Þe "Herbert Hoover" Passages from "Slouching Towards Utopia"
…possibly John Maynard Keynes…
J. Bradford DeLong: Slouching Towards Utopia: The Economic History of the 20th Century (New York: Basic Books) <bit.ly/3pP3Krk>
To get a better sense of what pre-WWI globalization meant, we might begin by examining the story of Herbert Hoover. Hoover was born in 1874 in Iowa. His father, a blacksmith, died in 1880, and his mother died in 1884. Herbert was therefore orphaned at the age of ten. In 1885 he started moving west—first to Oregon to live with an aunt and uncle; then, in 1891, to California—as he always claimed, to be the first student to attend Stanford University (he arrived before opening day, and the staff let him sleep on campus). There he studied to become a mining engineer, graduating in 1895 in the distressed aftermath of the Panic of 1893.
Hoover’s first job was as a mine laborer in Grass Valley, California, earning $600 a year. His next was as an intern and special assistant to a mining engineer, for which he earned $2,400 a year. He kept moving west. In 1897 he crossed the Pacific—first to Australia, where he worked for the mining company Bewick Moreing, earning a salary of $7,000 a year, and then to China, where he earned $20,000 a year. It was in China that Hoover made the first major tranche of his fortune, albeit in ways he sometimes found hard to explain later on.
From 1901 until 1917, he lived in London, working as a consulting engineer and investor, with jobs and investments in Australia, China, Russia, Burma, Italy, and Central America in addition to the United States. In 1917 he moved back to America, where he was appointed secretary of commerce in 1925 and elected president in 1928. From son of the town blacksmith to college graduate to multimillionaire mining consultant to president of the United States—Had anyone else ascended so far and so fast, even in America? It was an exceptional country. And the fact that it was exceptional was a significant shaper of how the long twentieth century was exceptional.
Hoover, however, did not make the bulk of his fortune from globalization. He made it, rather, through his mastery of the application of mining technologies, and through his skills as a manager and organizer…
[…]
Narrow the viewscope to one mine, the Kaiping coal mine in northern China. There we see general, diplomat, and governor Li Hongzhang at work in the 1880s. He saw that China needed industrial muscle. And so he became the prime bureaucratic mover behind the coal mine, as well as behind a number of China’s other “self-strengthening efforts,” such as the 1878 cotton mills in Shanghai, the Tianjin arsenal, the telegraph between Tianjin and Peking, and more. Men who were as focused as Li was on economic development could make things happen.
But they could not work through the bureaucracy and get anything done.
Li thus commissioned a wealthy Hong Kong merchant, Tang Tingshu, to build and run the Kaiping mine. What he had sought was a large, modern, industrial mine that could help modernize the nation. But they faced unusual forms of opposition. A vice president of the Board of Civil Offices, Chi Shihehang, declared that “mining methods angered the earth dragon … [and so] the late empress could not rest quietly in her grave.” Li had to choose between abandoning his idea of building a modern coal mine—and with it the fuel to power steam engines—or accepting blame for any deaths or diseases that might strike the imperial family. Very bravely—considering the large size of the imperial family and the high death rate of the time—he chose modernity.
Production began in 1881. By 1889, 3,000 workers in three shifts were producing 700 tons of coal a day. By 1900, 9,000 workers were producing, but only a quarter of what was expected of miners in the United States or Australia. The mine was both a public governmental project and a private capitalist enterprise. The mine director was both an employee of the company’s Hong Kong shareholders and an official of the Qing administrative bureaucracy.
The mine’s first director-general, Tang Tingshu, died in 1892. His replacement, Chang Li—called “Yenmao” in virtually all English-language sources—was neither a merchant, nor an industrialist, nor an engineer, nor a manager. Chang was a political fixer—among other things, a key mover in the semi-coup of 1875—for the Empress Cixi.
Because of the mine, Chang was arguably the wealthiest man in Tianjin by 1900. Maintaining the favor and patronage network that supported the Qing court was a higher priority than effective management. The mine had become a source of income for the well-connected, rather than an important piece of an industrialization program.
Li Hongzhang died in 1901, after one last round of diplomatic fencing with the European imperial powers, who wanted to be paid handsomely for suppressing the “Boxer”—“Fighters United for Justice” would be a better translation—Rebellion.
