Hebert Hoover was President of the United States from 1929 to 1933, after very prosperous years. Unfortunately, eight months into his presidency in 1929, there was a downturn in the economy known as the “Great Depression” which started with the stock market crash when millions of shares were sold for much less than their worth.
Because of the bad economy, federal government received less money in tax revenues and It was spending more money. In the first few years after the depression started, Hoover did not increase federal intervention because he thought that government intervention meant stepping towards socialism. He was inclined to give indirect help to banks or local projects but refused to use federal money to aid citizens. He felt that direct aid would weaken the morale and would seem to help in the short term but would be ruinous in the long run. Socialist institutions would devastate the country’s foundations. Nevertheless, he believed that by boosting agricultural production and subsidizing farming the economy would improve creating new jobs. However, foreign international trade was not adjusted accordingly and the surplus production flooded the economy. As a result agricultural prices went down worsening the depression which was by hereinafter called the “Great” Depression. International trade policies would have played an important role in saving the economy, but he increased the tariffs (taxes to foreign goods) leaving little room for negotiating with foreign countries the interchange of products at low prices.
Moreover he believed that using government power was not the thing to do and that by keeping high wages, the citizens spending capacity would help the economy but it actually sunk the companies in deeper crisis.
What reasons could be given for the government getting involved?
Hoover, however, decided at the end of his presidency that a drastic action was needed and he opted for “the Hoover New Deal” which included lending tax money to firms, banks and other institutions to reconstruct their finances; giving direct loans to state governments for relieving the unemployed and other timid federal intervention.
In fact later aggressive government intervention pulled the country out of depression. President Franklin Delano Roosevelt signed a set of New Deals which were a set of domestic policies that dramatically expanded the federal government’s role in the economy in response to the Great Depression. The New Deal created a range of federal government programs that sought to offer economic relief to the victims, control private industry, and grow the economy. The New Deal is often recalled as the “Three Rs”: Relief (for the unemployed); Recovery (for the USA economy through federal spending and job creation), and Reform (by regulatory legislation and the creation of new social welfare programs). This experience shows that federal intervention can and will in fact help improve a country's economy and will not necessarily step towards social systems but can strengthen capitalist structures.
