The Duncan Group - Interviews

INTERVIEW SUBJECT: Robert B. Reich

FILM: LANDSLIDE - The Presidency of Herbert Hoover

INTERVIEWER: Tracy Dorsey

This interview was recorded in May 2008 at the University of California at Berkley as part of LANDSLIDE - The Presidency of Herbert Hoover. The documentary is a co-production of the Duncan Group and Stamats Communications. Iowa Public Television is the presenter and flagship affiliate for the PBS system. Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as Secretary of Labor under President Bill Clinton

(* This transcript has been edited due to length.)

In your book Super-Capitalism you explain how capitalism has evolved through the various decades and you talk about the post World War II era, as well as the current era, how would you describe capitalism in the early 20th Century?

Capitalism in the early 20th Century was trying to adjust to a very new phenomenon, the big corporation. Nobody knew exactly how to make the big corporation democratically responsible. Teddy Roosevelt had embarked on trust busting, basically chopping up some of the big corporations. That was very difficult to do. By the 1920's nobody worried very much, the big corporation was still very, very big - democracy was still being overrun by big corporations, but there was so much prosperity. There was so much post-WW I prosperity. Happy days, no strike, start again, it wasn't happy days are here again. The big problem for the 20th Century was how to accommodate corporate power into democracy. We had never as a nation dealt with big corporations, big mass producing corporations that came on stream at the start of the 20th Century. But by the 1920s people stopped worrying very much about it, prosperity, in the post WWI era, was so great everybody was doing very well, kind of no worries for anybody. We put all of those concerns on the back burner.

What was the Federal Government's role in this economic system at the time? What was the primary role?

The Federal Government did not have much of a role in the economic system before the 1930s. The Federal Government still viewed, the economic system pretty much as a state or local phenomenon. There were state laws, governing minimum wages and working conditions, but the Federal Government didn't really have a clear role. Nobody had thought very much about the Federal Government with regard to regulating the entire economy.

And so Herbert Hoover in this period, you know his political philosophy kind of evolved throughout his course as politician, but how would you describe him in the early days of his political life in the '20s and as he assumed office?

Herbert Hoover was a progressive. He was very much out of the progressive tradition, people who thought that the Federal Government did have a major role to make life better for the average person in the United States. He's not remembered that way, but he was a modernizer. He believed in bringing the knowledge about how great corporations were run to Federal Government, making the entire country run better and run well and making the entire economy run like a huge machine, a huge corporation, very efficient. And Herbert Hoover is not credited enough with what he accomplished as Secretary of Commerce, probably the, among the best Secretaries of Commerce ever in history, in terms of bringing the American economy into the 20th Century.

Can you talk about that a little bit more? Some people say he was too progressive. Some people say he wasn't progressive enough. He was very nuanced however in his political views with American Individualism and not wanting the government to actually manipulate business too much. Can you talk about his philosophy of American Individualism?

Hoover did not want government to manipulate business too much. He did not believe in regulations. He assumed that business in association with government, working collaboratively with government could come up with most of the answers to most of the problems that business and the economy faced. He was the one that came up with the notion of putting companies together in associations. The associationists' movement was Herbert Hoover's idea. You create associations in every industry and they help government understand what the industry needs to perform better. Herbert Hoover also understood that in many industries there had to be common standards, common weights, common measures. New industries were developing, the aircraft industry, applications for electricity and if there weren't common weights and measures and standards then there's no way that the industry could develop. So he again, voluntarily thought about putting industry panels together to come up with the voluntary standards. The National Bureau of Standards, for example, was his invention in the Department of Commerce.

You talked about trust busting being a concern in the beginning of the 20th Century and here Hoover is putting all of these businesses together. How did he dance around the issue of price fixing, for example?

The country was not terribly concerned about price fixing by the 1920s. It had been a progressive issue, certainly in the 1890s with the Robber Barons, certainly by the time Teddy Roosevelt became President in 1901 a lot of people were worried about big combinations. But Herbert Hoover decided and the public was behind him that there were some advantages in collaboration among businesses and in industries. Not over prices, no they wouldn't collaborate over prices, but they would collaborate over entry barriers, standards. Who could get into the industry? What you had to do to be a member of the industry? What standards you had to describe to in terms of being a good participant in the industry? Who could be relied on by the public, by consumers and to a large extent by investors?

One of his focuses in terms of associations was the farming community, I know that he put together quite a few farming associations and tried to get the farmers and the middle men to work together collaboratively. Despite the common perception of the 1920s as being a boom throughout, the farming industry was going through maybe an early depression, certainly a slump. Can you talk about that a little bit, how did the farming slump begin?

