The New Deal

Herbert Hoover Speeches

The Dangerous Road for Democracy

Oklahoma City, Oklahoma

May 5, 1938

PART I

I AM GOING to speak to you on the dangerous road for democracy.  I wish to speak to you not as Republicans but as citizens.  For these things reach to fundamentals far deeper than party labels.  At my position in life, my sole concern over political parties is that they stand up and face these fundamentals with courage and intellectual honesty.  I wish to see unity among all right thinking men and women in this time of national difficulty.

In a recent speech I frequently used the terms "democracy” or "democratic government.”  I have received many protests.  No.  I did not mean the Democratic Party.  I meant the system of representative government where the people have personal liberty under constitutional protection.

And before I go further, let me define the economic system which is inseparable from free men.

That is private enterprise regulated to prevent monopoly and exploitation.  For that the government must be a vigorous umpire and not a Simon Legree.  Nor is a free system a frozen system which resists reform to meet new abuses, new inventions or responsibility for the less fortunate.  And our system cannot be free unless it protects the people from exploitation and calamity and unless it strives for equal opportunity among men.

We Americans are traveling a road dangerous not only to such a system but to liberty itself.  We are faced with 12,000,000 of our own countrymen unemployed and in want.  These things are not unrelated.

I have spent some time in Europe exploring the staggering rise of dictatorships or authoritarian governments on the ashes of democracies.  By the simple test of free speech, free press, constitutional guarantees, and representative government, the light of liberty has gone out among 370,000,000 people out of the 500,000,000 in Europe alone.  Among 130,000,000 in Russia the short flash of liberty in 1917 was snuffed out by Communism.  And even more alarming to free men, in so short a period as nineteen years, the torch of liberty has been dashed out by some sort of Fascism in 14 more nations of over 240,000,000 people.

In a recent address in New York, I was concerned chiefly with our foreign relations to this changing scene.

PART II

My major concern on that journey, however, was to learn more clearly what fate in these 14 nations had driven men to abandon democracy for some form of dictatorship.  Nations change their way of life only under great pressures.  Yet these nations made this immense change without much opposition or bloodshed.

It is cheaply superficial to say that these people became despaired, tired of unemployment, of hunger, and misery, and class-conflict.  That is true, but what caused all this vast unemployment, misery, and conflict?

Ted days ago I delivered an address upon the moral degeneration in democracies which contributes to their fall.

Tonight I propose to discuss what economic causes contributed to these miseries which ended in the suicide of liberty.  And I am not interested in this as an academic student of government.  I am interested because it concerns the future of liberty in our country.  And I am interested because the experiences of these nations point to the causes of 12,000,000 lost jobs in our country today.

Not one of those 14 nations started with the intention to surrender liberty.  They started by adopting panaceas to cure slumps or overcome economic difficulties.  They all undertook New Deals under some title, usually Planned Economy.  In variable doses they undertook credit and currency manipulation, price fixing, pump priming, and spending with huge deficits and huge taxes.  Step by step they sapped the vitality of free enterprise by government experiments in dictation and socialistic competition.  They had the illusion that true liberalism was a middle road between Fascism on the right and Socialism on the left.  They sacrificed free enterprise to pursue the Utopias of both of them.

Every succeeding step was egged on by politicians fanning class hate, exaggerating every abuse and besmirching every protesting voice.  Every step was accompanied by greater corruption of the electorate, increasing intellectual and moral dishonesty in government.  They did produce periods of artificial prosperity, only to collapse again.

These forces finally jammed the mainspring by which private enterprise is moved to production.  That is confidence.  Fear and unemployment paralyzed the consumption of goods.

It was at the end of this dangerous road that hunger came to their cities with violent labor conflict and final despair.  Those desperate people willingly surrendered every liberty to some man or group of men who promised economic security, moral regeneration, discipline, and hope.

PART III

And just a word as to what the end of this dangerous road has been.  Mark you, not one of these 14 nations turned to Socialism or to its blood brother, Communism.  These never triumphed.  Their only part was to aid as demoralizers of democracies.  When the Socialists had carried out that mission their supporters spent their lives in Fascist concentration camps.

For in chaos the long-suffering middle class always turned to some sort of dictatorship in hope of saving itself.

