are not bound by repressive labor regulations to charge a lower price for goods they export to countries with tougher labor regulations such as the United States. Also, free trade makes products cheaper because it allows companies that are located in certain areas of the world that are plentiful in raw materials to specialize in cultivating said materials in a more inexpensive manner and then transport them to other areas to have them processed to create goods, thus eliminating much of the transportation costs that would be the result of not being located close to those resources. This concept is referred to as “comparative advantage.”[xxii] Take wine for instance. It makes sense that France is the lead exporter of wine since its climate and soil are nearly perfect for growing the grapes needed, as opposed to, say, Canada. Though it is understandable why the labor movement seeks to protect domestic labor, since after all, it is those employees that pay the union dues. But it is always difficult to fathom why a movement that strives to improve the lives of all workers is opposed to their members being able to afford cheaper goods such as food and energy which are necessary for survival.
With that being said, it makes sense that tariffs on foreign goods tend to be embraced by unions since their intention is to support domestic labor. Surprisingly, modern day history books tend to be correct in one aspect when discussing why Hoover made depression so “great:” the Smoot-Hawley Tariff Act of 1930. As Robert P. Murphy, an economist and teacher at the Ludwig von Mises Institute in Auburn, Alabama, puts it, almost every economist agrees that “protectionist barriers only serve to make countries poorer.”[xxiii] Making the citizens poorer is indeed what Smoot-Hawley did and then some. It also brought on somewhat of a trade war as other countries imposed their own tariffs on U.S. goods and only perpetuated the economic downturn by making goods more expensive for Americans to buy at a time when free trade was desperately needed. Also, by imposing tariffs, those in foreign countries lose dollars in which to purchase American made goods because they must pay more to import since prices are propped up. All of these factors, including the obvious circumstance of an economic depression, lead U.S. exports to fall “from $7 billion in 1929 to $2.5 billion in 1932.”[xxiv] So much for helping out the American worker.
As Yates points out, “organized labor, especially the AFL and then the AFL-CIO…part and parcel of the problem of nativism.”[xxv] This meant that unions tend to, or at least used to, not support immigration because it increases competition for domestic workers since those who come to this country are more willing to work for lower wages. With this is in mind, it made sense for Hoover to intervene in the area of immigration as president in order to ensure that American workers would be rid of any foreign competition. In Hoover’s own words, “in order to cope successfully with the unemployment problem, I felt it necessary to restrict immigration.” According to his memoirs, the number of immigrants that came to this country in 1929 was 279,678 and went down to 35,576 in 1932, the last year of his presidency. [xxvi] Even stranger than Hoover’s own elation at the prospect of keeping people out of the United States, is the fact that by 1932 the number of emigrants leaving the country was 103,295, compared to the previously mentioned 35,576 that entered. Murphy sums it up perfectly: “it’s a strange measure of success to have more people leaving your country than entering it.”[xxvii]
With all his intervention into business activity, propping up of wages, and reducing competition for domestic workers, it would seem that Herbert Hoover was indeed a friend of the labor movement throughout his time in public office. Unfortunately, these actions did more to exacerbate the Great Depression rather than end it. While it may seem immediately beneficial for Hoover, with the implicit threat of federal legislation from Congress, to convince business leaders to keep wages high, the artificially high wages are precisely what kept many businesses from reallocating labor and production that was inefficient. Like it or not, Andrew Mellon’s liquidation advice was the best path for Hoover to follow in that many industries required the flexibility to cut certain unproductive jobs in order to save revenue and thus capitalize on other more efficient forms of production. As Murphy puts it, readjustments “after and unsustainable boom, the price of resources-including labor-need to change in order to facilitate the movement of workers to the correct sectors.”[xxviii] When looking at history, specifically the economic downturn during the early 20’s, then-President Harding’s reluctance to have the federal government drastically interfere within the economy had the unemployment rate peak at 11.7% in 1921 and then come tumbling down to an astounding 2.4% in 1923.[xxix] Short-lived booms and busts such as that existed in the United States before the implementation of the New Deal and, more importantly, before the creation of the Federal Reserve. The Fed itself can be linked to both causing the Great Depression and the current lagging recession, but that is a topic for another paper. A quick overview, or Google-search, of the Austrian Business Cycle Theory should be sufficient for readers wishing to know more. It is also worth noting that Harding, along with Mellon, cut the tax rate top-earners pay from 73% in 1921 to 25% in 1925, all while the economy recovered from a downturn and prospered.[xxx] Once the Depression set in, Hoover and Congress passed the Revenue Act of 1932 which Murphy describes “one of the greatest increases in taxation ever enacted in the United States in peacetime.” The act raised a variety of taxes, including sales tax on such things as gas, bond transfers, and radio messages while raising the top-earner tax rate from 25% to 63%.[xxxi] Funny how the economy did not recover after such an enormous increase in taxes.
