Large-Scale State

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Government Response to the Great Depression

Hoover thought that the primary role of the federal Government should be to co-ordinate private, state and local efforts rather than launch major initiatives of its own. A Federal programme would unbalance the budget, weaken local and state governments, create a permanent class of public dependants, deprive the individual of a sense of responsibility and destroy the nation’s moral fibre. The key to recovery was restoring business confidence, which meant avoiding unsettling actions and balancing the federal budget. The Government view was summed up by Treasury Secretary Andrew Mellon who said, “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.”

  1. Failure of the self-help ethic

It became obvious very quickly that the institutions to which working class families traditionally turned to in times of trouble – churches, ethnic associations and unions - were unable to deal with mass unemployment and its effects. Private charities and local authorities proved incapable of handling relief of such dimensions.

How did this affect those in need?

The winter of 1930/1 saw relief payments halved and those given wholly inadequate. Cities began taking desperate measures. Many discriminated against non-whites. By 1931, most local Governments were running out of money for relief. Charities were providing only 6% of the aid needed and State and local Government agencies could not even begin to provide the shortfall. States were receiving less in taxes as unemployment rose. They had to cut rather than expand their services. Michigan reduced funds from $2 million in 1921 to $832,000 in 1932. In Arkansas, schools were closed for 10 months a year. Teachers in Chicago went unpaid during the winter of 1932-3. Hoover refused to commit federal funds for basic needs and so many needy families were dropped from relief rolls. The inevitable result was that many people went hungry. Fortune Magazine estimated in September 1932 that 38% of the total population was receiving no income. According to one survey, in 1932 only 25% of the jobless were receiving aid. This did not include the 11 million farm workers, many of who were in difficulties.
Charities naturally suffered a decline in their revenue during the Depression; at the very time there was most pressure on their funds. Informal self-help was helping a little more. Unions and community organisations established programmes to aid the unemployed. In Seattle, the Unemployed Citizens’ League organised self-help on a large scale. The unemployed were allowed to pick unmarketable fruit and vegetables by nearby farmers, and to cut wood on scrub timberland. Food and firewood obtained in this way were exchanged with barbers who cut hair, seamstresses who mended clothes, carpenters who repaired houses and doctors who treated the sick. In Pennsylvania 20,000 unemployed miners, working in teams, dug coal from company property and sold it in local towns cheaper than their previous employer could. When, in 1934, the coal company took them to court local jurors would not convict them and local jailers would not imprison them.
Hoover was reluctant to admit failure despite evidence that the President’s policies were not working. He believed that the country’s problems were psychological more than economic, so issued a stream of reassuring statements.

  1. Government policies

Hoover was not the mean-spirited, callous man depicted by his opponents, but a sensitive soul who cared deeply about people’s sufferings.

    • He constantly gave generously to charity, cut his own and state official salaries by 20% to help provide revenues for recovery measure and in public he was optimistic. In March 1930 he said, ‘All the evidence indicates that the worst effects of the Crash upon unemployment will have passed during the next 60 days’. This led many to say he had lost touch with reality. When he told the press that unemployment was falling, this created considerable resentment among many of the jobless. The result of his constant public hopefulness was that he gradually lost all credibility.

    • However, Hoover could not abandon his idea of self-help and voluntary co-operation. The President was still adamantly opposed to direct federal relief to individuals.

When the Depression began in 1929 Hoover was sure that the formula of hard work and minimum interference from Government that had worked so well in the past would soon restore prosperity. However, as the economic situation deteriorated he realised that the Government would have to do something to provide relief for the poor and encouragement for business and industry.

  • Secured a pledge from employers to maintain wage rates and avoid redundancy

  • At Hoover’s request, Congress voted $423 million for a Government building programme to provide new jobs. One scheme was the construction of the Hoover Dam on the Colorado River.

  • Attempted to stabilise and bolster grain, cotton and other agricultural produce prices through newly created federal farm bonds. Surplus produce was bought at the commercial rate. However, by 1932 the Farm Board had spent its budget of $500 million and grain prices fell again. It did not have a big enough budget, and the efforts to persuade farmers to reduce production voluntarily went unheeded.

  • Tried to reduce foreign competition by raising tariffs. The Hawley Smoot Act of 1930 increased tariffs by 50% on many farm products and manufactured goods imported from foreign countries. However, foreign countries retaliated by raising tariffs on American goods entering the countries and trade fell.

  • Released gold to support the dollar and expanded credit facilities. Hoover worked tirelessly to combat the Depression.

Reconstruction Finance Corporation (RFC)

In January 1932 the Reconstruction Finance Corporation (RFC) was created. It was Hoover’s most radical measure to combat the Depression.

  • The RFC lent state and municipal Governments $1.5 billion for public works and a further $3,000 million for relief. Eligible states had to declare virtual bankruptcy and the works undertaken had to produce revenues that would eventually pay off the loans.

  • Provided loans totalling $150 million to businesses, in order to enable them to increase employment.

  • Authority to lend up to $2 billion to rescuer banks, insurance companies, railroads and construction companies in distress. Designed to restore confidence particularly in financial institutions. 90% of loans went to small/medium banks, 70% in small towns.

  • Critics saw the RFC as giving direct relief to businesses while offering nothing to individuals in distress. The Government argued that the largest businesses were the biggest employers so it made sense to help them in the war against unemployment.

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