The movement from experimental dictation by government to farmers, workers, and business into a full Fascist system is easy.  Private enterprise having been demoralized with fear, then production must be forced by more fear and coercion.  The concentration camp operates for those who protest.  Fascism can tolerate no objectors. It crushes labor unions, farm associations, free speech and free press.  These great human laboratories in Europe have again demonstrated that economic and political freedom are organically connected.  Political liberty dies when economic liberty dies.

The end is not alone a ruthless economic organization at the sacrifice of all personal liberty.  Fascism represents the extinction of pity and mercy which Christianity gave the world.  It represents an upsurge of abhorrent brutality.  Its method is that any end justifies every perversion of intellectual honesty and government morals.

At a terrible price Fascism has had apparent success in restoring production and employment. True, the standard of living is lower than in its neighbor democracies.  But this appearance of success infects other countries who think they can play with these fires without being burned.

PART IV

In contrast with these authoritarian nations are the surviving democracies of Europe.  In their economic troubles they tightened their belts, balanced their budgets, refused new deals and planned economies. Today they have had little unemployment and are the most prosperous nations in the world.  That is, except France.  The French, of course, are in trouble because a few years ago they copied the New Deal.

Let there be no mistake; a new way of life is rising in the world.  It directly challenges all our American concepts of free men.  And let me tell you that upon my recent journey over and over again men of responsibility breathed to me one prayer.  They did not seek military alliances.  They did not seek military alliances.  They did not seek loans.  What they prayed was that we hold the fort of liberty in America.  For that is the hope of the world.

PART V

Now what road have we been traveling in the United States?  We followed a sign marked Planned Economy, the way to end all depressions.  The subtitle was To Abundant Life.  We at least know now where we have got to.  It can be said in two sentences.

The New Deal started with a Government debt of $21,000,000,000 and today finds itself with a debt either direct or guaranteed of $42,000,000,000.  It started with 12,000,000 unemployed; it finds itself after five years with 12,000,000 unemployed.

And it is not alone the townspeople who suffer.  These 12,000,000 men and their families are compelled to skimp, save, and suffer in order to keep life together.  Their reduced consumption of farm products represents more acres than Secretary Wallace's already idle fields.  The farmer gets no subsidy on these.

What caused this depression?  Despite all the alibis I can show you in a minute or two.  Depressions arise from many causes.  And the first step in diagnosis is to eliminate those which are not present.  Certainly I did not create this depression, so you can eliminate that.

And seriously we can also eliminate the two major causes of the depression of 1929-32.  The first of these was our crazy boom stimulated by Federal Reserve policies begun in 1927 and which cracked up in 1929.  We were beginning to recover from those sins when the second and far more deadly cause intervened.  That was the 1931 collapse of Europe.  That European financial panic drained our credit and our gold.  For months there was hardly a single new European order for a bale of our cotton or a bushel of our wheat.

I recently explored Europe to discover if they were doing anything to us again.  They are not.

Europe's regained economic strength is helping us.  Europe is purchasing twice as much of our goods as it did during the last depression.  Omitting New Deal France and Communist Russia, their relative indexes of production and employment are running from 30 per cent to 50 per cent higher than ours.  There is no financial panic brewing over there.  They are not withdrawing credit or gold from us as they did in 1931 and 1932.  On the contrary, they are sending vast quantities of gold over here.

Therefore our present slump does not come from Europe. 

This is solely our own depression.  Its cause much be searched for right here at home.  And we can also eliminate the usual causes of our homemade depressions.

President Roosevelt in his message to the Congress on November 15, 1937, confirmed that fact.  He said:

"The fundamental situation is not to be compared with the far different conditions of 1929.  The banking system is not over-extended.  Interest rates are lower.  Inventories are not dangerously large.  We are no longer over-extended in new construction or in capital equipment.  Speculation requiring liquidation does not overhang our markets.”

But if the 12,000,000 unemployed are not due to these causes, to what are they due?  Why have a recession in the face of low interest rates, no over-extension of credit, no over-sized inventories, no over-extension of capital equipment, no overstock of goods, no speculation?  If there are none of these sins or forces in the financial and business world, such as did exist in previous depressions, obviously the origins cannot be blamed upon finance and business.

