Introduction
Lee Ohanian presents a fiscally conservative perspective on the causes and end of the Great Depression that reflects a traditional understanding of the limits of a federal government. The purpose of this article is to analyze his perspective in light of typical historical narratives about the era.
A more traditional narrative would place the blame for the depression at the feet of the son of a Quaker blacksmith, Herbert Hoover. Hoover was elected as the 31st President in 1929 as a Republican after earning international renown as a humanitarian in his efforts to provide food to millions in Central Europe, including Soviet Russians in 1921. Upon receiving the Republican nomination in 1928, Hoover proclaimed that “we in America are nearer to the final triumph over poverty than ever before in the history of any land” (1). The stock market would crash in October of 1929, barely eight months after his inauguration. Critics of the President argue that his Republican positions of non-interference were directly to blame for the crisis. According to the Gilder Lehrman Institute of American History out of New York, Hoover “refused to involve the federal government in forcing fixed prices, controlling businesses, or manipulating the value of the currency” (2).
Dr. Lee Ohanian, a professor of economics at UCLA, disagrees with this consensus and argues that Hoover constantly meddled with the economy on a federal level, leading to an extension of the Great Depression and a drastic increase in both price and unemployment. Ohanian explains that “Hoover’s program substantially depressed the economy, reducing aggregate output and hours worked by about 20 percent” (3). In short, rather than seeing Hoover as a do-nothing Republican, Ohanian sees Hoover’s economic meddling as an exacerbation of the existing problems.
Causes of the Great Depression
According to Ohanian, Hoover distrusted the free market and feared that unfettered financial competition could force a reduction in the prices of industrial and commonplace goods. From this perspective, lower prices could mean lower wages. Lower wages were unacceptable to the growing unions, creating tension for the heads of key industries. In 1929, Hoover met with Henry Ford, Alfred Sloan of General Motors, and Pierre DuPont of DuPont Chemicals along with other American titans to reach some kind of agreement that might protect wages and jobs and rescue the plunging economy. The President’s solution centered on the idea that wages should not change, and that corporations should minimize layoffs by allowing employers to share the labor. He envisioned these corporations keeping their staff and their staff’s salary in place so they could maintain their purchasing power in the marketplace. He also promised to convince the workers and labor organizations not to strike or make additional demands in regard to salary or benefits. As a result, labor organizations agreed to authorize no strikes, and the industrial captains promised to not cut wages.
This failed when prices for industrial goods declined, severely decreasing income for the organizations that produced both goods and jobs. On June 19, 1930, Hoover signed the Smoot-Harley Tariff Act, recognized as one of “the most catastrophic acts in congressional history” (4). The act raised tariffs on imports to the highest levels in over a century, and in return, other nations retaliated by placing high tariffs on American exports. This meant that fewer people abroad could afford to buy American producs, and fewer Americans could afford to buy goods that came from abroad. Hoover also refused cut wages, which gave the industries very little wiggle room to save costs and turn a profit. Hoover is reported to have said, “If we cut wages, there will be hell to pay with unions” (5). Unable to keep a profit, companies began laying off their workers anyways. Unemployment skyrocketed from 3.2% in 1929 to 23.6% in 1932.
In a characteristically non-Republican move, Hoover began great works to promote production and generate economic activity. The dam would begin construction under Hoover’s direction across the Colorado River. It was indeed an engineering marvel, but would not repay its cost until 1987. Ohanian’s point is that Hoover’s actions–including raising taxes for the wealthy–directly extended the length of the Great Depression. The narrative which argues that Hoover failed to act is simply inaccurate; what is accurate to say is that Hoover’s chosen methods of intervention failed. Ohanian believes that Hoover should have let the free market heal itself without forceful government intervention in the crisis.
End of the Great Depression
Ohanian is also critical of Roosevelt, who based his presidential policies based on what happened to the economy in World War I. During the war, the government established planning boards that set wages and prices for key industries. Economic activity swelled during the war, and Roosevelt theorized that this should be true in peacetime as well. Ohanian argues that “Roosevelt confused the increase in economic activity” with what was actually happening, asserting that the boost in the economy was due to the “result of inflated war demand” and not “government planning” (6).