The farming industry did not share in the prosperity of the 1920s. Farming was still relatively primitive. It was not highly productive. Other industries were becoming more and more productive. The market system particularly investment was not getting to farmers. Farmers were still very small business people, small farms. Herbert Hoover understood that what farmers needed most was, first of all, education, understanding of the latest methods of crop rotation, fertilizers. Herbert Hoover's very interested in getting farmers together in associations that would be able to ask government to help them in progressive ways - to maybe come up with ways to extend new crops, new applications for new plantings, perhaps ways to extend irrigation and to extend new crop land, perhaps ways to improve crop rotations and therefore avoid depletion of the soil. You have to understand, Herbert Hoover had enormous confidence in science and the ability of science and new discovery to solve almost any social problem. And therefore the farming problem was simply one among many problems that Herbert Hoover said well you get together, all the farmers, get together in an association we will bring to bear as a nation, the best thinking about what should be done and the solution will be apparent.

But the problem was it a problem of science or was it an after effect of World War I? I mean what caused the markets to drop out and the prices to drop to record lows in the farming industry at this time?

Farming was not just, the problems that farmers faced were not just problems of lack of knowledge or lack of understanding, or lack of new science. Some of the problems had to do with the prices dropping out of the farm community in the post World War I era. There was prosperity for the rest of the economy, but part of that prosperity was almost at the expense of the farmers because commodities became so cheap.

Tim Egan of the New York Times said that at this point Herbert Hoover, where I guess he is food administrator at this point, introduced price guarantees. So that I think it was wheat for the first time, was the first commodity that he introduced with a price guarantee and that this was a radical departure in Republican free market philosophy. Egan seemed to imply that it was a radical departure from Hoover's association and you know government having a light touch.

Herbert Hoover was not a doctrinaire free market fundamentalist. Herbert Hoover understood that government needed as a very pragmatic way to help industry, when industry was in trouble. For example, farmers needed some guarantees with regard to keeping up their prices. Otherwise they couldn't invest. Otherwise they wouldn't know that they were going to have a market to take the next crop. So Herbert Hoover developed idea of price guarantees for farmers. Now again the free-marketers didn't like this at all, but Hoover argued that as a pragmatic measure it was necessary to give farmers some confidence about what their crops would actually be worth in the future market, so that they could invest in the future. Hoover extended that concept to many other industries, and it was completely consistent with associationalism. You see the idea was you get all of the parties in an industry together into an association. They establish the rules for that association and they also establish some mechanism for keeping their prices up. This became incredibly important after the great crash. This was Hoover's major initiative with regard to dealing with price drops that occurred across all industries after 1929.

In this instance, the government was buying this wheat and then storing this wheat and then couldn't unload it on foreign markets, so was stuck with this wheat and other commodities as time went on, so what impact did this ultimately have? Was it a good thing for the economy? Or did it ultimately over-burden the economy?

Price guarantees ultimately were bad for the economy, government ended up buying a lot of the commodities, a lot of these food and then storing them. What was government going to do with all of this food and all of the commodities when prices didn't meet the guaranteed level that the government had set for them? That got Herbert Hoover thinking about maybe food aid abroad.

And so what did he do?

Herbert Hoover became one of the major and first proponents of providing Europe and providing the rest of the world when necessary with food. The United States became a major proponent of food aid. Nobody had thought about that role for the United States before. Herbert Hoover was the major figure in the United States with regard to humanitarian relief for war torn countries.

This is after World War II correct?

This is after World War, yes. I'll start again. After World War II Herbert Hoover took his humanitarian reputation, which he had many years and became the major proponent of food for war torn countries. Food aid.

I'm getting a little bit ahead of myself, but a lot of people are very confused about Herbert Hoover because when you learn about him you learn about all of this humanitarian work but before he took office and after and it's just astounding, I mean he was such a force, but then reputation he has of being in office is that the great humanitarian became the great scrooge.

Herbert Hoover would have been remembered as a great President, he certainly would have been remembered as a great Secretary of Commerce and probably a very good President, were it not for one very unfortunate thing that happened months after he assumed office in 1929, the great crash. Now it wasn't as if Herbert Hoover was responsible for the crash and it wasn't as if Herbert Hoover knew what to do about the great crash or about the Depression. I mean even Franklin D. Roosevelt who came after Hoover didn't know what to do, but Hoover like any president who is on the watch when the economy suffers, was blamed. And the great humanitarian became the great scrooge.

Talking about the early days of his residency and the stock market crash, one of his big concerns when he took office was the "orgy of speculation" he called it, that was alive on Wall Street and he felt it was aided in part by Federal Reserve policy. Are you aware of anything Hoover did to influence that policy and what was that policy?

