By: Herbert Hoover
Source: Hoover, Herbert. Twelfth Annual Report of the Secretary of Commerce, 1924. Washington, D.C.: U.S. Government Printing Office, 1924, 10–16, 18–19, 22–24. Excerpted in Shannon, David A. "The Government Administrator as Efficiency Expert," in Progressivism and Postwar Disillusionment: 1898–1928. New York: McGraw Hill, 1966, 320–29.
About the Author: Herbert Hoover (1874–1964) was born in West Branch, Iowa. An engineer and successful businessman, he entered public life as a relief administrator during World War I. Rejecting Democratic and Republican entreaties to run for president in 1920, he served instead as Secretary of Commerce under Presidents Warren Harding and Calvin Coolidge (1921–1928). When Coolidge chose not to run for reelection, this time Hoover accepted the Republican nomination and became America's thirty-first president (1929–1933). Hoover's presidency was overshadowed by the Great Depression, and he is largely remembered for his failure to cope with that national crisis. The philanthropic work and advanced economic ideas that propelled him to the nation's highest office are often overlooked.
Herbert Hoover agreed to accept the position of Secretary of the Commerce Department on the condition that he have a hand in all the administration's economic policies. President Harding assented, and Hoover immediately set about reorganizing a department that had once been of little consequence. Persuading Congress to provide him with a vastly increased budget, Hoover restructured the Commerce Department, hiring thousands of new employees to help set national economic policy in a wide variety of sectors: trade, industry, agriculture, transportation, and communication.
But Hoover was not interested in establishing "Big Government." Rather, he hoped to use the Commerce Department's resources in a cooperative effort to bring order to the American economy. Hoover relied heavily on national trade associations to govern themselves, providing public support for the elimination of waste, inefficiency, and destructive competition. The public-private partnership that Hoover envisioned—;what has been termed an "associative state"—;presented a middle way between raw capitalist individualism and state-sponsored socialism.
To bring about this new economic order, Hoover's wide-ranging Commerce Department developed initiatives on a variety of issues. The department tackled unemployment and the recurring problems of the business cycle in a highly publicized conference in 1921. Hoover used this model repeatedly during his tenure as secretary, organizing hundreds more publicity campaigns to bring about socially efficient management in chronically disorganized fields (such as mining and housing construction) and emerging new ones (including electricity, radio, and aviation). By 1924, when Hoover issued this annual report, the Commerce Department had become one of the most active government agencies in the nation.
Through his work at the Commerce Department, Hoover achieved a near-iconic position in the business world. In an era still fascinated by Frederick Taylor's principles of scientific management, which sought greater efficiency through the rationalization of industry, Hoover's engineering approach to national economic reorganization drew wide praise. The 1920s promised a "New Era" in business-government relations, promoting economic development, limiting wasteful competition, and soothing labor relations through cooperative rather than authoritarian means. Hoover's 1924 Commerce Department report, which details government efforts to resolve unemployment crises, inefficient modes of production, and poorly networked infrastructure, reflects his intense faith in his ability to transform all aspects of American economic life.
Despite general satisfaction with the Commerce Department's new role in the economy, the ideal of the associative state was difficult to achieve. For instance, in the area of unemployment, strong anti-statist political traditions hindered real reform. Congress was reluctant to support the department's recommended program of public works designed to offset dips in the business cycle. State and city governments proved equally averse to initiating broad programmatic change.
Members of the business community, too, were often wary about entering into cooperative arrangements that might run counter to their personal self-interest. Industrial managers were especially hesitant about enacting new labor standards. Hoover had argued that shorter workdays and higher pay would reduce overproduction and increase consumption, creating a more efficient, more profitable economy. But his reliance on cooperative alliances with industrial organizations tended to sap the strength of labor unions and limit gains by workers during the 1920s. With the onset of the Great Depression in 1929, these cooperative arrangements collapsed, leaving the federal government ill-equipped to manage a national economic crisis.
Primary Source: Twelfth Annual Report of the Secretary of Commerce, 1924 [excerpt]
SYNOPSIS: In this report, Herbert Hoover outlines the myriad ways in which his department sought to reduce waste and inefficiency in the American economy. Citing the department's work in reducing unemployment, coordinating electric power and lighting systems, and bringing standardization to production, Hoover explains how government agencies, in cooperation with private trade associations, can finetune the economy sector by sector.
Outside of the very large functions of the department in the promotion of foreign trade, in aid to navigation, in provision of systematic economic information, and in cooperation with commerce and industry to advance productivity, a definite constructive national program has been developed for the elimination of waste in our economic system. The need is plain. The American standard of living is the product of high wages to producers and low prices to consumers. The road to national progress lies in increasing real wages through proportionately lower prices. The one and only way is to improve methods and processes and to eliminate waste. Just as 20 years ago we undertook nation-wide conservation of natural resources, so now we must undertake nation-wide elimination of waste. Regulation and laws are of but minor effect on these fundamental things. But by well-directed economic forces, by cooperation in the community we can not only maintain American standards of living—;we can raise them.