He is, therefore, skeptical that any of Roosevelt's interventions actually helped. He posits that the economy was in the process of fixing itself and that both Presidents should have trusted private industry to manage the economy throughout the crisis. Instead, both prices and wages rose about 20%, impeding the natural forces of free-market competition, and decreasing productivity across the nation with a staggering number of fewer workers. From his perspective, Ohanian believes the Great Depression–which ended in 1939 as World War II was ramping up in Europe–could have ended in the United States as early as 1936.
The White House, “Herbert Hoover,” The White House (The White House, 2017), https://www.whitehouse.gov/about-the-white-house/presidents/herbert-hoover/.
“Herbert Hoover on the Great Depression and New Deal, 1931–1933,” Gilder Lehrman Institute of American History, 2023, https://www.gilderlehrman.org/history-resources/spotlight-primary-source/herbert-hoover-great-depression-and-new-deal-1931-1933.
Lee Ohanian, “What - or Who - Started the Great Depression?,” National Bureau of Economic Research, August 2009, https://doi.org/10.3386/w15258.
United States Senate, “U.S. Senate: The Senate Passes the Smoot-Hawley Tariff,” Senate.gov, March 9, 2018, https://www.senate.gov/artandhistory/history/minute/Senate_Passes_Smoot_Hawley_Tariff.htm.
Lee Ohanian, “Hoover and the Great Depression” (Prager University, n.d.), https://assets.ctfassets.net/qnesrjodfi80/x9BexHH5zUqY8EaSs8CwW/39f4e6f463be32f09f99993f11e040dd/ohanian-hoover_and_the_great_depression-transcript.pdf.
Ibid.
Bibliography
Gilder Lehrman Institute of American History. “Herbert Hoover on the Great Depression and New Deal, 1931–1933,” 2023. https://www.gilderlehrman.org/history-resources/spotlight-primary-source/herbert-hoover-great-depression-and-new-deal-1931-1933.
“Industrial Men Meet Hoover. Another Conference Called by President Hoover Was Held at the White House This Morning. This Time It Was a Group of the Leading Industrial Heads of the Country. In the Group, Fifth from the Ri Is the Secretary of the Treasury, Andrew Mellon, Ninth from the Right, the Secretary of Commerce Robert P. Lamont and Seventh from the Right Is Henry Ford. Others in the Group Are, Julius Rosenwald, Clarence M. Wooley, Walter Teagle, Owen D. Young, Matthew S. Sloan, E.G. Grace, Myron C. Taylor, Alfred P. Sloan, Jr., Pierre Dupont, Walter Gifford, Samuel W. Reyburn, Jesse I. Straud, William Butterworth, E.J. Kulas, George Laughlin, A.W. Robertson, Redfield Proctor, Philip H. Gadsen, Ernest T. Trigg, Henry M. Robinson and Julius Barnes.” Library of Congress. Accessed July 27, 2023. https://www.loc.gov/resource/hec.35593/.
Ohanian, Lee. “Hoover and the Great Depression.” Prager University, n.d. https://assets.ctfassets.net/qnesrjodfi80/x9BexHH5zUqY8EaSs8CwW/39f4e6f463be32f09f99993f11e040dd/ohanian-hoover_and_the_great_depression-transcript.pdf.
———. “What - or Who - Started the Great Depression?” National Bureau of Economic Research, August 2009. https://doi.org/10.3386/w15258.
The Herbert Hoover Presidential Library and Museum. “The Hoover Dam,” May 18, 2021. https://hoover.archives.gov/hoover-dam.
The White House. “Herbert Hoover.” The White House. The White House, 2017. https://www.whitehouse.gov/about-the-white-house/presidents/herbert-hoover/.
United States Senate. “U.S. Senate: The Senate Passes the Smoot-Hawley Tariff.” Senate.gov, March 9, 2018. https://www.senate.gov/artandhistory/history/minute/Senate_Passes_Smoot_Hawley_Tariff.htm.
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