Herbert Hoover was very concerned after the great crash about what he called the 'orgy of speculation' that had been going on in Wall Street. There are perhaps some parallels today. But he blamed monetary policy at that time. He blamed Wall Street. He blamed easy money. Now remember the 1920s were, was a period of extra-ordinary wealth, but most of that wealth found its way up to the top. The average citizen didn't have all that much wealth, certainly didn't have enough wealth to keep buying all the goods and services that the economy was producing. Now Herbert Hoover didn't know it exactly, but he was approaching the theory that John Maynard Keynes made famous years later, the theory that there has to be enough aggregate demand to buy up all of the goods and services, otherwise you have a recession or worse and government has got to be the spender of last resort. Hoover didn't know that. Even Franklin D. Roosevelt didn't know that.

Well, the Federal Reserve he was kind of shaking his finger because of the easy money policies there. The Federal Reserve was a young institution. What was their role at the time and what could Hoover have done or what could Hoover do to influence their policy?

The Federal Reserve was a new institution, dated from 1913. It had nominal control over the money supply. It was still feeling its way. It didn't know quite what it was doing. Herbert Hoover blamed it for creating cheap money and creating a boom condition, a speculative market condition, but there wasn't much that the Fed knew that it could do to control the money supply and there certainly wasn't much that Herbert Hoover at that time, in 1929 or 1930 could do to control the money supply or the Fed.

Tim Egan again said at the time that in the fall of 1929 when the market crashed, only about two percent of Americans actually owned stock and David Kennedy has made the same point. So what affect did the crash actually have on the economy? Did it cause the Depression?

The great crash did not exactly cause the Depression. It did have a huge negative affect on capital markets, because suddenly all of the people, and there were very few number of people who were invested in the stock market, but all the people who had been investing in the market, they had lost everything. A lot of the banks had lost everything. There were runs on banks. There was a general feeling of panic in the country. If the stock market collapsed our capital markets couldn't be trusted, what next? Now, Herbert Hoover was in the position that we now know of in hindsight, where he could have asked the Federal Reserve to perhaps expand the money supply. He could of spent much more money, increased federal spending, not worried about deficits, do that, fiscal and monetary policy would have been stimulative, would of, they would of perhaps counteracted these fears, that came from the virtual collapse of the capital market. But he didn't know enough to do that. No economist knew enough. John Maynard Keynes was still developing his theories. There was not the knowledge in the economic policy community that would have told Hoover what to do.

According to Amity Shlaes, the Bloomberg journalist, she said that the Fed and Hoover both seemed to think that we were in an inflationary period, so all of the policies that they were enacting basically were taking money out of the system when actually we were in deflation and they should of been pushing money into the system and that the country literally ran out of money. Do you agree that that's what happened?

You have to understand that the 1920s was a period of extraordinary prosperity. The country had never seen anything like it and so the conventional wisdom of the time was that inflation was the likely problem. When you have that much prosperity you expect prices are going up and even after the great crash, the assumption was well maybe there's still an inflationary problem, maybe that was the real fundamental problem behind the great crash. And so Hoover and the other institutions of government did exactly opposite what they should have done. They pulled money out. They not, they didn't stimulate the economy. They counter-stimulated. They actually depressed the economy by cutting federal spending, by in a sense indirectly reducing the money supply. Well this all made things worse. And including a few years later, I mean the worst thing of all Hoover was very supportive of two congressmen. Congressman Smoot and Congressman Hawley, who wanted to protect the market from foreign competition. Well, if you protect the market from foreign competition you are also reducing sales by American businesses abroad. You are increasing prices to all Americans of everything they purchase abroad. You couldn't do anything worse than the Smoot-Hawley Tariff. Well, you throw in the Smoot-Hawley Tariff, you throw in all of the other backward policies that Herbert Hoover actually concocted because again that was the conventional wisdom at the time and you turned a bad situation into a real full fledged depression.

Can you describe at all then what it was like in a local community? Sales are down, there's no money at the bank, what that was like on a local level in this country at the time?

Most people were in a local economy. They didn't really feel that they were part of a national, certainly not an international economy. They dealt with people on Main St. Their jobs were connected to the local economy. Now suddenly, in your town, you find that it is harder and harder to borrow money. The banks, in fact are in trouble. You couldn't imagine that your own savings in the bank, the little savings and loan, might be in trouble. But yes, rumors were circulating that even your savings might be in trouble and so you run to the bank and you try to get your savings out, but everybody else is running to the bank trying to get their savings out and nobody can get their savings out because of course the bank doesn't have enough money to deal with everybody's savings. And meanwhile, the little town, the major producers in the town that had been relying on buyers in Chicago, buyers in New York for some of the things produced in town, they could no longer have a market. The markets were drying up. Nobody was buying. And suddenly you, in a little town in America, the middle of America, felt that the economy was collapsing, you were losing your job. You were losing your job. You were told that there was no job for you. And one out of four Americans in the workforce discovered that they no longer had a job. Can you imagine the fear? There was no unemployment insurance. There was no social security. There was not even a minimum wage. There was, there was nothing. The Federal Government had no safety net, didn't even think in terms of safety nets. And suddenly everything started to crumble, before your very eyes. You didn't understand it. Nobody was explaining to you. Nobody understood it.

