Those who expect to reap the benefits of freedom, must, like men, undergo the fatigue of supporting it. – Thomas Paine

Thursday, November 1, 2012

Herbert Hoover's Depression (Part 2)

By Murray Rothbard
This article is excerpted from chapter 7 of America's Great Depression.

The Development of Hoover's Interventionism: Labor Relations

We cannot fully understand Hoover's disastrous interference in the labor market during the depression without tracing the development of his views and actions on the labor front during the 1920s. We have seen that his Reconstruction Program and his Economic Conference of 1920 praised collective bargaining and unionism. In 1920, Hoover arranged a meeting of leading industrialists with "advanced views" on labor relations to try (unsuccessfully) to persuade them to "establish liaison" with the American Federation of Labor.[30] From 1919 through 1923, Hoover tried to persuade private corporations to insure the uninsurable by adopting unemployment insurance, and in 1925 he praised the American Federation of Labor as having "exercised a powerful influence in stabilizing industry." He also favored the compulsory unemployment of a child labor amendment, which would have lowered the national product, and raised labor costs as well as the wages of competing adult workers.

Most important of Hoover's activities in the labor field was his successful war against United States Steel and its chairman, Judge Elbert H. Gary, a war conducted as a "skillful publicity campaign" (in the words of a Hoover admirer) against "barbaric" hours of work in the steel industry.[31] The success of this battle made it much easier later on to persuade businessmen to go along with his labor policies during the 1929 depression. Hoover had decided that the 12-hour day in the steel industry must be eradicated and replaced by the 8-hour day. He persuaded Harding, lapsing from his usual laissez-faire instincts, to hold a conference of steel manufacturers in May 1922, at which Harding and Hoover called on the magnates to eliminate the 12-hour day. An admiring biographer notes with satisfaction that Hoover made the steel leaders "squirm."[32] It was of course easy for Harding and Hoover, far removed from the necessity of meeting a payroll or organizing production, to tell other people how long and under what conditions they should work. Hoover was supported by such "enlightened" steelmen as Alexander Legge and Charles R. Hook, but bitterly opposed by other leaders like Charles M. Schwab, and of course by Judge Gary, chairman of the board of US Steel and president of the American Iron and Steel Institute. The war was on.

The steel agitation, it should be pointed out, had not been begun by Hoover. It originated back in September 1919, when Gary refused to engage in collective bargaining with a workers' union. The workers struck on that issue, and the strike was led by Communist leader William Z. Foster. By the time the strike had failed, in January 1920, public opinion, properly regarding the strike as Bolshevik inspired, was squarely on the side of US Steel. By this time, however, the Interchurch World Movement had appointed a Commission of Inquiry into the strike; the commission issued a report favorable to the strikers in July 1920, and thereby initiated the 8-hour day agitation.[33] The report started a propaganda war, with the nation's leftists attempting to change the whole temper of public opinion. The Reverend A.J. Muste, the Socialist New York Call, Labor, and The Nation backed the report, while business associations strongly attacked the inquiry. The latter included the National Association of Manufacturers, the National Civic Federation, the Wall Street Journal, and others. Many religious papers, however, were persuaded by the prestige of the committee (a prestige in religion that somehow carried over to secular matters) to change their previous views and to line up on the antisteel side.

It was at this critical point in the battle that Hoover entered the fray and persuaded President Harding to join him. Hoover "deliberately broke the story" of the unsuccessful private meeting with Gary, Schwab, and the others to the press. He told the press that President Harding was "attempting to persuade industry to adopt a reasonable working day."[34] Thus did the government mobilize public opinion on the side of the union. Hoover managed to have the national Engineering Societies – effectively dominated by Hoover – issue a report (again outside of their competence) endorsing the 8-hour day in November 1922. Hoover eulogized the report, wrote the introduction, and persuaded Harding to sign it.

Under the presidential pressure, Judge Gary appointed a committee of the steel industry, headed by himself, to study the question. The committee reported on May 25, 1923, unanimously rejecting the 8-hour day demands. US Steel also issued a reply to the Interchurch Report, written by Mr. Marshall Olds, and endorsed by the prominent economist, Professor Jeremiah W. Jenks. Abuse rained down on the steel industry from all sides. Forgotten were the arguments used by US Steel, e.g., that the steel workers preferred the longer 12-hour day because of the increased income, and that production would suffer under an 8-hour schedule.[35]

This and other arguments were swept away by the wave of emotionalism whipped up over the issue. The forces of the Social Gospel hurled anathemas. "Social Justice" and "Social Action" committees of Protestant, Catholic, and Jewish organizations set up a clamor on issues about which they knew virtually nothing. Attaching a quantitative codicil to the qualitative moral codes of the Bible, they did not hesitate to declare that the 12-hour day was "morally indefensible." They did not elaborate whether it had suddenly become "morally indefensible" or whether it, and even longer work days, had also been morally wicked throughout earlier centuries. If the latter, it was certainly strange that countless preceding generations of churchmen had overlooked the alleged sin; if the former, then a curious historical relativism was now being mingled with the presumably eternal truths of the Bible.