And I may add why have a recession when we have abundant capital and are short of power equipment, railway equipment, good houses and a thousand other things that need to be done?

It is nonsense to say that either big or little business is on a strike.  It is not so.  We have had no such strike.  We have been struck.  Business is yearning to sell automobiles and new suits of clothes.  It is yearning to extend power plants and build houses.  Big businessmen or little businessmen are not scared to take on men if anybody will give them an order for goods.  But who has the confidence to give the orders?

There is only one place left to search for the causes of this depression.  Despite every alibi, this depression is the direct result of governmental actions.

PART VI

And now let us examine the dangerous road we have been traveling.

I would startle this country if our people had a detailed list of the powers over their daily life they have surrendered to the President and his bureaucracy.  More and more we have submitted to authoritarian action.  A large part of these powers are invisible.  But they weave together and expand within a bureaucracy.  And bear in mind, power is just as powerful through subsidies and favor of political jobs as it is by coercion and jail. 

And the sheep's clothing of thee powers is that righteous phrase, Planned Economy.  The Communists first invented it.  The Fascists adopted it.  It still serves to fool the people.  It carries the illusion that it means forward-looking.  But its reality is the wolf of bureaucratic power.  And the craving of bureaucracy for more power is never satisfied.  Failure does not stop their dreams; it only multiplies their alibis.

If these are not at least the infant steps along the dangerous road that European democracies took, then they are an astonishing parallel.

We also have had credit and currency manipulation, pump priming and spending with huge deficits.  We have had huge increase of taxes, government restriction of production, government price fixing.  We have had artificially increased prices and genuinely stifled consumption.  And these manipulations are shot through with dictation and threat.  They are accompanied by forays of the government into competition with private enterprise.  But why recite all the creeping collectivism?

This country was definitely on the way to recovery in 1932 with all the rest of the world.  These manipulations beginning in 1933 at first retarded us.  Then they produced an artificial and distorted appearance of recovery claimed in 1936-37.  Like all shots in the arm, a lovely time was had by all.  Except for some 5,000,000 men who never got jobs.  Then the President and sub managers concluded the dose of stimulants must have been too big.  They gave us antidotes.  They reduced bank reserves to curtail credit.  They sterilized gold to reduce credit.  They publicly denounced prices.  The denounced and threatened business.  They proposed more measures in control of wages, hours, and farmers.  But if this were not sufficient to confuse and scare the people they prepared for more powers by attempting to manipulate the Supreme Court.  And out of it all, we have got this depression.

PART VII

And now let us analyze this whole New Deal philosophy a little more deeply in its practical aspects.  We can at least discover why attempts of government to manage a system of private enterprise must have a Nemesis—or several of them—so long as there is any freedom left in it.

The first is that free private enterprise will not mix with either the dictation or the government-competition, for one stymies the other.  Germany and Italy have demonstrated that complete Fascism will work for a while.  Russia has demonstrated that Socialism will not work.  America has demonstrated for over 160 years that a free system will work.  Just as did the 14 fallen democracies of Europe, now America is demonstrating all over again that a mixture will never work.

A drop of typhoid in a barrel of water will sicken a whole village.  A few drops of Socialism or Fascism is poison to private enterprise.  The Federal Government goes into less than ten per cent of the power business.  At once the investor, fearful of government competition and seizure, fears to hazard his capital.  And hundreds of thousands of men lose jobs.  Yet the consumer and the investor can be protected by regulation.

Under these mixtures every man must conduct his business with one eye on Washington.  Every plan of action is a bet on what bureaucracy may do.  Every farmer must ct with an eye on an agricultural agent.  Every investment of savings is a gamble on what will be done to the currency.  Every future price of a commodity is not a judgment on the law of supply and demand, but another bet on Washington.  Every venture into new enterprise must be calculated upon what will be left after punitive taxes.

All along the line it weakens the judgment of men.  It sickens initiative and enterprise.  It knocks the confidence out of men.  It substitutes fear.  It destroys millions of jobs.

The second Nemesis is that in a partly fee system the consumer has a voice.  He goes on a strike as he did against building costs in 1937.

The third Nemesis is fear.  Half of what people consume can be postponed at least for a time.  When our Washington managers say prices are too high, buyers hold off and postpone purchases and a million men lose their jobs.