Just to connect the dots a moment and there are a couple of things I want to go back on, there's no money in the local bank because of the stock market crash or for another reason?

There's no money in the local bank, not because of the stock market crash, but because of the, the lack of confidence. You see the stock market crash causes capital markets to get very nervous. The big national capital markets. Now your local bank is only indirectly related to the big capital market, but your local bank depends on making loans for everybody else in the town who has put their money into that local bank. And if people get nervous, that nervousness permeates the entire capital market. You see capital markets very psychological and when the psychology turns negative and people get scared, they want their money back.

Both Tim Egan and, I believe, Jonathan Alter posited that the local banks were part of those two percent who were investing in the stock markets and they had literally lost, many of the local banks had literally lost the money in the stock market.

Most local banks were not directly invested in the stock market. Most of the runs on the local banks occurred because people were simply afraid. They were frightened. They had lost confidence. Now some Americans certainly in your bigger towns and cities did put deposits into the banks and did invest in the stock market and used their savings to invest in the stock market, but more importantly they borrowed from the banks to put money in the stock market. There were no margin requirements as they're called, that is requirements that you have to have a certain amount of money in the bank before you make big investments. And so many very wealthy Americans in many big cities borrowed heavily. They turned around, put that money in the stock market. The stock market collapsed and then those people couldn't pay back their loans. So some of the big banks in our major metropolitan areas, they were hurt badly.

I also want to go back a little bit on Smoot-Hawley. Originally I'm told that Hoover did not really support this. It was a long drawn out fight in Congress and that he ultimately supported it because it was a Republican platform. But over a thousand economists petitioned Herbert Hoover not to sign on, not to pass this law. Why did he ultimately move forward with this law?

Even though most economists were against Smoot-Hawley, Herbert Hoover decided to sign on. He was not originally for it. He did decide to sign on, partly because it was a Republican bill. Partly because he wanted to make it look like he was taking action. You see the public was looking to the President, you have to do something, things are desperate. And members of Congress were saying well at least we should protect American jobs, at least we should protect the country and Herbert Hoover was kind of swept up in that, that wave of doing something by protecting the economy.

Another thing that Hoover did in his term and it's been held up as one of his great mistakes was that he enacted a tax increase at the same time that the economy was in a downturn. What is your position, why did he enact a tax increase? Was this a good move? Was it a bad move?

Herbert Hoover made another great mistake. He enacted a tax increase. Now you don't want a tax increase when the economy is going downhill. A tax increase means the people have less money than they otherwise have to buy all of the goods and services in the economy and already people didn't have very much money. But Herbert Hoover felt it was very important to balance the budget. Now there was kind of an orthodoxy about balancing the budget and he felt and some economists agreed with him, that if you balanced the Federal budget everything would be ok. Franklin D. Roosevelt, running against Herbert Hoover in 1932 also promised to balance the budget.

Why was it important to balance the budget? Why not deficit spend and try to get the country back on its feet?

It was years later that John Maynard Keynes, the great British economist understood and figured out and propagated the belief, convinced people, and he was right, that when demand is drying up, when people don't have enough money in their pockets to buy all of the things, that the goods, the goods and services that the economy is producing, government has got to be the spender of last resort. Government has got to go into deficit. Deficits are good when your facing recessions or depressions. You want deficits, Federal Government deficits. But at the time Herbert Hoover was President that Keynesian orthodoxy had not yet been understood. Instead, there was the old orthodoxy, the old classical economic orthodoxy, which is it's always good to balance the budget. It's always good for governments to balance the budget. We see some of this orthodoxy coming back now but it's nonsense.

I still struggle with the concept of the gold standard. Was balancing the budget a part of maintaining the gold standard and if so what was the importance of the gold standard?

Balancing the budget was related to the gold standard and the gold standard was related in turn, to the idea that dollars had to mean something. Dollars couldn't just be pieces of paper. If you don't, if you didn't have a particular amount of gold behind every dollar then there would be a temptation to print too many dollars and inflation would be the almost inevitable necessary result. Years before a lot of Midwesterners, farmers and others who were almost invariably in debt to Eastern bankers, wanted to get off the gold standard. They wanted to go on the silver standard because silver was in much more greater abundance than gold and they figured if there was a silver standard, then dollars would be worth less, then their debts could be more easily paid off. William Jennings Bryan, the great prairie populist, had run for President on the proposition that we should move from gold to silver. He was, he said 'we shall not be crucified on a cross of gold'. But actually it was about inflation versus keeping the value of the dollar and the Easterners prevailed and that orthodoxy that you want to keep the dollar and the gold standard was the orthodoxy right through the Hoover administration.

