Continuing on with the national scene during the Hoover administration:
Wall Street Crash
When I was in high school, early in the semester, one day in October, our history teacher told us about Hoover and his proclamations that poverty was almost eliminated. Hoover said, “Given the chance to go forward with the policies of the last eight years, we shall soon with the help of God, be in sight of the day when poverty will be banished from this nation.” Our teacher told us that, when politicians start talking like that, it’s probably time to head for the hills. He read some overblown prosperity quote from a politician of the day and suggested that the economy might be ripe for a crash. Black Monday happened a week or two later. Mr. Johns had our attention. It wasn’t long after Hoover’s poverty-banishment speech that the Wall Street Crash of 1929 took place.
On December 3, 1929, President Hoover announced to Congress that the worst effects of the stock market crash were behind the country. They were not. I’m not going to be able to explain the causes of the Depression with any level of detail or authority, but in part, it was caused by a speculative bubble on Wall Street. Money is meant to be a proxy for value. It is a sort of battery for storing wealth. When you’re bartering, you have to get kind of lucky and match two people who need what the other person has. Money allows that match to take place over space and time and innumerable people. A critical component in this system is trust that when you trade your value for money that you’ll be able to get comparable value when you go to trade your money for goods and services later on. With a bubble, money becomes detached from the underlying value it’s supposed to represent. People are essentially betting on the momentum of the market. Eventually, the distance between monetary valuation and actual value becomes too great, people stop trusting that money will hold its value into the future, and the lack of trust becomes a self-fulfilling prophecy. Markets crash and take down productive activity with it. People become much more cautious about how they’ll spend their money, and the crash throws sand into the gears of economic activity. You have people who have the ability and inclination to create goods and services, and you have people who really need those goods and services, but you can’t match them up. The money stops flowing. Then the people with the need can’t find markets for their own goods and services, can’t acquire the money they need to buy goods and services from others, and consequently can’t afford to buy from others. It’s a vicious cycle — sort of the flip side of the bubble. The amount of money flowing is not well matched as a proxy for the potential value in the system.
During the Depression, the mismatch between the flow of money and the potential value in the economic system was not well-served by the economic schools of thought that set a premium on government non-intervention in the economy and balanced budgets. This was not confined to the United States. The world economy had become interconnected enough that it was a worldwide problem. Economic troubles assisted the rise of totalitarianism.
In 1932, about 43,000 marchers made up of World War I veterans and their families camped near Washington D.C. They came to be known as the Bonus Army. The Great Depression had thrown them out of work, and they were demanding that they be paid their World War 1 “bonus.” In 1924, Congress passed legislation that gave veterans additional compensation for World War 1 service that amounted to $625 in 1924 dollars (about $7,900 in present money) plus interest. The catch was that they were issued certificates, payable in 20 years. In 1932, the veterans were demanding that the bonus be paid now rather than in another 12 years. At one point, after the marchers had been camped out for 6 weeks or more, the D.C. police tried to disperse the crowd but were hopelessly overmatched and shot two of the veterans. President Hoover ordered the army to clear out the veterans. Douglas MacArthur, George Patton, and Dwight Eisenhower were involved in the action.
Infantry and and cavalry supported by six tanks were dispatched with Chief of Staff General Douglas MacArthur in command. Major Dwight D. Eisenhower served as his liaison with Washington police and Major George Patton led the cavalry.
By 4:45 P.M. the troops were massed on Pennsylvania Ave. below the Capitol. Thousands of Civil Service employees spilled out of work and lined the streets to watch. The veterans, assuming the military display was in their honor, cheered. Suddenly Patton’s troopers turned and charged. “Shame, Shame” the spectators cried. Soldiers with fixed bayonets followed, hurling tear gas into the crowd.
By nightfall the BEF had retreated across the Anacostia River where Hoover ordered MacArthur to stop. Ignoring the command, the general led his infantry to the main camp. By early morning the 10,000 inhabitants were routed and the camp in flames. Two babies died and nearby hospitals overwhelmed with casualties. Eisenhower later wrote, “the whole scene was pitiful. The veterans were ragged, ill-fed, and felt themselves badly abused. To suddenly see the whole encampment going up in flames just added to the pity.”
By the time the election of 1932 rolled around, the public was not thrilled with Hoover in particular or Republicans in general.
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