In 1901, twenty-six-year-old expatriate mining engineer and future US president Herbert Hoover took over the mine. Hoover claimed that the 9,000-worker payroll had been padded by 6,000 names, and that the director of personnel doing the padding (and collecting the wages) had bribed Chang Li handsomely for the post.
“Wait,” you say. “Herbert Hoover took over?”
Yes. Hoover arrived in Tientsin in 1900 just in time to be besieged in the city by the Boxer Rebellion. There Chang Li had fled, rightly fearing that the Boxers would execute him as a corrupt puppet of the Europeans, and that the besieged Europeans wanted to imprison him for passing intelligence to the Boxers. From this point forward things become cloudy, as nearly all narrators become unreliable, desperate in various ways to appear in a good light. Somehow Hoover got Chang released from prison. Somehow Chang gave Hoover a power of attorney to reincorporate the Kaiping mine as a British-flag enterprise controlled completely by Herbert Hoover. The historian Ellsworth Carlson reported that the local British chargé d’affaires was disgusted. Hoover and company had “made a pretty pile at the expense of the Chinese,” he said, and while “legally the Board of Directors were unassailable … morally they were in the wrong.” Britain shouldn’t countenance “a financial transaction which had fleeced Chinese shareholders,” the chargé d’affaires continued, and “lined the pockets of an Anglo-Belgian gang,” all under the orchestration of “a Yankee man of straw.”
None of which Herbert Hoover would have agreed with.
More than a century later we can try to read Hoover’s mind. Perhaps he thought the old shareholders should be grateful that he and his partners had only charged them 62.5 percent of the company; after all, the alternative was for the Russians to have confiscated the entire mine as war reparations, leaving the old shareholders with zero. Perhaps he thought that Chang Li was a corrupt thief, while Hoover would make the mine run productively and profitably. Indeed, Hoover managed to nearly triple the value of the shares: thus the 37.5 percent he left the old stockholders’ shares was worth more than the 100 percent the old stockholders had owned before.
We again hear echoes of our whispering chorus. The impersonal market had taken from some, given to others, and greatly increased the total; blessed be the market. But the local charg d’affaires heard something else: Man—in this case one Herbert Hoover—took and gave, not the market. Some—especially the new European stockholders who now owned the majority of the mine, and who now received the profits that Li Hongzhang had intended as part of the basis for a great economic leap forward for China and all its people—might bless the man; but others—say, the Boxers who had rebelled, and the Qing dynasty officials who found their room to maneuver against imperialist would-be conquerors diminished—would curse him…
[…]
South African prime minister Jan Christian Smuts was at the [post-WWI] Versailles [peace] conference too, as leader of one of the dominions of the British Empire. He wrote a letter to his friend M. C. Gillet about what the conference was like: “Poor Keynes often sits with me at night after a good dinner and we rail against the world and the coming flood. And I tell him this is the time for the Griqua prayer (the Lord to come himself and not send his Son, as this is not a time for children). And then we laugh, and behind the laughter is Hoover’s terrible picture of 30 million people who must die unless there is some great intervention. But then again we think things are never really as bad as that; and something will turn up, and the worst will never be. And somehow all these phases of feeling are true and right in some sense. And in it all I do miss you, miss you greatly. How you and Arthur and I would talk things over if we were together.”
Herbert Hoover, again? Yes. When World War I broke out, he soon became aware that famine threatened Belgium. Britain was blockading Germany, and not allowing food imports. The Germans had conquered Belgium and wrecked a good deal of it on their march through. The Germans, short of food themselves because of the blockade, put feeding Belgium at the bottom of their priorities. Somehow Hoover convinced the British that if they let him send grain ships to Belgium, it would strengthen Belgian attachment to the Allies without feeding the German army. And somehow Hoover also convinced the Germans that if they allowed the grain ships into Belgium, Germany could stop sending any grain to Belgium and so feed its army, and this would mollify Belgians by making the consequences of German occupation less dire. Hoover was very persuasive.
After the war was over, Hoover continued in the famine-fighting business. He continued in his new career—that of “the Great Humanitarian.” And he did warn of 30 million famine deaths in the war’s aftermath if nothing was done in the way of relief, and he did move heaven and earth to raise money for and ship food to Europe, from Russia to France.
