The paleolibertarian war on Herbert Hoover

When the starting premise is that the State is evil, every politician becomes a meddling New Deal interventionist

Published September 2, 2009 10:30AM (EDT)

The paleolibertarians have never been Herbert Hoover fans. Listen to Murray Rothbard, the godfather of paleolibertarianism -- an economist who hated not only the New Deal and desperately yearned for a return to the gold standard, but also wanted to abolish the Federal Reserve, the Social Security Act, the income tax, the Internal Revenue Service, and even the Federal Judiciary Act of 1789.

From "The Myth of Herbert Hoover:"

In all previous depressions, the Federal government had pursued a laissez faire attitude, keeping hands off and letting market forces bring about recovery quickly; and the recovery always came, no matter how steep the depression at the start. But Hoover had long determined that he was not going to pursue such a "reactionary, Neanderthal" course....

...In pushing through his program, Herbert Hoover created virtually all the lineaments of the New Deal; the New Deal was in fact Herbert Hoover's creation, and historians, now removed from the partisan squabbles of the New Deal period, are increasingly coming to recognize this fact. Massive public works programs, government relief, inflation and cheap money on a grand scale, government deficits, higher taxes, government loans to shaky businesses, farm price supports, propping up of wage rates, monopolizing the oil industry and restricting production, war against the stock market and stock speculation -- all these crucial facets of the New Deal program were launched con brio by President Hoover.

I found my way to Rothbard after a reader alerted me to a post at the Austrian Economists blog by Steven Horwitz, an economist at St. Lawrence University in Canton, New York. Professor Horwitz takes issue with my scoffing at economist Lee Ohanian's thesis that Hoover's "pro-labor stance" caused the Great Depression.

Not surprisingly, he's taking a beating in the left-oriented press (see an example from Salon here) from those who simply cannot imagine that Hoover was anything but Rush Limbaugh's spiritual ancestor. The fact that Hoover might have been a significant interventionist, many of whose policies foreshadowed the New Deal, is one their brains simply cannot accept, no matter how much evidence there is. Of course, the fact that Rothbard and Vedder/Gallaway have hammered this point before is not discussed at all.

I will consider in more depth the nature of Hoover's interventionism in just a moment, but let me make two preliminary points. First of all, I in no way consider Herbert Hoover to be Rush Limbaugh's spiritual ancestor. I am not as much of an expert in the Great Depression as I should be, but what I do know of Hoover suggests that he was a generally decent and honorable person who thought deeply about the issues of his time. He had principles, and tried to stand by them. Rush Limbaugh does not fit into those same categories.

Second, I have to be frank. When I hear Murray Rothbard cited as an authority I start to panic and check the room for exit doors. There are radical, extreme libertarians, and then there is Murray Rothbard. Maybe he's right, maybe "anarcho-capitalism" and the elimination of the state would "maximize individual liberty and prosperity." But the prospects of such a libertarian utopia seem unrealistic in the extreme to me, and the economic analysis purveyed by the Austrian school fairly useless in grappling with what is going on in the real world. Rothbard wanted to "repeal the 20th century." The fantasy inherent in such a dream tells me most of what I need to know about the radical libertarian project.

What I did find interesting in Rothbard's attack on Hoover is how closely his explanation of Hoover's sins matched the thesis of Lee Ohanian's "What -- or Who -- Caused the Great Depression?"

Hoover's method of forcing wage rates to remain high was typical of his pseudo-"voluntarism." He lost no time; as soon as the stock market crash broke, Hoover, in November 1929, called all the major industrialists to the White House and told them that they must pledge to keep wage rates up; that, whatever happened, the brunt of the Depression must fall on profits, not wages. This is precisely what did happen; wages were bravely kept up, especially in the larger firms, profits collapsed, and losses, bankruptcies, and mass unemployment ensued and remained unresolved. Since prices continued to fall, fixed wage rates meant that real wages (in terms of purchasing power) rose, aggravating the unemployment problem still further.... This was indeed the first severe depression in history in which real wage rates rose rather than fell: with the result that the Depression was intensified and rendered quasi-permanent.

Wage-"stickiness" turned a recession into a Depression. That's Rothbard's story, and to all intents and purposes it is identical to Ohanian's argument. Brad DeLong has provided the liberal counterargument, which holds, in brief, that allowing wages to fall as quickly as possible would have created an even greater liquidity crunch and demand shock, and made the Depression much worse.

The Keynesians versus the Austrians -- forever they shall battle, red in tooth and claw, and the struggle is unlikely to ever be resolved to the satisfaction of either side. But there's a deeper historical question here -- who, really, was Herbert Hoover? Was he the icon of laissez faire that triumphalist New Dealers made him out to be, or the "statist" interventionist that the paleolibertarians decry?

Or could he have been both? Steven Horwitz links to a paper in the September 2008 American Economic Review, Great Expectations and the End of the Great Depression" by Gauti B. Eggertsson, an economist currently at the Federal Reserve Bank of New York, which argues that Hoover and Roosevelt presided over clearly different policy regimes. Hoover believed in "the gold standard, a balanced budget, and small government." In contrast, Roosevelt took the U.S. off the gold standard and immediately embarked on an "on an aggressive spending campaign, nearly doubling government consumption and investment in one year."

This spending spree was not financed by tax increases, but instead by some of the largest budget deficits in U.S. history outside of wartime. On the monetary side Roosevelt announced that the value of the dollar was no longer tied to the price of gold, effectively giving the administration unlimited power to print money. The overarching goal of these policies was to inflate the price level, and Roosevelt announced that this would be achieved through all possible means, stating: "If we cannot do this one way, we will do it another. Do it, we will."

Just two years earlier Hoover was telling the American Legion that:

"Every additional expenditure placed upon our government in this emergency magnifies itself out of all proportion into intolerable pressures, whether it is by taxation or by loans. Either loans or taxes [...] will increase unemployment. [...] We can carry our present expenditures without jeopardy to national stability. We can carry no more without grave risks."

A biography of Hoover available at the University of Virginia's Miller Center for Public Affairs also paints quite a different picture than does Rothbard.

Even as the crisis deepened in 1931, Hoover held fast to his course. He reiterated that the nation's economic woes were largely the result of depressed world economic conditions. He also made clear that he opposed federal intervention in the economy or the construction of a welfare state. Instead, Hoover maintained that voluntarism and individual effort would solve the country's economic woes.

And yet, in the final year of his presidency, Hoover did bow to the inevitable.

In the summer of 1932, he signed the Emergency Relief Construction Act, which provided $2 billion for public works projects and $300 million for direct relief programs run by state governments. While the bill only appropriated a pittance for direct relief and placed many restrictions on how the $300 million could be used, its endorsement by Hoover testified, at least partially, to the failure of voluntarism and private relief. Hoover, however, saw the act as a temporary measure to provide emergency relief; he remained resolutely opposed to large-scale and permanent government expenditures on relief and welfare.

To Rothbard, the Emergency Relief Construction Act was a cornerstone of the New Deal, making Hoover no different than Roosevelt. What I wonder, however, is whether any politician, of any philosophical persuasion would have or could have acted differently in the summer of 1932? A quarter of the nation's working population was unemployed! Hoover delayed taking effective action until it was too late to save his own presidency. It's like the old economist joke goes -- in a recession, everyone becomes a Keynesian.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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