We have the highest ingenuity and efficiency in the operation of our industry and commerce of any nation in the world. Yet our economic machine is far from perfect. Wastes are legion. There are wastes which arise from wide-spread unemployment during depressions, and from speculation and overproduction in booms; wastes attributable to labor turnover and the stress of labor conflicts; wastes due to intermittent and seasonal production, as in the coal and construction industries; vast wastes from strictures in commerce due to inadequate transportation, such as the lack of sufficient terminals; wastes caused by excessive variations in products; wastes in materials arising from lack of efficient processes; wastes by fire; and wastes in human life.…
Unemployment and the Business Cycle
The greatest waste is periodic slackening of production and resultant unemployment. At the beginning of this administration there were 4,500,000 unemployed. To meet this situation, and acting under the direction of President Harding, I called in September, 1921, the First National Conference on Unemployment. This conference had as its primary purpose the promotion of temporary relief measures, but had in view a broader consideration of the whole problem of business slumps. The relief measures adopted by the conference proved so successful that we overcame unemployment in much less time than in any other depression in our history. While formulating emergency measures, however, the responsible business men, labor leaders, and economists of the conference agreed fully with the proposal that exhaustive investigations should be made of the whole problem, with a view to the abiding minimization of this waste.
In pursuance of this objective I appointed a committee on business cycles and unemployment, which brought in its report in April, 1923. The committee found that slumps in business are due fundamentally to the economic collapse from the wastes, extravagance, speculation, inflation, overexpansion, and relaxation of effort by labor developed during booms.…
Interconnection of Electric Power and Lighting Systems
In October, 1923, with the approval of the President, I called a conference of the representatives of the State utility commissions of the 11 States from Maine to Maryland to consider what cooperative steps the Federal and State authorities could properly take to promote interconnection of power systems in those States. At this conference I outlined the problem in the following terms:
This conference is not conceived as more Government in business. The public authorities are already deeply in the power business through many forms of regulation and a very large measure of control of power sources. The thought here is that coordination between public authorities and industries may secure further consummation of a great advance in the development of a great service to the public.
The reason and need for this discussion are simply that engineering science has brought us to the threshold of a new era in the development of electric power. This era promises great reductions in power cost and wide expansion of its use. Fundamentally, this new stage in progress is due to the perfection of high voltage, longer transmission, and more perfect mechanical development in generation of power. We can now undertake the cheaper sources of power from water sources further afield, such as the St. Lawrence, and cheaper generation from coal through larger and more favorably placed coal generation plants. We can secure great economies in distribution through the interconnection of load between systems, for thus we secure a reduction of the amount of reserve equipment, a better average load factor through pooling the effect of day and seasonal variations, together with wider diversification of use by increased industrial consumption. We can assure more security in the power supply from the effect of coal strikes and from transportation interruptions.
All this means the liquidity of power over whole groups of States. At once power distribution spreads across State lines and into diverse legal jurisdictions. We are, therefore, confronted not only with problems of the coordination in the industries of their engineering, financial, and ownership problems, but also with new legal problems in State rights and Federal relations to power distribution.…
The savings in these 11 States resulting from a coordinated and fully developed electrical power system, would, by the time it could be erected, amount to a conservation of about 50,000,000 tons of coal per annum; an annual saving could be made of over $500,000,000 per annum at an additional capital outlay of about $1,250,000,000. In this area we are to-day producing something like 9,000,000 horsepower by direct steam and individual plant generation, a substantial part of which could be transferred to central generation with great economy.…
The indirect results both human and material are even more important than these figures I have given would imply. They take no account of vast losses to industry and commerce by the actual interruption and threatened interruption of fuel supplies to our several hundred thousand independent power units; no account of the relief to shippers from our already over-burdened transportation and terminal facilities; no account of the increased production of our factories from cheaper power; no account of the larger extension of power into farm and home; no account of the reduction of physical labor and increase of comfort.…
This conference recommended the formation of the Northeastern Superpower Committee under my chairmanship. The members of the committee have been designated by the governors of the various States representing their utilities commissions, together with representatives of the War Department, the Federal Power Commission, the United States Geological Survey, and the Department of Commerce. An engineering subcommittee, comprised of engineers of the various State utilities commissions and Federal engineers, brought in its report on April 14, 1924. This report deals comprehensively with the problems above outlined and with the major technical steps necessary to bring about the technical development required. Already a number of these steps have been undertaken by the various power systems throughout this area.
