The 1920s were a period of optimism and prosperity – for some Americans. When Herbert Hoover became President in 1929, the stock market was climbing to unprecedented levels, and some investors were taking advantage of low interest rates to buy stocks on credit, pushing prices even higher. In October, 1929, the bubble burst, and in less than a week, the market dropped by almost half of its recent record highs. Billions of dollars were lost, and thousands of investors were ruined.
After the stock market crash, President Hoover sought to prevent panic from spreading throughout the economy. In November, he summoned business leaders to the White House and secured promises from them to maintain wages. According to Hoover’s economic theory, financial losses should affect profits, not employment, thus maintaining consumer spending and shortening the downturn. Hoover received commitments from private industry to spend $1.8 billion for new construction and repairs to be started in 1930, to stimulate employment.
The President ordered federal departments to speed up their construction projects and asked all governors to expand public works projects in their states. He asked Congress for a $160 million tax cut while doubling spending for public buildings, dams, highways, and harbors.
1930
Praise for the President’s intervention was widespread; the New York Times commented, “No one in his place could have done more. Very few of his predecessors could have done as much.” Together, government and business spent more in the first half of 1930 than in the entire previous year. Still consumers cut back their spending, which forced many businesses and manufacturers to reduce their output and lay off their workers.
In October 1930, with unemployment rising, Hoover created the President’s Emergency Committee for Employment (PECE) to coordinate state and local relief programs, and to develop methods for increasing employment in the private sector. But with no direct control of funding for relief or jobs, PECE had only limited success.
As the Depression worsened, Hoover requested that the Federal Reserve increase credit, and he persuaded Congress to transfer agricultural surpluses from the Federal Farm Board to the Red Cross for distribution to relief agencies. Hoover asked Congress for even more spending on public works, and he continued to encourage states and private businesses to generate new jobs.