Please summarize the answer you just gave regarding Herbert Hoover and the gold standard.

Balancing the budget was related to maintaining the gold standard. The gold standard was the simple proposition that a dollar had to be backed by a certain amount of gold and if not you risked inflation. Now this all came from thirty years before, forty years before, a lot of Midwesterners were very much indebted almost perennially indebted to Eastern banks. They wanted to go off the gold standard and onto the silver standard because silver was more abundant and they felt that if you went on the silver then the dollars would be cheaper. They could pay their debts back more easily. Inflation was something that they actually wanted if you were a Midwesterner and had all those debts. Even William Jennings Bryan, the great prairie populist who ran for President said, 'We will not be sacrificed on a cross of gold.' But by the time of the 1920s Hebert Hoover had absorbed what was the conventional Eastern establishment understanding and that was that you had to have a gold standard. You had to have dollars that were backed by gold. It was the only way of preventing inflation. And that together with balancing the budget framed the understanding of what government and what the Federal Government needed to do to maintain the economy, maintain order in the economy. It was wrong. But that was the understanding at the time

Was Hoover trying to reinstate confidence and say that a dollar really does have value? In some ways was he on the right track or did it just misfire?

Hoover wanted to restore confidence. He knew that the great crash took a great toll in terms of the confidence of Wall Street and indirectly the confidence of average Americans with regard to the banking system and indirectly with regard to aggregate demand all over America. He understood intuitively that confidence had to be restored and so he turned almost naturally to the economic orthodoxy of the time, which was balancing the budget, maintaining the gold standard - thinking that all this would restore confidence. The fact is nobody knew why the Great Depression was upon us. Nobody knew why the great crash had occurred. Yes, there was speculation on Wall Street. Yes, there had been extraordinary growth and extraordinary prosperity during the 1920s. But nobody, nobody has a good idea what was going on.

What was going on? What did cause the Depression?

Two things caused the Depression. There were many, it was a perfect storm. There were many other things that caused it, but two big things. Number one there was rampant speculation and that rampant speculation, even though it was not a large portion of the population that were speculating, it was a large amount of money. And that speculation was based on almost no margin. Everybody was very highly leveraged. There was a lot of debt and that inevitably caught up with the Stock Market. But on top of that you had huge prosperity but not that many people were sharing it. The average person was doing better but not that much better. And so that all of the goods and services produced by the American economy could not find a market with regard to Americans who didn't have enough money in their pockets to buy all the goods and services. Yes, the very rich had money but the very rich didn't need all the goods and services. That that's what it means to be rich - you already have most of what you need. Exports could not nearly take up the slack and once The United States put up export barriers, The Hawley-Smoot Tariff, then everything began to fall apart.

Hoover very early on 1930, 1931 said that the roots of the Depression were in the global markets, that this was not an American problem. What's your view on that?

Hoover did say that the roots of the Depression were global that it wasn't just an American phenomenon. And he was right to a large extent. But he got cause and effect a little bit wrong. He said or thought that it was because Europe was in a recession and elsewhere Asia was in recession, that America kind of caught the disease and it turned into a depression here. Actually that's not quite the right cause and effect. Europe never recovered much of Europe never recovered from World War I. Remember Germany was paying reparations deep in debt to the Allied Powers right through the 1920s. No America and America's recession that turned into a depression caused the rest of the world to go into an even deeper recession depression. And that had a kind of backlash effect on the United States because who could buy our goods and services?

The country did ultimately go off the gold standard I think that it was Nixon who took us off but if I recall FDR played with it.

The country ultimately went off the gold standard. Nixon took us off the gold standard. There was a lot of economic support behind moving off of the gold standard. Letting the dollar float according to global demand for dollars. Made a lot of sense. Franklin D. Roosevelt flirted with the idea but there was not nearly the economic consensus at that time. There was still in the 1930s the notion that you wanted to keep the dollar exactly with regard to a certain amount of gold. You didn't want to depart from that at all for fear that you would start losing, the dollar would start losing its value not only domestically but internationally.

Hoover initially enacts policies that pull money out the economy, but ultimately he starts making loans to small business owners and loans to banks to keep banks solvent. He never has a stimulus program that gives money directly to the consumer.