The American Association for Labor Legislation of course entered the fray, and threatened federal maximum-hour legislation if the steel industry did not succumb to its imperious demands. But the most effective blow was a stern public letter of rebuke sent to Gary by President Harding on June 18, written for the president by Hoover. Faced by Harding's public requests and demands, Gary finally surrendered in July, permitting Hoover to write the notice of triumph into Harding's Independence Day address.

The Hoover-Harding victory over US Steel effectively tamed industry, which, faced by this lesson, no longer had the fight to withstand a potent combination of public and governmental pressures.[36]

Nor did this exhaust Hoover's labor interventionism during the 1920s. Hoover played a major role in fostering railway unions, and in foisting upon the railroad industry the Railway Labor Act – America's first permanent incursion of the federal government into labor-management relations. The railroad problem had begun in World War I, when the federal government seized control of the nation's rails. Run by Secretary of the Treasury McAdoo, the government's policy was to encourage unionization. After the war was over, the railway unions tried their best to perpetuate this bastion of socialism, and advocated the Plumb Plan, which called for joint operation of the railroads by employers, unions, and the government.

The railroads were returned to private owners in 1920, but Congress gave a dangerous sop to the unions by setting up a Railroad Labor Board, with tripartite representation, to settle all labor disputes. The board's decisions did not have the force of law, but they could exert an undue pressure on public opinion. The unions were happy with this arrangement, until the government representatives saw the light of economic truth during the depression of 1921, and recommended reductions in wage rates. The nonoperating railway unions conducted a nationwide strike in defiance of the proposed reduction in the summer of 1922. While Attorney General Daugherty acted ably in support of person and property by obtaining a federal injunction against union violence, the "horrified" Mr. Hoover, winning Secretary of State Hughes to his side, persuaded Harding to force Daugherty to remove the injunction. Hoover also intervened privately but insistently to try to wring pro-union concessions from the railroads.

After the unions lost their strike, they determined to rewrite the law so that they could become established with the help of federal coercion. From 1923 on, the unions fought for a compulsory arbitration law. They achieved this goal with the Railway Labor Act of 1926, which, in effect, guaranteed collective bargaining to the railway unions. The bill was drafted by union lawyers Donald Richberg and David E. Lilienthal, and also by Herbert Hoover, who originated the idea of the Railway Labor Mediation Board. Seeing the growing support for such a law and lured by the promised elimination of strikes, the bulk of the railroad industry surrendered and went along with the bill. The Railway Labor Act – the first giant step toward the collectivization of labor relations – was opposed by only a few far-sighted railroads, and by the National Association of Manufacturers.[37]

Even more mischievous than Hoover's pro-union attitude was his adoption of the new theory that high wage rates are an important cause of prosperity. The notion grew during the 1920s that America was more prosperous than other countries because her employers generously paid higher wage rates, thus insuring that workers had the requisite purchasing power to buy industry's products. While high real wage rates are actually the consequence of greater productivity and capital investment, this theory put the cart before the horse by claiming that high wage rates were the cause of high productivity and living standards. It followed, of course, that wage rates should be maintained, or even raised, to stave off any threatening depression. Hoover began championing this theory during the Unemployment Conference of 1921. Employers on the manufacturing committee wanted to urge lowering wage rates as a cure for unemployment, but Hoover successfully insisted on killing this recommendation.[38] By the mid-1920s, Hoover was trumpeting the "new economics" and attacking the "old economics" that resisted the new dispensation. In a speech on May 12, 1926, Secretary Hoover spread the gospel of high wage rates that was to prove so disastrous a few years later:
not so many years ago – the employer considered it was in his interest to use the opportunities of unemployment and immigration to lower wages irrespective of other considerations. The lowest wages and longest hours were then conceived as the means to obtain lowest production costs and largest profits .... But we are a long way on the road to new conceptions. The very essence of great production is high wages and low prices, because it depends upon a widening ... consumption, only to be obtained from the purchasing-power of high real wages and increased standards of living.[39]
Hoover was not alone in celebrating the "new economics." The National Industrial Conference Board reported that, while during the 1920–1921 depression, wage rates fell by 19 percent in one year, the high-wage theory had taken hold from then on. More and more people adopted the theory that wage-cutting would dry up purchasing power and thus prolong the depression, while wage rates held high would quickly cure business doldrums. This doctrine, allied with the theory that high wage rates cause prosperity, was preached by many industrialists, economists, and labor leaders throughout the 1920s.[40] The Conference Board reported that "Much was heard of the dawn of a new era in which major business depressions could have no place." And Professor Leo Wolman has stated that the prevailing theory during the 1920s was that "high and rising wages were necessary to a full flow of purchasing power and, therefore, to good business."[41]

