The Great Depression of the 1930s decisively changed the role of government in American economic and social life. The two presidents during this era— Herbert Clark Hoover (1874-1964), who served from 1929 to 1933, and Franklin D. Roosevelt(1882-1945), who was president from 1933 to 1945—agreed on the desirability of maintaining a capitalist economy. They agreed that the federal government must play an active role in helping capitalism. They agreed that government's role was to achieve the best results for American business and for the American people. Yet they disagreed, and disagreed sharply, on specifically what government's role should be.
HOOVER'S EARLY EFFORTS
When the depression set in toward the end of 1929, Herbert Hoover had been president just six months. He was the third straight Republican president, but he was very different from his predecessors, Warren G. Harding (1865-1923) and Calvin Coolidge (1872-1933). It seemed as though Hoover came to the presidency with superb qualifications, particularly concerning economic matters. A highly successful mining engineer with global business experience, he entered government service as administrator of famine relief in Europe after World War I (1914-1918), and then served as secretary of commerce from 1921 to 1929. With this background, it is not surprising that Hoover was no apostle of the doctrine of "laissez-faire"—the idea that government should keep its hands off the economy at all times. On the contrary, Hoover believed there was much that government could and should do to help the economy. When the stock market crash of 1929 was followed by a steep downturn in the economy, his approach to government-business partnership marked a startling break with tradition. He was the first American president to take responsibility for managing the business cycle.
Although Hoover began with mere optimistic predictions of early recovery, he soon went beyond such cheerleading to hold a series of meetings with business leaders. He urged them to maintain payrolls in an effort to keep purchasing power from falling. In pursuit of the same goal, Hoover increased federal spending on public works, raised tariffs to protect U.S. industry, limited immigration to protect American workers, and agreed to establish a system of federal loans to farmers when crop prices fell below target levels. Measured against what had been done in the past, many of these steps represented a bold expansion of the federal government's role in economic matters.
Still, his philosophy of activist government went only so far, and it failed to solve the crisis. In the three years after the depression set in, bank and business failures mounted, unemployment continued at unprecedented levels, and poverty increased. In 1932, he agreed only reluctantly to sign legislation establishing a large government agency, the Reconstruction Finance Corporation, to extend loans to banks, insurance companies and railroads, many of them facing bankruptcy. Pressed to use federal funds for direct relief of poverty when churches and the Red Cross, Salvation Army, and other philanthropic organizations could not cope, Hoover staunchly refused. He had reached his self-imposed limit on activist government. The principles of individual and local responsibility, he said, were the core of American life, and proposals for federal relief undermined these principles. To Hoover, capitalism (and America) would recover when capitalists sensed a "favorable business climate"—a sound dollar and low taxes, with the government standing strongly against radical cries for monetary inflation and high government spending. Balancing the federal budget, Hoover said, was "the primary duty of the government" and "the most essential factor to economic recovery." He thought that unemployment should be fought by voluntarism—community action that promoted self-help and individual achievement. In defining the role of activist government, Hoover drew a line between helpful government actions (those that promoted stability) and harmful ones (those that undermined business confidence and chilled the energies of investors).
THE EARLY REACTION OF BUSINESS LEADERS
In Hoover's attempt to manage the economy and recover from the depression, he received little guidance from business. In fact, most business leaders were in denial during these early years of the depression. "Things are better today than they were yesterday," said the automaker Henry Ford (1863-1947) in November 1929, as the economy slid downward. In December, the president of the National Association of Manufacturers expressed his view: "I can observe little on the horizon today to give us undue or great concern." When the captains of industry and finance finally acknowledged that there was a depression, most opposed Hoover's entry into economic affairs. Government should "stick to the strict function of governing," Ford announced, and "let business alone." When asked about the remedy for the depression, the steel manufacturer Charles Schwab (1862-1939) suggested that workers "just grin and keep on working." Clearly, business leaders had little conception of how to repair a sick national economy. "To describe the causes of this situation," admitted Sewell Avery (1873-1960), the president of Sears & Roebuck, "is rather beyond my capacity."
There were a few exceptions, of course. The president of General Electric, Gerard Swope (1872-1957), and Henry I. Harriman (1871-1950), president of the U.S. Chamber of Commerce, suggested that with productive capacity far exceeding the public's ability to consume, some form of government-industry planning might help to bring production and consumption in line, and thereby get the economy moving again. However, these men were vague on details.