It was all with good intentions.  The objectives as you have heard were magnificent.  But the road to a hot spot has again been proved to be paved with good objectives.

PART VIII

But let me give you a word of comfort.  It is true that we have been following that dangerous road for democracy that led to disaster in Europe.  But those countries were young in freedom and weak in their fidelities to liberty.  They were economically lean from the war.  We are tough in our fidelities.  We still have some economic fat on our national body.  We still have powers of resistance.  We have great powers of recovery right now.

And let me add that there should be improvement from this immediate situation no matter what the government does—but it will not be real recovery with full or permanent employment if we continue down this dangerous road.  And we are not going to go down that road without a lot more fighting free speech.

PART IX

But what does the New Deal propose to do about this depression of theirs?

They propose that we travel further down this dangerous road.  More bureaucratic dictation to business, more inflation, more pump priming, more Planned Economy.  We are to have more budget deficits, new inflations, more increase in national debts, more taxes for the future.  We put the pea of $1,400,000,000 of gold under the other shell.  These new actions may produce another shot in the arm.

There is in these proposals a hopeless confusion of cause and effect.  You do not get employment out of an economy scarcity.  You do not prime the pump to any purpose by taking money out of the pockets of the taxpayer and giving it to the consumer.  They are the person.  Men borrow to expand their businesses, not because money is cheap but because they have confidence in the future.  The Nation gets no richer by increasing its debts.  Truly you can mortgage your house and go on a spree.  It does not add to your productivity and you may lose your house.

PART X

The constructive action today is to change the national direction and get off this dangerous road.  That would allay fear and re-establish confidence in the future.  That would release the enormous reserves of private enterprise in place of a trickle of government money.  That would take men back to their jobs tomorrow and permanently.

In order that the government may give real proof that it has abandoned this road dangerous to democracy, we need to get down out of cloudy objectives.  We need to take some practical steps.  This cannot be done by encouraging words.  It must be proved by definite acts that re-establish faith.  Faith that ours is going to continue as a system of free men and private enterprise.

For a start we need to:

First, re-establish confidence that there will be nor more attacks upon the safeguards of free men.  That is the independence of the Congress and of the Courts.

Second, restore common morals and intellectual morals in government.  In a democracy or in a Christian country the ends do not justify any means.

Third, abandon this economy of scarcity and go in for production, work, and thrift.

Fourth, stop this spending and inflation and pump priming.

Fifth, revise the taxes so as to free the initiative and enterprise of men.  The original Senate proposals were a stop in that direction.

Sixth, reduce relief expenditure by one-third through decentralizing its administration.  Take it out of the hands of wasters and politicians and put it back into non-political committees in each community and require the states and local communities to find 5 or 10 per cent of the cost.  That will provide greater and more sympathetic care for those in distress.  It will restore confidence that the Republic is not being destroyed by the purchase of elections.

Seventh, by the savings on relief, and reduction of other expenses and the end of pump priming, drive to really balance this budget.

Eighth, stop credit inflation juggling.  Make the currency convertible into bullion at the irreparable 59-cent dollar and repeal all authority for currency inflation.

Ninth, set up a court of 25 responsible non-political men representing business, labor, and agriculture to direct Federal Reserve policies and thus take that control of credit out of the hands of politicians.

Tenth, give the employer and all branches of labor the same rights before the Labor Board and appoint judicially minded me to the board.

Eleventh, stop indiscriminate defamations of business and the creation of class hate.  Use the courts for purposes of prosecution.

This would at least be a start on a saner and more cheerful road.  Then would begin the emancipation from this fog of ideologies.  Morals in government would return again.  The energies of our people would be liberated.  And above all the farmer's market and the worker's job will be restored.  A confident, alert and alive people free in enterprise can quickly repair losses, repay debts and bury mistakes.  The pump priming the need is confidence in the future.

And in conclusion.  When I stepped on the soil of America a month ago I felt a great lift of spirit.  And why?  Because despite all discouragements here is a people who themselves are right.  A people through whose blood run courage and honesty and faith.  A people who will never surrender their intellectual and spiritual freedom.  A people who will yet have a free economy free from abuse and wrong.  These people will fight for it by constitutional methods as Americans have always fought for it.  For it is in our blood.