Imposing the Smoot-Hawley tariff, restricting free trade, and making foreign products more expensive for U.S. citizens also may have appeared at first to be a good thing for U.S. workers needing a job, but its difficult to rationalize why making goods more expensive for everyone in a country that is going through a severe economic downturn is the proper thing to do. The same concept applies to food production, which Hoover also felt compelled to involve the federal government in on the eve of the Depression. In June of 1929, he created the Federal Farm Board which was allocated $500 million to give out low-interest rate loans and also buy surplus produce items from farms and remove them from the market to keep food prices high.[xxxii] As mentioned before, it may seem good-natured to help farmers achieve a higher income, but it comes at the cost of making food more expensive for a country where millions are starving due to a lack of income. This situation was illustrated in The Grapes of Wrath which featured a scene of people on the verge of starvation “watch helplessly as oranges are intentionally doused with kerosene in order to decrease supply and thus raise prices.”[xxxiii] Without federal aid, disposing of food would be an irrational thing for a farmer to do because they would be losing inventory, and thus revenue. They would be leaving themselves open to competitors who could capitalize on the type of demand for food that existed and produce an excess supply of food to charge lower prices and receive more of a profit.
Overall, Herbert Hoover should be remembered as a hero to organized labor. Under both his presidency and his time as the Secretary of Commerce, he was successful in setting the precedent for involvement of the federal government into the economy and essentially set the stage for Franklin D. Roosevelt and the New Deal. Though he may appear to be on labor’s side, his interventionist policies clearly made the Depression worse by intervening. This demonstrative by the short-lived economic downturn at the beginning of the 1920’s which ended because the federal government stayed out of the economy for the most part. With that being said, no matter what benefits the labor movement may have received with Hoover in office, they came at the expense of the overall public. Hoover’s image continues as one of the worst presidents in our history. It is a fitting place for him, but unfortunately it is not for the right reasons.
[i] Krugman, Paul. The Conscience of a Liberal. New York: W. W. Norton & Company, 2007. 72. Print.
[ii] SIENA college. Sienna College, July 1 2010. Web. 21 Nov 2010. <http://www.siena.edu/uploadedfiles/home/parents_and_community/community_page/sri/independent_research/Presidents%202010%20Rank%20by%20Category.pdf>.
[iii] Hines, Nico. "The 10 Worst Presidents to Have Held Office - The Times US Presidential Rankings." Times Online 28 October 2008: n. pag. Web. 21 Nov 2010. <http://www.timesonline.co.uk/tol/news/world/us_and_americas/us_elections/article5029204.ece>.
[iv] Murphy, Robert P. The Politically Incorrect Guide to The Great Depression and the New Deal. Washington D.C.: Regnery Publishing Inc., 2009. 151. Print.
[v] Rothbard, Murray. America's Great Depression. 5th ed. Auburn, AL: Mises Institute, 2005. 185. Print.
[vi] Ibid. 187.
[vii] Krugman, Paul. "Purging the Rottenness." The Conscience of a Liberal. New York Times, 07 Nov. 2007. Web. 21 Nov 2010. <http://krugman.blogs.nytimes.com/2007/11/07/purging-the-rottenness/>.
[viii] Rothbard 189
[ix] Murphy 32.
[x] Rothbard 200.
[xi] Rothbard 190.
[xii] Murphy 49.
[xiii] Rothbard 201.
[xiv] Ibid. 201.
[xv] Ibid. 202-203.
[xvi] Ibid. 204.
[xvii] Ibid. 209.
[xviii] Murphy 39.
[xix] Ibid.
[xx] Murphy, Robert P. The Politically Incorrect Guide to Capitalism. Washington D.C.: Regnery Publishing Inc., 2007. 103. Print.
[xxi] Yates, Michael D. Why Unions Matter. 2nd ed. New York: Monthly Review Press, 2009. 122. Print.
[xxii] Murphy, Robert P. The Politically Incorrect Guide to Capitalism. 45
[xxiii] Murphy, Robert P. The Politically Incorrect Guide to The Great Depression and The New Deal. 43.
[xxiv] Ibid 44-45.
[xxv] Yates, 174.
[xxvi] Murphy, Robert P. The Politically Incorrect Guide to The Great Depression and The New Deal. 44.
[xxvii] Ibid.
[xxviii] Ibid. 41.
[xxix] Ibid. 42.
[xxx] Ibid. 85.
[xxxi] Ibid. 52.
[xxxii] Ibid. 56.
[xxxiii] Murphy, Robert P. The Politically Incorrect Guide to Capitalism. 97.
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Both Paul Krugman and Brad Delong have mentioned Daniel Kuehn's paper "A Critique of Powell, Woods, and Murphy on the 1920–1921 Depression" today. I would very much like to read it, but would rather not pay the $34 to do so. I find it interesting that Kuehn fails to put Rothbard in the title since much of what I have read from Murphy on the 1920-1921 depression is cited from Rothbard. Congrats on getting the plug on Delong's and Krugman's blog anyway Daniel!
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