Freedom From Fear Chapters 3 & 4

I've finished the next two chapters of David M. Kennedy's Freedom From Fear: The American People in Depression and War, 1929 - 1945. The two chapters cover the end of the Hoover Administration and the lead up to FDR taking office.

Chapter 3: The Ordeal of Herbert Hoover
Hoover was elected because he was a problem solver; before becoming president (I think in the Coolidge administration) he built the plan to feed the starving people in Europe following the World War. Given that, Americans trusted that he would be able to solve the depression.

Hoover did what he could to help the agricultural depression and helped the banks. But there simply wasn't a mandate to help the working class with unemployment insurance or a program to feed the hungry. The prevailing philosophy of the Republican party was "Volunteerism"; fraternal organizations, churches and such could provide for the needy. The problem was that the sheer numbers of people out of work dwarfed anything that local, small organizations could fix.

Hoover and his administration saw the roots of the depression not in the stock market crash of 1929 but rather as a result of the World War. Germany had to pay crushing war reparations to England and France. At the same time England and France owed massive amounts to America who funded the war. Germany borrowed money from the United States and used the money to pay the war reparations to England and France who in turn paid off their war time loans to the United States. It was a 3 legged stool that would collapse if 1 of the legs came undone. Germany was the loose leg. They simply could not keep up the payments and keep their society going. Of course, this is where Hitler came in, whipping up nationalist fervor in a country suffering from the results of the war itself as well as the reparations.

Many in the country: progressive Republicans (history's term not mine) and the banks were in favor of permanently ending war reparations and forgiving the loans to England and France. Of course, this would mean the banking industry would profit by lending money to a world that did not have its governments bogged down with national debts. Hoover was able to convince England and France to suspend the war reparations payments for a year to help Germany.

At the same time the world was operating on the gold standard which meant a country could only have an amount of money in circulation as a ratio of the gold stock in the federal reserve. It  was simply unheard of to have a nation with an out-of-balance budget (except in war time). As the crisis deepened, gold flowed overseas creating deflation in the U.S. The only way to keep the budget balanced was to raise taxes. Of course this just made things worse.

By the end of the Hoover administration (FDR wouldn't take office until March 1933) the U.S. economy was at a virtual stand still. Following the election, Hoover tried to get Roosevelt to get on board with his programs, but FDR was not about to be tied down to Hoover's policies. It is surprising to me, as it was to many in power, that the people did not rise up in anger and revolution.

In the end Hoover was quite progressive for his time; he did what he could given the philosophy of the government; this was simply new ground that the world was just not prepared to deal with. As Einstein said, to get out of a problem, you need to be smarter than the brains that caused the problem.

These first chapters really put in focus the economic and political problems we've had since the collapse of the mortgage industry. We seemed to have learned the lesson of deflation; this is why the U.S. put together the TARP program; to keep things moving, to keep demand going. Once things stop it is very difficult to get them moving again. In the early 1930's we saw what happens when the banks get relief but not the rest of the country; deflation and depression.

Chapter 4: Interregnum

This chapter covers FDR as he prepared to take office in March 1933. Two important traits of FDR were his unbridled optimism and willingness to listen to everyone. He never, ever, seemed down. Even his closest advisory never saw him appear shaken or worried. He was like an virtuoso actor where you only see the character, not the actor. He curried the opinion of many different points of view, but was very careful to never tip his hand. This was very frustrating to the senior members of Congress who wanted him to support their side; they'd think he supported them but were never sure.

In contradistinction to the Hoover administration, The Roosevelt Brains Trust  seems to have seen domestic roots of the depression. In this view, the rapid advances in industrialization created an imbalance in the distribution of wealth. The captains of industry got the lions share of the wealth. The result was that the workers did not have enough money to purchase the products that would keep the economy afloat. It was the government's duty to keep the balance.

"...concentration of economic power in huge industrial enterprises was a natural and beneficial feature of modern, advance societies; and that the enormous concentrations of private power necessitated the creation of commensurately powerful public controls, or governmental regulatory bodies" [pp 120-121]

There was definite fear in the winter and spring of 1933 that the social fabric of the country would rip. As a result the most pressing items on the agenda of an early Roosevelt administration might be political stabilization rather than restoring the economy. There were 3 linch pins of the New Deal "social reform, political realignment, and economic recovery flowed and counterflowed through the entire history of the New Deal." [ p 117]

It looks as though the progressive wing of the Republican party would join with the Northeast industrial workers to reform the Democratic party going forward.