Studies as to the legal problems involved in interconnection over State lines, having in mind the involved and varying forms of regulation in different States, are being made by a legal subcommittee with a view to determining some basis of uniformity in such regulation.
It would be desirable to cover other areas of the country in the same fashion.…
A large field in the elimination of waste lies in the direction of simplified nomenclature, grades, and variations in dimensions of industrial products. The Division of Simplified Practice established early in 1921, serves as a centralizing agency in bringing together producers, distributors, and consumers, when so requested by any of these groups, for the purpose of assisting these interests in their mutual efforts to eliminate waste in production and distribution. Here the particular waste attacked was that caused by unnecessary diversification of practice or character resulting in the accumulation of excessive and consequently expensive, stocks of seldom-used varieties. Soon after the division was established the national brick manufacturers brought to its attention the need for simplifying the number of sizes of paving bricks. It developed that no less than 66 sizes were actually being manufactured and sold. This department promptly called a conference of all interested parties, with the result that varieties of paving brick were reduced by mutual consent from 66 to 11. Since then there has been a further reduction to 5 varieties.…
Two national conferences of lumber manufacturers, dealers, consumers, and architects have been held and successfully established standard nomenclature, grades, and sizes for softwood lumber calling for a 60 per cent elimination of the present variety in yard lumber. Similar effort is under way in hardwood. The application of simplified practice to automotive parts, gas water heaters, steam boiler parts and fittings, hacksaw blades, pocket knives, shotgun shells, drills, and nearly a hundred other commodities, is being developed by those engaged in their manufacture, sale, and use, with the cooperation of the department.
The department has received the widest approval from the leaders in the industries affected that the simplified practice work is steadily decreasing the volume of retail stocks, production costs, and selling expenses, at the same time strengthening employment by allowing manufacture of standard articles for stock. Estimated annual savings by the industries as a result of this method of national waste elimination range from half a million dollars in one commodity field to a quarter of a billion dollars in another. These savings eventually find their way back to the consumer either in lower prices or better quality or both. All such efforts definitely advance competition.…
One of the most important agencies through which the elimination of waste may be promoted is the trade association. It is true that a small minority of these associations have been in the past used as cloaks for restraint of trade by such activities as open-price associations and other attempts to control distribution or prices. It is equally true that the vast majority of trade associations have no such purpose and do no such things. The dividing line, however, between what activities are in the publicinterest and what are not in the public interest is not to-day clearly defined either by the law or by court decision. In consequence of recent decisions of the courts many associations are fearful of proceeding with work of vital public importance, and we are losing the value of much admirable activity. At the same time we are keeping alive the possibility of wrongful acts. It is imperative that some definition should be made by which an assurance of legality in proper conduct can be had, and by which illegality or improper conduct may be more vigorously attacked.
In the elimination of waste, trade associations have been among the most constructive agencies of the country, and will be far more so if the solution can be found to the above question. Their waste elimination activities extend in many directions, of which the following are but a part:
Collection and distribution of statistics as to actual production, capacity production, stocks on hand, shipments, orders on hand, cancellations, number of employees, and such other data as will enable the industry and its consumers intelligently to judge future demands and supply.
Elimination of waste and reductions in cost of production and distribution by standardizing sizes and types, eliminating excess varieties, and establishing grades and qualities, thus reducing the amount of stocks thrust upon the retailer and at the same time enabling factories to operate more regularly to stocks of standard requirements.
Elimination of misdirected credit and aid in the collection of accounts.
Provision for the settlement of trade disputes by arbitration.
Stamping out of unfair practices and misrepresentation in business or as to goods.
Promotion of the welfare of employees, by the improvement of working conditions, sanitation, safety appliances, accident prevention, housing conditions, and matters of like character.
Economy in insurance by handling that of all members, including fire, industrial, indemnity, or group insurance.
Economies in transportation through common agencies for settlement of rate matters, classification, car supply, auditing transportation bills, and the study of competitive transportation agencies.
Elimination of waste in processes by the establishment of laboratories for technical and scientific research.
Barber, William. From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921–1933. Cambridge, Mass.: Cambridge University Press, 1985.
Hawley, Ellis, ed. Herbert Hoover as Secretary of Commerce, 1921–1928. Iowa City, Iowa: University of Iowa Press, 1981.
Wilson, Joan Hoff. Herbert Hoover: Forgotten Progressive. Boston: Little, Brown, 1975.
Galambos, Louis. "The Emerging Organizational Synthesis in Modern American History." Business History Review 44, Autumn 1970, 279–290.
Hawley, Ellis. "Herbert Hoover, the Commerce Secretariat, and the Vision of an Associative State." Journal of American History, 61, June 1974, 116–140.
Herbert Hoover Presidential Library and Museum. Available online at http://www.hoover.archives.gov/index.html (accessed February 23, 2003).