Herbert Hoover eventually started giving money to the banks. He started giving money to small businesses. He started creating a lot of loan, loan windows, lending windows. Now nobody in the Federal Government had ever done any of this before. This was all innovation. These were innovations that were taken up by Franklin D. Roosevelt in the New Deal. In fact, you can trace almost everything that happened in the New Deal with regard to the economy to Herbert Hoover. But Herbert Hoover did not give money directly to individuals. That's partly because there was not the widespread understanding that the fundamental problem was that people didn't have enough money to buy things. And it was secondarily because it just was so foreign, so foreign to the notion of government. And whether it's Republican government or even Democratic government for the government to put money in people's pockets how could that possibly be? Why would that help? At least that's what people in the 1930s thought. What are you doing there's no mechanism for doing that and how can you possibly go about doing that? The Federal Government has no business putting money directly in people's pockets. In fact, Herbert Hoover was criticized quite passionately by many business people, big business people, and also many economists for lending so much money to small businesses and to the banks.

Why so? Why didn't they believe that these actions could jump start the economy?

Put your self back in the minds of people who had gone through the First World War, the Roaring Twenties and now this complicated, confusing, awful 1930s. What was the role of the government? What was the role of the Federal Government? Nobody knew. Was it to intervene in the economy? Most people assumed and most reasonable economists and most business leaders assumed - to balance the budget, to keep the dollar safe and on the gold standard, but to turn around and lend money? Why? Keynesianism, the idea that government had to be the spender and lender of last resort had not even been invented, had not even come on the scene yet. Why would government be lending money? Now today we say, of course, to stimulate the economy. But even the verb to stimulate the economy had not yet been invented.

In Congress there were senators and representatives who were saying some of my constituents are actually starving. Hoover put in place programs to lend money to provide feed to animals, but he didn't have programs that offered support for individuals and families in those same communities who were starving. He was the Great Humanitarian. On a humanitarian level why was our government not doing more to help the average citizen?

The great paradox of Herbert Hoover was that he had a reputation, a justifiable reputation, as being the Great Humanitarian for his work in World War I and for his work even as Secretary of Commerce under Calvin Coolidge. But when it came to Americans in the Great Depression who starving, families who just simply couldn't make it, Herbert Hoover could not see how the Federal Government could go about handing out food or clothing or money to families. He understood industries. He understood business. He understood how if businesses improved and if businesses were prosperous everybody who worked for those businesses and the families who were dependent on the breadwinners who worked for those businesses would be better. But he could not get into his head the notion that the Federal Government had a role to play in direct humanitarian aid to hard stricken families.

This goes back a bit to his philosophy of American Individualism and that communities should take care of themselves and that there was a voluntarist instinct that Americans had. Also that Americans were completely unique in the world. Can you talk about American Individualism?

Herbert Hoover understood something about America that made America unique in the world. It was the same thing that de Tocqueville, the French sociologist, really a French clerk who came over in the 1830s and wandered around America and wrote that wonderful book, Democracy in America, probably the best book ever about America, understood and that is America was and to some extent still is a nation of communities, communities that were neighborhoods, that communities that took care of each other, communities that basically were charitable. And through voluntary activity, through voluntary charitable activity, communities took care of their own. This was deep in the American spirit. This is what America was in the 18th Century. What the beginnings of America were in the 17th Century. This is what Herbert Hoover found when he was growing up. He came from Quaker parents. This was the Quaker philosophy. This was years later expressed in Norman Rockwell paintings. America was a nation of communities. So when it came to people who were starving or families who were in need, Herbert Hoover assumed that individuals in communities through their voluntary actions would take care of each other. It was not the job of the Federal Government.

Was that a philosophy that worked during the Depression?

The philosophy of individualism and even communitarianism, communities taking care of their own, it's a nice philosophy. I think we all romanticize about the American community, but during the Great Depression it made no sense because communities had no resources. Entire communities were wiped out. One in four wage earners was without a job. Which meant that most of town, your American towns, most cities simply just didn't have the capacity to take care of everybody else. People were lucky if they could take care of their own. And so there was a crying need for government intervention to help individual families in trouble.

Was he just too insulated in the White House? Did he just not understand? He stuck to this principle for a very, very long time.

Herbert Hoover stuck to the principle that individuals and families and communities could and should take care of themselves even as the Depression got worse and worse. I think that he clung to the belief that it would turn up, that the Depression can't go on long. That it's just a very severe recession that actually America will do better. He was a businessman. He assumed from his understanding of history that these things were cyclical and the economy would bounce back. And so given those sets of assumptions, given his deep belief in communities and in kind of the charitable impulses of America, he just did not feel that it was necessary to do something that the Federal Government had never done before. It was almost as if he was lacking in imagination. He just couldn't see the possibility for the Federal Government to actually give money. Give handouts. Give food. Give humanitarian assistance directly to families in need. It was partly that he was isolated in the White House, I think, partly that he was isolated in the business community. His advisors were all telling him things would improve. Try this. Try that. It was a true blind spot.

At the time there was Pulitzer Prize-winning writer Nicholas Murray Butler who said that 'our very democracy was threatened by the Great Depression.' You talk in Super-Capitalism about how now democracy is being challenged by the current economy. What kind of tests was democracy undergoing at the time of the Great Depression?

