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Before FDR, Herbert Hoover Tried His Own 'New Deal'

Herbert Hoover was not a “do-nothing” president during the Great Depression. In fact, his actions may have made things worse.

When confronted by the crisis of the Great Depression, the American president knew that doing nothing was not an option. “That would have been utter ruin,” he recalled. “Instead we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”

The words may have sounded like Franklin D. Roosevelt touting his New Deal, but they were actually uttered by his predecessor, Herbert Hoover, on the campaign trail in 1932.

Herbert Hoover riding with Franklin Delano Roosevelt on the day of FDR's presidential inauguration, 1933.

Herbert Hoover riding with Franklin Delano Roosevelt on the day of FDR's presidential inauguration, 1933.

Although sometimes portrayed as a president stubbornly unwilling to intervene in the marketplace during the Great Depression, Hoover was never a proponent of laissez-faire economics, says Kenneth Whyte, author of Hoover: An Extraordinary Life in Extraordinary Times. “Hoover entered public life during the Great War as Woodrow Wilson’s head of the United States Food Administration and in that position oversaw an unprecedented intervention in the American economy to ensure that the United States and its allies were sufficiently provisioned to win the war,” he says. “And as president he put the government to work in ways that were inconceivable to any of his predecessors.”

When he campaigned for the presidency amid a flourishing economy in 1928, Hoover pledged, “We shall soon, with the help of God, be in sight of the day when poverty will be banished from this nation.” However, just seven months into Hoover’s presidency, the Stock Market Crash of 1929 marked the start of a long economic implosion that grew into the Great Depression.

READ MORE: Here Are Warning Signs Investors Missed Before the 1929 Crash

Whyte says that Hoover quickly showed a willingness to tap the resources of the federal government to address the financial crisis. “He immediately cut taxes and introduced a counter-cyclical program of public works spending, the first of its kind, to stimulate employment and recovery. He bullied the nation’s largest employers into holding off on layoffs—their usual reaction to a downturn—to stabilize the economy and aid recovery, and to continue investing in new plants and equipment.”

When it became clear in 1931 that the financial tailspin was not abating, Hoover convinced Congress to accept a moratorium on the payment of international debt and enacted a series of federal policies to stimulate the economy that some historians have referred to as the “Hoover New Deal.” The new Reconstruction Finance Corporation, established in January 1932, lent tax dollars to bail out American banks and businesses. The Emergency Relief and Construction Act, enacted in July 1932, broadened the agency’s lending power to include financing state and local public works projects.

Hoover also approved substantial farm subsidy increases, eased requirements for the issuing of Federal Reserve notes and established the Federal Home Loan Bank Board to support mortgages. In an attempt to pay for the new programs, Hoover signed the Revenue Act of 1932, which doubled the estate tax, hiked corporate tax rates and increased the top personal tax rate from 25 to 63 percent.

READ MORE: How Economic Turmoil After WWI Contributed to the Great Depression

Although Roosevelt would oversee a dramatic expansion of the federal government himself, he attacked Hoover during the 1932 presidential campaign for engaging in “reckless and extravagant” spending and ran on a Democratic platform calling for “an immediate and drastic reduction of governmental expenditures” by at least 25 percent. Roosevelt’s running mate, John Nance Garner, went so far as to accuse Hoover of “leading the country down the path of socialism.”

“This idea that Hoover was a laissez-faire president who didn’t want to do anything really wasn’t the case,” says Dartmouth College economics professor Douglas Irwin, author of Peddling Protectionism: Smoot-Hawley and the Great Depression. “He tried a lot of things, though not many worked.” 

A 1932 presidential election button pin for Herbert Hoover. 

A 1932 presidential election button pin for Herbert Hoover. 

While real federal spending rose by 48 percent during Hoover’s presidency, unemployment also soared from 3 percent to an all-time high of 25 percent. More than 5,000 banks had failed by the time he left office in 1933.

One of Hoover’s actions that had a particularly negative effect on the economy was his signing of the Smoot-Hawley Tariff, which raised prices on thousands of imported goods, against the advice of more than 1,000 economists. “In terms of the economic impact, it had a big shock effect on trade,” Irwin says. “It led to retaliation that hit foreign exports and the contraction of both imports and exports. It certainly didn’t cause the Great Depression, but it was a contributing factor.”

“Hoover’s laissez-faire reputation is owed almost entirely to 1930s Democratic campaign rhetoric and New Deal school of historiography,” Whyte says, “both of which were determined to blame Hoover for the Depression and present Franklin Roosevelt as sui generis, entirely distinct from his benighted Republican predecessors, and responsible for all of the meaningful policy innovation that emerged from the Depression.”

READ MORE: Did New Deal Programs Help End the Great Depression?

After leaving the White House, Hoover became a vociferous critic of Roosevelt’s economic policies. He warned that the New Deal had a “pronounced odor of totalitarian government” and attacked Roosevelt’s agricultural policies as “goosestepping the people under this pinkish banner of Planned Economy.”

In the eyes of some, however, Hoover had laid the foundation for the subsequent economic policies he so detested.

“I once made a list of New Deal ventures begun during Hoover’s years as Secretary of Commerce and then as president,” Roosevelt advisor Rexford G. Tugwell wrote. “I had to conclude that his policies were substantially correct. The New Deal owed much to what he had begun.”

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