Hoover’s solution was to ship foodstuffs. Keynes’s attempt was to take up the pen to try to change minds…
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One substantial cheerleader and bridge builder for the rapid buildout of American industrialization in the 1920s was Herbert Hoover. Woodrow Wilson had pulled Hoover off of his Belgian relief projects and set him up as the “food czar” of America. Congress in 1919 gave Hoover $100 million to spend—and he raised another $100 million—to pay for postwar food relief. With the change of administration from Democrats back to Republicans in 1921, President Warren Harding made a concession to bipartisanship, or rather progressivism, and to the idea of a can-do government, by naming Hoover secretary of commerce, a job he held from 1921 to 1928.
Hoover thought the secretary of commerce ought to be the management consultant for every single company in America, and the person who drove the other departments to cooperate and aid American industry. He promoted aviation. He promoted radio. He was ringmaster for the federal aid response to the Great Mississippi Flood of 1927. And he ran for and got the Republican presidential nomination in the summer of 1928, and then beat Democrat Al Smith in the 1928 presidential election…
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Banking panics and the collapse of the world monetary system cast doubt on everyone’s credit and reinforced the belief that the early 1930s was a time to watch and wait. Demand for cash went up, and the excess supply of goods and services grew. And with prices falling at 10 percent per year, investors had compelling reasons to sit on the sidelines. Investing now would earn them less profit than if they waited to invest next year, when their dollars would stretch 10 percent further. The slide into the Depression, with increasing unemployment, falling production, and falling prices, continued throughout then newly elected Herbert Hoover’s presidential term…
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Herbert Hoover had moved from commerce secretary to president on March 4, 1929, three months before the recession began and half a year before the 1929 stock market crash. He kept Andrew Mellon on as treasury secretary. Mellon had been nominated by Warren G. Harding and confirmed on March 9, 1921, five days after Harding’s term began. Mellon stayed in his post when Harding died of a heart attack in 1923 and was succeeded by Calvin Coolidge. Mellon stayed in his post when Coolidge won a term in his own right and was inaugurated in 1925. Mellon stayed in his post when Hoover took over in 1929.
Only Albert Gallatin—treasury secretary for Jefferson, Madison, and Monroe—served longer.
Tax, budget, and monetary policy (for the treasury secretary was in those days the chair of the Federal Reserve Board)—all those were within Mellon’s pur- view. Hoover was an expert mining engineer and a manager who believed in experts. And Mellon was his expert on how to deal with the Great Depression.
Looking back from the 1950s and contemplating the wreck of his country’s economy and his own political career, Hoover cursed Mellon and his supporters in his administration who had advised inaction during the downslide: “The ‘leave-it-alone liquidationists’ headed by Secretary of the Treasury Mellon felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: ‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.’ He held that even panic was not altogether a bad thing. He said: ‘It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.’”16
In his memoirs, Hoover wrote as though he had wanted to pursue more activist policies: do more than simply hand out relief and assure people that prosperity was, if not just around the corner, nearby. Hoover wrote as though Mellon had overruled him, and he had no choice but to comply. But, of Hoover and Mellon, which of them was head of the executive branch? And which was merely head of one of its departments?…
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Why did the Great Depression not push the United States to the right, into reaction, or proto-fascism, or fascism, as it did in so many other countries, but instead to the left? My guess is that it was sheer luck—Herbert Hoover and the Republicans were in power when the Great Depression started, and so they were blamed and thrown out of office in 1932. That Franklin Roosevelt was center-left rather than center- right, that the length of the Great Depression meant that institutions were shaped by it in a durable sense, and that the United States was the world’s rising superpower, and the only major power not crippled to some degree by World War II—all these factors made a huge difference. After World War II, the United States had the power and the will to shape the world outside the Iron Curtain. It did so. And that meant much of the world was to be reshaped in a New Deal rather than a reactionary or fascist mode…
Usually US politics is the politics of near-gridlock. The elections of the 1930s would be different. Roosevelt won 59 percent of the vote in 1932—an 18 percentage-point margin over Herbert Hoover. Congress swung heavily Democratic in both houses. To an extent not seen since the Civil War, the president and his party had unshakable working majorities. But Roosevelt had little idea what he was going to do. He did have a conviction that he could do something important. And he was certain that Herbert Hoover had gotten pretty much everything wrong.