Democracy is a fragile thing. We take it for granted but to have a sustained democracy in which representatives of the people, true representatives of the people are making decisions that the people feel are in their best interests, is rare in history. Now when the nation is in very, very trying times economic difficulties such as the Great Depression Americans because they are very nervous and anxious they want solutions and they turn often or they could turn to demagogues, Huey Long, for example, people who promise them easy solutions who blame others for the Depression, not the system itself. Who want to blame whether it's historically Blacks or foreigners or the poor or elites or government itself or corporations or Jews. There are always scapegoats whenever countries and societies face economic difficulties. And it's in those periods of time where democracy and the democratic system itself is tested most, because those demagogues almost inevitably attract a lot of followers who just want the trains to run on time, just want food for their families. Don't care about anything else. And so in this time of testing democracy, American Democracy survived. It survived the Great Depression. Others succumbed. Around the world others succumbed to Fascism, Totalitarianism, Totalitarian Communism or worse - we kept our democracy. That's a tremendous achievement.

Why do you think we were able to and others couldn't?

We were able to keep our democracy through the Great Depression because government was understood as being there working for people. Working for the common person. Now Herbert Hoover gets a bum rap in this regard. I think that he did not believe in direct handouts to people. He did not believe in government's capacity or the appropriateness of government actually giving money to people, but he was very inventive. He did believe in government intervention in the economy, did not think the economy was perfect by any stretch of the imagination and much of the New Deal, Franklin Roosevelt's New Deal, was built on the foundations that Herbert Hoover laid. Franklin D. Roosevelt did go one step further, did provide people with not only hope, Herbert Hoover was not a great charismatic figure, Franklin D. Roosevelt did talk to people directly. Those fireside chats had enormous positive impact on the American psyche. But Roosevelt also believed in giving money out to people, helping people directly. It wasn't until the Second World War, it wasn't until America had no choice but to go deep in debt and to use it's entire productive capacity for wartime purposes that we got out of the Great Depression. Even Franklin D. Roosevelt did not understand Keynesianism, did not understand the principles that John Maynard Keynes was advancing. In a time of depression when the country's economic capacity is not being utilized, when you have so many people out of work you've got to spend money. You've got to reduce taxes, you've got to do something, do anything, but it was the government's continuous effort to do at least something that I think kept the faith of the people.

Hoover won by a landslide in 1928 and then along comes the 1932 election. Some believed at the time prohibition was still the main issue of the election. What do you view as the main issue?

In 1932 Herbert Hoover was thought to be just a fabulous politician, I mean he won by a landslide in 1928. He ran against Al Smith, very, very popular New Yorker. Now there was an issue of Al Smith's Catholicism in that election, but Herbert Hoover had established himself as a great humanitarian, a great Secretary of Commerce, he was in the middle of everything the Coolidge administration had done. His face is, his face was on the, in the newspaper headlines, in the newspaper front pages and his, let me start again. Herbert Hoover won the election of 1928 in a landslide against a Democrat, Al Smith. Partly that was because Smith was Catholic, but Smith was very popular. I think Hoover won in a landslide because he was so well known and so popular himself. He thought of government from the standpoint of being an engineer and did so many things. I mean almost everything that the Coolidge administration of whom, of which, Hoover was a part, everything that the Coolidge administration did had Herbert Hoover's name on it. His name was in the newspapers constantly. His face was in the newspapers. I think he was almost better known than the President, better than Calvin Coolidge. So by the time of the '28 election he was the natural. But he lost the next election in 1932. Why? The economy was in shambles. Franklin D. Roosevelt promised change. Franklin D. Roosevelt was charismatic. Franklin D. Roosevelt was a new face. Franklin D. Roosevelt promised that it was possible that happy days were here again and the public looked at where it was and said to Herbert Hoover, I'm sorry you're fired.

I've got two more questions for you. One is what lessons, now you were just talking about change and charisma, what lessons are there to be learned about today from what the nation and what the economy went through during the Great Depression?