As the final outgrowth of the famous conference of 1921, Hoover's Committee on Recent Economic Changes issued a general multivolume report on the American economy in 1929. Once again, the basic investigations were made by the National Bureau. The committee did not at all foresee the Great Depression. Instead, it hailed the price stability of the 1920s and the higher wages. It celebrated the boom, little realizing that this was instead its swan song: "with rising wages and relatively stable prices we have become consumers of what we produce to an extent never before realized." In the early postwar period, the committee opined, there were reactionary calls for the "liquidation" of labor back to prewar standards. But, soon, the "leaders of industrial thought" came to see that high wages sustained purchasing power, which in turn sustained prosperity.
They began consciously to propound the principle of high wages and low costs as a policy of enlightened industrial practice. This principle has since attracted the attention of economists all over the world – its application on a broad scale is so novel.[42]
This change in the industrial climate, according to the committee, came about in a few short years, largely due to the influence of the Conference on Unemployment. By the fall of 1926, steel magnate Eugene Grace was already heralding the new dispensation in the Saturday Evening Post.[43]

The conclusions of the Hoover-appointed economic committee were ominous in their own right. "To maintain the dynamic equilibrium" of the 1920s, it declared, leadership must be at hand to provide more and more "deliberate public attention and control." In fact, "research and study, the orderly classification of knowledge ... well may make complete control of the economic system a possibility." To maintain the equilibrium, "We ... [must] develop a technique of balance," the technique to be supplied by economists, statisticians, and engineers, all "working in harmony together."

And so, President Herbert Hoover, on the eve of the Great Depression, stood ready to meet any storm warnings on the business horizon.[44] Hoover, the "great engineer," stood now armed on many fronts with the mighty weapons and blueprints of a "new economic science." Unfettered by outworn laissez-faire creeds, he would use his "scientific" weapons boldly, if need be, to bring the business cycle under governmental control.

Hoover did not fail to employ promptly and vigorously his "modern" political principles, or the new "tools" provided him by "modern" economists. And, as a direct consequence, America was brought to her knees as never before. Yet, by an ironic twist of fate, the shambles that Hoover abandoned when he left office was attributed, by Democratic critics, to his devotion to the outworn tenets of laissez-faire.


[30] Irving Bernstein, The Lean Years: A History of the American Worker, 1920–1933 (Boston: Houghton Mifflin, 1960), p. 147. As early as 1909, Hoover had called unions "proper antidotes for unlimited capitalistic organizations," ibid., p. 250.
[31] Warren, Herbert Hoover and the Great Depression, p. 28.
[32] Lyons, Our Unknown Ex-President, p. 231.
[33] See Marshall Olds, Analysis of the Interchurch World Movement Report on the Steel Strike (New York: G.P. Putnam and Sons, 1922), pp. 417ff.
[34] Lyons, Our Unknown Ex-President, p. 231.
[35] Also forgotten was the fact that wages were involved in the struggle, as well as hours. The workers wanted shorter hours with a "living wage," or as the Inquiry Report put it, "a minimum comfort wage" – in short, they wanted higher hourly wage rates. See Samuel Yellen, American Labor Struggles (New York: S.A. Russell, 1956), pp. 255ff.
[36] On the 12-hour day episode, see Frederick W. MacKenzie, "Steel Abandons the 12-Hour Day," American Labor Legislation Review (September, 1923): 179ff.; Hoover, Memoirs, vol. 2, pp. 103–04; and Robert M. Miller, "American Protestantism and the Twelve-Hour Day," Southwestern Social Science Quarterly (September, 1956): 137–48. In the same year, Governor Pinchot of Pennsylvania forced the anthracite coal mines of that state to adopt the eight-hour day.
[37] For a pro-union account of the affair, see Donald R. Richberg, Labor Union Monopoly (Chicago: Henry Regnery, 1957), pp. 3–28; also see Hoover, Memoirs, vol. 2.
[38] See McMullen, "The President's Unemployment Conference of 1921 and its Results," p. 17.
[39] Hoover, Memoirs, vol. 2, p. 108.
[40] One of these industrialists was the same Charles M. Schwab, head of Bethlehem Steel, who had bitterly fought Hoover in the 8-hour day dispute. Thus, in early 1929, Schwab opined that the way to keep prosperity permanent was to "pay labor the highest possible wages." Commercial and Financial Chronicle 128 (January 5, 1929): 23.
[41] National Industrial Conference Board, Salary and Wage Policy in the Depression (New York: Conference Board, 1932), p. 3; Leo Wolman, Wages in Relation to Economic Recovery (Chicago: University of Chicago Press, 1931), p. 1.
[42] Committee on Recent Economic Changes, Recent Economic Changes in the United States (New York: McGraw-Hill, 1929), vol. 1, p. xi.
[43] Committee on Recent Economic Changes, Recent Economic Changes in the United States, (New York: McGraw-Hill, 1929), vol. 2; Henry Dennison, "Management," p. 523.
[44] Another important foretaste of the later National Recovery Act (NRA) was Hoover's use of the Department of Commerce during the 1920s to help trade associations form "codes," endorsed by the Federal Trade Commission (FTC), to curtail competition in the name of eliminating "unfair" trade practices.

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