Myths about the Great Depression
Herbert Hoover was a doctrinaire, laissez-faire, look-the-other-way Republican who clung to the idea that markets were basically self-correcting. No. Far from a free-market idealist, Hoover was an ardent believer in government intervention to support incomes and employment. FDR didn’t reverse course. He went further down the path that Hoover had blazed. It was Hoover who initiated the practice of piling up big deficits to support huge public-works projects. Hoover championed many of the basic ideas — such as central planning and control of the economy — that came to be known as the New Deal.
The stock market crash in October 1929 precipitated the Great Depression. No. The crash precipitated wrongheaded policies that did major damage to the economy — a retreat into protectionism with the Smoot-Hawley tariff causing the internation economy to collapse. Some have argued that the increasing likelihood of Smoot-Hawley passing was a major contributing factor in the stock market collapse.
Where the market had failed, the government stepped in to protect ordinary people. No. Exports accounted for about one-third of U.S. farm income which were lost with Smoot-Hawley. This devastated the agricultural sector. Following in Hoover’s footsteps, FDR tried to raise farm income with quotas and paying farmers to remove acreage from production which caused higher prices for hard-pressed consumers and had the effect of lowering productivity and driving farmers off their land.
Greed caused the stock market to overshoot and then crash. No. The real culprit (as in the housing bubble) was a speculative fever induced by excessively easy credit and broken by the inevitable return to realistic valuations. The last thing Hoover wanted to do upon coming into office was to rein in the stock market boom by allowing interest rates to rise to a more normal level.
Enlightened government pulled the nation out of the worst downturn in its nations history and came to the rescue of capitalism through rigorous regulation and government oversight. No. In disregarding market signals at every turn, Hoover and Roosevelt were jointly responsible for turning a panic into the worst depression of modern times. Government was responsible for a lost decade of economic growth.