There's several. There's several lessons to be learned from what the nation and what the economy went through in the 1920s, 1930s, the Great Depression. Number one - we've got to be concerned when despite what looks like prosperity, most of the benefits of the economy go to the very top - the rich get richer and most people maybe do a little bit better, but there's not enough demand, they don't have enough money in their pockets to buy all the goods and services that the economy is producing. That's what happened in the 1920s that contributed to the Great Depression and unfortunately there are parallels in terms of what's been happening over the last 20 years. The other thing we need to understand is that an economy that is based on debt, leverage, just the speculation that went on in the late 1920s on borrowed money, on other people's money, is dangerous because there eventually is a kind of day of reckoning. You can't just borrow more and more and speculate more and more because eventually that speculation is going to be a balloon that pops and eventually those debts have to be repaid. And eventually the people to whom you owe the money will not be paid and they will have to lay a lot of people off and the economy will suffer. Again, there are parallels between what happened in the late 1920s and early 30s and what is happening now. A third lesson is don't feel that protectionism is the answer because if you simply lift the gate and say we're going to recede from the world economy, we're going to secede from the global system of goods and services, you make things much worse. You may think you're protecting jobs but actually you are making everything more expensive. You are reducing the possibility of jobs because people just can't afford what needs to be bought and what they need to buy. And fourth you need leaders who are experimental, who are not doctrinaire, who are pragmatic, who are not doctrinaire liberals or doctrinaire conservatives, who in times of stress are willing to try things now they may not work. You try something. It doesn't work. You stop it. You experiment. You've got to be willing to experiment and you have to be also, and we saw this because Herbert Hoover wasn't and Franklin D. Roosevelt was, a great communicator. You've got to give people confidence that somebody up there at the top is, is trying hard on their behalf and the people around that person also care.

You touched on one of my next questions because I was going to make it a two-parter, was what lessons do we learn from Herbert Hoover's personal experience in the White House? What should his legacy be? How should we view him then as President?

I think history should view Herbert Hoover as a great Secretary of Commerce, somebody who understood government's role in supporting industry, up to a point. We don't want big subsidies for industry, but occasionally there are times when some bailouts may be appropriate. I think we should understand that Herbert Hoover was up against something that the country had never seen before, a perfect storm in terms of the stock market crash. A country that didn't have enough money to buy the goods and services it was producing. A government that didn't have the machinery to stimulate aggregate demand and understand that Herbert Hoover did with this small set of cards he had, fairly well, that he was the predecessor to the New Deal, many of the experiments that Franklin D. Roosevelt tried had been tried by Herbert Hoover initially. That he was a failed President, partly because he couldn't communicate very well, didn't have charisma, partly because he didn't give people money or aid or food directly, was not the humanitarian he could have been directly for the American people. Partly because he and indeed nobody, even Roosevelt, understood how important it was for the government to be the spender of last resort. To just spend money on infrastructure, spend money on project that needed to be spent in order to get the economy going again. That was not something Hoover understood, it wasn't something that even Roosevelt understood.

And yet Roosevelt just tried everything?

Roosevelt, came to office in 19, January of 1933, the depths of the Depression, did not understand Keynesian economics. Knew that the country was in deep, deep trouble. Knew that Hoover had failed, the country desperately wanted a new leader and somebody who would experiment, who would just try things. Try anything. And Franklin D. Roosevelt had enormous energy and he brought into Washington people with enormous energy, his cabinet and his advisors. Washington had never seen anything like it. It was like a tornado of activity. And much of it didn't work. Much of it was for naught, but at least it was activity and it gave the people some hope and some optimism and eventually it did work.

Hoover's philosophy was basically to leave it to the public, leave it to the private industry; does that admonition apply to his time?

Yes, it does, let me say. Herbert Hoover believed that we could rely on private industry. Private industry may be bolstered by government a little bit, private industry perhaps given the license to come together and form plans that if we just allowed industry to do what industry does well then the country would do better as a whole. It was a kind of an early version of trickle down economics from businesses standpoint. Well what I think Herbert Hoover did not understand is that business exists to make a profit. Business does not exist to be a voluntary charitable institution. Business wants to make a profit and most of the time in its profit making capacity, business also creates public benefits in the form of new products, new services. Competition among businesses is good for the public because we get great deals and investors get great deals and we get better products and services - the more competition, the better. Herbert Hoover believed that if you put businesses together, reduced competition and gave them kind of the mandate to plan their industry for the public's benefit that the public would come out the winner. Well, maybe there are certain rare times, maybe there are times when the stresses on the nation are so huge, war, perhaps depression, when you can trust businesses to come together and business executives to come together and plan for the good of the nation, but that's a huge gamble, that's not what their job is. Their job is to compete. Their job is to make new goods and services. Their job is to make a profit, not to understand the public interest, that's government's job.

And then at his time, he wasn't accepting of that job so the public was left to fend for themselves.

Because Herbert Hoover placed so much reliance on business and so much reliance on this vision of businesses coming together and planning and having a little support from the government and basically lifting wages and lifting prices and doing all of the things that needed to be done to, in Hoover's view, get us back on track, get the economy back on track. The public was actually left out in the cold in the final analysis. Herbert Hoover placed far too much reliance on business. He understood from the standpoint of being the Secretary of Commerce that businesses coming together could develop common standards and common measures and could be relied on to develop in ways that industries should develop. Sort of a sense of how an industry could map it's future. But he underestimated a) the importance of competition, in terms of keeping businesses honest and b) he overestimated the importance of business in coming to the aid of public in ways that only government fundamentally can do.