What Hoover had been doing was blocking attempts to start employment-promoting public works, acting aggressively to balance the budget, raising tariffs, and maintaining the gold standard. Roosevelt decided to do the opposite. What else? If you had a half-plausible thing, you had a good chance of persuading Roosevelt to try to do it. After trying it, he would take a look, and then drop and abandon things that did not seem to be working, while pushing hard the things that did seem to be working…
[…]
Pseudo-classical semi-liberalism remained an ideal for many in the 1920s and for a few well into the 1930s. Rolling back the changes of the World War I era and the Great Depression, and returning to this Old Order, was the express desire of a large but waning political and governmental coalition in the global north. To his last day in office, Herbert Hoover kept trying to bind his successor to balancing the budget and maintaining the gold standard.
But by the middle of the 1930s, the numbers and confidence of those who were committed to rollback had dwindled to very few indeed. In the middle of the Great Depression, few believedthat liberalizing markets could deliver enough economic growth and enough redistribution to keep society’s most powerful groups from concluding that it was time to overthrow the political game board. Better, in the view of many, to get in on the winning side than to go down supporting attempts to reconstruct a system that manifestly no longer worked…
[…]
Stalin and his subordinates saw, after the post–World War II consolidation, that there were five tasks they needed to carry out: First, they had to build the USSR up militarily to defend the territories of really-existing socialism, because the fascist-militarist capitalists might well try once again to destroy world socialism by military means. That was a reasonable notion, given that there were American generals—George Patton most prominent among them—who had wanted to start World War III the day after World War II ended, and ex-president Hoover thought that the United States had quite possibly fought on the wrong side in World War II. Although Hoover deeply regretted that the war had advanced the development of weapons of unbearable power, a president who thought like him might well use those weapons. From the Soviet point of view, more war in the not-so-distant future was a legitimate worry…
[…]
Say what you like about Benito Mussolini, Vladimir Lenin, and others who proposed all kinds of ideas about how to reform after, and indeed before, World War I, at least they were intellectually creative. Very creative.
But the things that were displayed in the shop windows in the marketplaces-of-ideas in the global north in the late 1970s were rather shopworn. On the left, there were declamations that what was going on behind the Iron and Bamboo Curtains in Brezhnev’s Russia and immediate post-Mao China was in fact glorious, and not just glorious—but successful! On the right, there were declamations that everything had in fact been about to go fine when Hoover was defeated in 1932, and that the entire New Deal and all of social democracy were big mistakes. But still, the late 1970s saw the generation of a rough consensus that the global-north political economy needed substantial reform, at the very least: that something in the shop window needed to be purchased…
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The attraction of “the market giveth, the market taketh away; blessed be the name of the market” is very strong. Economies do need, sometimes, structural adjustment to rebalance workers to where future demand will be. There are, sometimes, big depressions. Therefore, said Hayek and Schumpeter—and a host of others as well, from Andrew Mellon and Herbert Hoover and John Cochrane and Eugene Fama to even Karl Marx—big depressions are this adjustment. The story was very tempting. And telling the story that way had the very powerful benefit of pushing blame back from those in charge of the world economy from 2005 on to other, earlier policy makers no longer on the scene…
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What was the effect of the rest of Roosevelt’s “first one hundred days”? It is not clear whether the balance sheet of the rest of that period is positive or negative. A full-fledged policy of monetary inflation and mammoth fiscal deficits that might have pulled the country out of the Great Depression quickly—that did pull Hitler’s Germany out of the Great Depression quickly—was not really tried. Consumers complained that the National Recovery Administration raised prices. Workers complained that it gave them insufficient voice. Businessmen complained that the government was telling them what to do. Progressives complained that the NRA created monopoly. Spenders worried that collusion among businesses raised prices, reduced production, and increased unemployment. Hoover and his ilk declared that if FDR had only done as Hoover had been doing, everything would have been better sooner. In the face of such criticism Roosevelt kept trying different things. If business-labor-government “corporatism” did not work—and was blocked by the mostly Republican-appointed Supreme Court—perhaps a safety net would…