Was Hoover a Free Marketeer?

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Submitted by thesilentconsensus on Sat, 2010-03-13 20:00.

Herbert Hoover was an awful president. He caused economic disaster. Everyone agrees on that. Beyond that, many seem to argue he caused disaster by what he didn't do. In other words, he was a free marketeer who wanted to just let everything run its course, and that's how we got economic disaster. In reality, he was largely an interventionist, and the problem was caused by much of what he did.

John Nance Garner, FDR's running mate, said Hoover was,

leading the country down the path of socialism

and FDR accused Hoover of

"reckless and extravagant" spending and for thinking "that we ought to center control of everything in Washington as rapidly as possible,"

Source: FDR's Disputed Legacy, P. 4

FDR and Garner were largely correct, for the following reasons:

1. Smoot-Hawley Tariff Act: Passed in 1930, it raised tariffs a fixed number on certain items, not by a %, but by a $ amount. The argument was tariffs would force people to buy more things made domestically, and solve the unemployment problem. The problem is, trade is a two-way street, by definition. When we enact tariffs, consumers lose (higher prices, and less money to spend on other things), the company the consumer would have bought from with that extra money loses, the workers of that company therefore lose, the foreign exporters lose from less business (obviously), and the American exporters whom the foreign exporters (or people in that country) would have bought from lose. Exports and imports are directly related; if one goes up, the other goes up, and the other way around. Just as we stopped buying their products, they stopped buying ours, which not only exacerbated unemployment, but continued directing our capital and labor to uses less efficient than if we had open trade. That alone makes Hoover an interventionist, but he did more

2. Subsidy programs. In just a year, he increased federal government spending as a % of GNP by a whopping 5.1% (and ran a $2.2 billion deficit. $31.36 billion in today's dollars). The Agricultural Marketing Act established subsidies to stabilize crop prices, the Reconstruction Finance Corporation gave billions more in subsidies. When these subsidy programs were not working, he doubled, redoubled, and expanded them; see Emergency Relief and Construction Act

Subsidies, by their very nature, take money from what people value more and put it toward what people value less (excluding positive externality subsidies). When people do not buy from somewhere, they are sending a message: you're wasting resources. Sell us what we want, or get out and someone else will. To subsidize the company wasting resources is to prevent capital and labor from going to more efficient uses.

Rex Tugwell, one of the New Deal's architects said practically the whole New Deal was

extrapolated from programs that Hoover started

Other source for 2: A History of the American People (pages 740-1)

3. Revenue Act of 1932: A huge tax increase, increased the top bracket from 25% to 63%. The estate tax was doubled. A 13.75 tax was put on corporations' net income.

Much is talked about taxes reducing productivity, and in counter, much is said about no one refusing extra money because of the tax bracket they will enter. They are both true. If, saying the top rate was 65% for simplicity, I was given a $1,000 raise when in the top bracket, I'd accept it, because I'd still have $350 more. That only applies to situations when the money is guaranteed. An example that applies less: would I be willing to work longer to get $1,000 more but only keep $350 of it. Is the extra sweat that produces $1,000 more worth it if I only get $350? That is hard to decide

Then the next degree, we have the question of risk. If I wanted to start up a new company, or invest in a company and help create jobs in it, would I be willing to risk my time, money, and energy, if I have to bear 100% of the losses, but only get 35% of the return? In those cases, the money is uncertain, and I likely would not make that investment when I would have if I got to keep more of the return. When reducing returns without reducing risk, we end up with less investment.

Hoover was not a free marketeer. He was an interventionist, he caused the economic disaster with much of what he DID.

thesilentconsensus's blog »

Libertarians and Hoover, Progressive Taxation...

#8148 On Tue, 2010 03 16 02:24 ka1igu1a said,

I think most libertarians, at least those who have any familiarity with the Austrian School, are quite aware of the points you covered above regarding Hoover.

Regarding taxes; of course taxes reduce productivity, after all, taxes are, and always have been, a form of tribute and theft. Of course, the other side of the coin is that property, ultimately, is theft as well. So I take a Georgist position that sees legitimate governance as funding itself primarily through ground rents. Anything above that, other than perhaps nominal but uniform user fess and/or perhaps occasional forms of Pigovian taxes, results in the application of a class analysis of political and State power. Taxes on labor and capital are theft and tribute.

In a sense, I think libertarianism, at least radical libertarianism, could be recast in Marxian terms if you just substituted "monopoly capital" for "capital." For the Marxist, capital itself, defined as the value of surplus labor, requires the enforcement of the State to persist and exist(otherwise surplus labor value would tend toward zero). For the libertarian, the existence of capital does not require the enforcement of the State, but monopoly capital does. With that distinction in mind, then we could actually proceed with a type of Marxian analysis. Progressive taxation can be viewed as a dialectical process to fund an enforcement hierarchy to protect monopoly capital. It's willingly paid protection money against "creative destruction." The so-called "social safety net," well that's not funded from capital, but from a tax on labor. Workers are forced to tax each other to provide for their retirement and medical care. As the political economy shifts from production to finance, the ownership society, that is, worker vestment in financial assets(value of monopoly capital), offsets the loss of production. Meanwhile, a growing bureaucracy, enforcing the increasing complex hierarchy necessary to protect monopoly capital, consumes more and more resources for it's own self-preservation.

In short, monopoly capital feeds a growing State that accentuates class conflict, rather than reducing it. Although I would say that this a bit of a simplistic analysis overall, it's probably, in the end, much more of an accurate predictor of the evolution of the State than the traditional Marxian one. Marxism views progressive taxation as a correction to monopoly capital, while radical libertarianism would say it's a con job, indeed a necessary step for the preservation of monopoly capital.

So, perhaps a different way to look a bit askew at the idea of progressive taxation without having to resort to typical supply-side arguments. One should note that supply-side tax cuts are not the libertarian solution; the libertarian solution is to get rid of the monopolies. Supply-side tax cuts always seem to accompany an expansion of government on the cheap and then no one complains. It's almost like the mirror inverse of the end of the communist manifesto. Identify the problem, but in the meantime, advocate a cut in marginal tax rates...oppressed serfs unite around a higher IRA deductible, you have nothing to lose but your tax exemption...

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