The Great Depression was a harsh economic depression that affected the whole world before World War II. Though the great depression timing differed across countries, in most nations it started between 1929 and early 1940s. It was the worst economic depression of the 20th century. In American history, the Great depression is one of the events that are most misunderstood. Uncontrolled capitalism is not good, only a huge welfare nation with massive amount of economic interventions can control capitalism (Murray 209).
Herbert Clark Hoover was born on august 10, 1874 and died on October 20, 1964. He was a famous mining engineer in the world and humanitarian administrator. In 1920s, he was the United States of America secretary of commerce, under the presidents Harding and Coolidge. He encouraged economic modernization.
Hoover effortlessly won the republican nomination in the 1928 presidential election. This led to a landslide win over the Democrat Al Smith. Hoover then become the 31st president of the United States of America. Hoover believed in the efficiency movement. He argued that there exist technical solutions to every social and economic crisis.
The Great depression, which started in 1929, challenged his position. Hoover actively attempted to fight the depression with volunteer hard work and action of the government, but none of these efforts recovered the economy.
President Hoover and the Great Depression
Hoover's first action was to beg business managers not to reduce wages during the economic crisis. Hoover assumed that if employees had higher salaries, their purchasing power would increase and stimulate the economy. However, in a recession, when individual demand decreases, companies must either reduce the salaries or reduce workers to remain in the market. If the salaries not reduced, the outcome then is unemployment. Unemployment therefore was very high by the time president Hoover left in 1933 (Donald 166).
Hoover viewed the federal government as a main planner that could develop individual's lives through regulation. This view was useful to farmers. Farming had really suffered in the 1920s, mainly because the massive demand for farm's outputs during the World War I had declined when the battle ended. What was required to rectify this was not addition of government intervention but rather reducing the number of farmers (Donald 166).
Donald 166 argues that, the prices for farm's produce sharply reduced due to excess supply in the market. Thus, board for federal farm was formed to make sure farmers stored their outputs until prices rose. However the moment prices increased, farmers attempted to capitalize by increasing production, which simply made the surplus crisis worse.
Finally, the federal government started purchasing surplus farm outputs from the farmers, to prevent them going to the market, assuming that the world demand would affect prices to increase again. However, this only encouraged several nations to take their products elsewhere, thus the United States market dried up.
To maintain the tradition of Republican Party, Hoover supported high tariffs on imported goods. In 1930, Smoot-Hawley signed into law by Hoover even though over one thousand economists objected the move. Hoover assumed that through this United States production would be stimulated (Marty 22).
According to Marty 22, the new tariff increased rates on 25,000 commodities, to about 59 percent, the highest in American history. World leaders who wanted to stimulate their economies through relaxed deal were surprised. Many reacted with their own high tariffs, thus igniting an international trade war that minimized world trade and worsen the Depression.
Government spending was required for huge programs that Hoover started. Among the programs was a public works plan, which consumed billions of dollars from the private sector that could have been utilized to recover the economy (Ulrike 6).
Reconstruction Finance Corporation was another program, this program bailed out businesses that are failing, mostly banks and railroads. To get the bailout funds, a company had to be at the margin of failure. Thus, the reconstruction finance corporation supported failure of the businesses instead of permitting these companies to liquidate so that their wealth could be transmitted to more successful ventures (Marty 22).
The reconstruction finance corporation money was not always channeled to businesses that were most in need, but to businesses that had strong political connections. Thus the corruption in the government minimized the impact of the reconstruction finance corporation on fighting Depression.
By 1931, excessive spending by the government on these programs developed a deficit that could simply be solved by increasing taxes. Therefore Hoover permitted the biggest peacetime tax enhance up to that period. Taxes were increased on almost everything, comprising individuals and businesses. Increasing taxes discouraged majority to invest, thus inhibiting the growth of the economy and further prevent creation of jobs (Ulrike 6).
From the discussion above, I confidently conclude that the true malfunction of the Hoover management was not that the management did too small to fight the Great Depression, but instead it did a lot to fight the Depression, Only to happen that all the actions that Hoover administration adopted made the crisis worse than before, in fact, he converted a recession into Great depression.