HOOVER'S LAST DAYS
Operating within his self-imposed limitations of principle, Hoover appeared by 1932 to be a man whose ideas were ineffective and exhausted. The depression had deepened with every passing year. Armies of the unemployed now camped in makeshift shantytowns on the edge of major cities. Dubbed "Hoovervilles" by those who blamed the president for the economic disaster, they became for many a symbol of the president's supposed uncaring attitude and inaction. The visible disaster of the depression, reflected in Hoover's somber manner as well as the public spectacle of massive unemployment, long bread lines, and dirty and impoverished children, led the American people to a decisive repudiation of Hoover in the 1932 presidential election.
THE DILEMMA OF THE NEW DEAL
His successor proved to be a very different sort of president. In his inaugural address, on March 4, 1933, Franklin D. Roosevelt promised bold experimentation and innovation. Contemporaries were struck by the new president's buoyant optimism and self-confidence, displayed in frequent radio "fireside chats" in which he explained complex issues and new programs. Historians have concluded that Roosevelt's ebullient temperament alone contributed to the economic upturn that began when he took office, but the difference with Hoover ran deeper than personality. Roosevelt and the liberals he brought in to shape the New Deal were guided by very different principles from those Hoover had followed. Many of the New Dealers interpreted the depression as a result of flaws in American capitalism. They were far more reform-minded, and ultimately confrontational, in their thinking about the government-business relationship.
The New Deal committed the government to far-reaching reforms of capitalism in order to "depression-proof" the American economy, so that the ordeal of that generation would never be repeated. But the New Dealers faced a number of questions: Should the first objective be reform or recovery? Were the two incompatible? Should government impose reforms on the business community, or, assuming the notion that the economy would recover when business was "happy" with the "climate," could reforms be undertaken with the cooperation of business? Where should the emphasis fall—low taxes, pro-business regulation (or none at all), a balanced budget, increased public spending?
In the beginning, FDR sought to work with business. In the so-called First New Deal (1933-1935), he downplayed reform and embraced government-business planning to promote recovery. He sought a "concert of all interests" in which business would be a major partner, along with labor, and the federal government, as senior partner, would guide the action. But the business community was unhappy even with these early New Deal efforts. After two years of experimentation and attempts to cooperate, Roosevelt found that he was also unhappy with business.
ROOSEVELT'S SHIFT FROM BUSINESS
In the early summer of 1935, FDR launched the Second New Deal (1935-1937) when he decided to pursue recovery through a reform program that quickly built into the American system a number of long-term changes. He had already regulated the stock market, agriculture, transportation, and communications. Now he won extensive new regulation of banking, government support for organized labor, a national retirement plan for the elderly, unemployment insurance, and a renewed interest in anti-monopoly activity. Government, the New Dealers concluded, should not be exclusively "pro-business," for business was only one interest group. The government's role was to strike the right balance among several groups—industry, commerce, agriculture, labor, and consumers. To achieve this balance, economic reforms were needed to curb the power, especially, of big business and support the position of labor to achieve a healthier economy in which purchasing power could keep up with production.
TWO PHILOSOPHIES OF GOVERNMENT COMPARED
Neither Hoover's nor Roosevelt's strategy brought prompt recovery. When Hoover left office in 1933, the country was worse off than it had been even in the early years of the depression. With Roosevelt in the White House, the climb back from the trough of early 1933 was exceedingly slow. It took the New Deal seven long years and a lot of experimentation to regain the employment and prosperity levels of early 1929.
The different philosophies of Hoover and Roosevelt still shape American political and economic life. In fact, Roosevelt's administration defined modern American liberalism. On the whole, the business community continued through the rest of the 20th century to prefer Republicans to Democrats, since Republicans from Hoover on seemed to agree with the tenor of the famous remark by Charles E. Wilson (1890-1961), the General Motors executive: "What is good for the country is good for General Motors, and what's good for General Motors is good for the country." Liberals from the New Deal forward, on the other hand, occasionally joined by a minority of business leaders, have remained committed to the economic reforms of the 1930s and to the conception of government as having a broader, sounder view of the economy than business leadership and the marketplace alone do.
Although history provides no definitive judgment on these clashing views, it suggests that both Hoover's and Roosevelt's ideas were partial truths. Hoover was skeptical about government's managing the economy; Roosevelt believed that the flaws of capitalism left government no choice but to be activist. As in the 1930s, the difficulty and true test of government are in how to blend these ideas successfully.