Bryan Caplan  

Hoover: The Myth of Free Trade

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These days a lot of economists blame the Smoot-Hawley Tariff Act for worsening the Great Depression.  Herbert Hoover considered this hypothesis back in 1932 - and angrily rejected it.

Note: When Hoover says "our opponents set up the Hawley-Smoot tariff bill," he means that the opponents are blaming the tariff for the depression, not that they voted for it!

In the face of these gigantic, appalling worldwide forces our opponents set up the Hawley-Smoot tariff bill--changing as it did the tariffs on less than one-sixth of our own imports, one one-hundredth of the world's imports, and introduced long after the collapse started-as the cause of all this world catastrophe.   What an unspeakable travesty upon reason this explanation is!

Suppose that we had never had the Hawley-Smoot tariff bill. Do you think for one moment that this crushing collapse in the structure of the world, these revolutions, these perils to civilization would not have happened and would not have reached into the United States ?

And yet, in order to make a political campaign by which they can play upon discontent so that they could hope to create a protest vote, they are compelled to set up this travesty of argument.

If you read Hoover's other speeches, he claims that the tariff had massive benefits for American farmers and factory workers.  Example:

Bad as our prices are... you will find that, except for the guardianship of the tariff, butter could be imported for 25 percent below your prices, pork products for 30 percent below your prices, lamb and beef products from 30 to 50 percent below, flaxseed for 35 percent below, beans for 40 percent below, and wool 30 percent below your prices.  Both corn and wheat could be sold in New York from the Argentine at prices below yours at this moment were it not for the tariff. I suppose these are ghastly jests.

Now, the removal of or reduction of the tariff on farm products means a flood of them into the United States from every direction, and either you would be forced to further reduce your prices, or your products would rot in your barns.

But days before the election, Hoover insisted that Smoot-Hawley was a drop in the bucket.  It's almost as if a politician held inconsistent positions. :-)

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COMMENTS (7 to date)
Lord writes:

As tariffs in the first third of the 20th century were rarely less than 50%, no, it wasn't that significant, though a move in the wrong direction, but leave it to a politician to have it both ways.

Adam writes:

I read a book recently which pointed out that the timing of the crash coincided with the election of a congress that would pass the Smoot-Hawley act which had already been proposed. So even if it was actually enacted the following year, it was known in late October that it was going to be passed, and the market reacted.

Don't know how true it is, but it's interesting food for thought.

Wayne writes:

Savoring Adam's food for thought...

I also read somewhere that during the days of the gold standard, the foreign exchange market, and thus, other capital markets primarily responded to changes in trade flows. This is because speculators were actually able to push a currency to the edges of inflation and deflation by directly its shifting its base (gold) between countries.

So, when a government of the gold standard era arbitrarily changes the level of trade, they impact the capital markets profoundly. Today, the big currency areas able to "stabilize" the capital markets with reserve banking and capital requirements.

Paludicola writes:

People with Doctor of Philosophy degrees should be allowed to use emoticons.

Lord writes:

In other words, when minimizing it, he was comparing it to prior law, when maximizing it he was comparing it to no law.

Sheldon Richman writes:

I believe Jude Wanniski writes in The Way the World Works that the stock market crashed the day Hoover announced he would sign the tariff bill.

Gary Rogers writes:

I like the comment "Bad as our prices are ...", meaning prices are too low. I think that tells a lot about his attitude, where he was trying to take the economy and why his efforts failed. It's one of those places where we wonder what he could have been thinking. But, aren't we doing the same thing when we try to keep home prices up?

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