Herbert Hoover to Reed Smoot Regarding the Bonus Loan Bill Summary

  • Last updated on November 10, 2022

The World War Adjusted Compensation Act of 1924 authorized bonuses for veterans of World War I, to be paid in 1945. The bonuses, which were calculated based on length of service, averaged approximately $1,000 each. In February 1931, shortly after the start of the Great Depression, Congress voted on legislation that would authorize veterans to borrow up to 50 percent of the value of these bonuses. The administration of President Herbert Hoover vigorously opposed the legislation, arguing that the cost of the new loan program, approximately one billion dollars, would place the nation in even greater financial peril. After the House of Representatives passed the Emergency Adjusted Compensation Bill, commonly referred to as the bonus loan bill, President Hoover sent a letter to the Senate Finance Committee outlining his objections and urging the Senate to reject the legislation. Hoover explained why the government could not afford the expenditure and argued that it was unfair to single out veterans for special assistance when the entire population was suffering economic hardship.

Summary Overview

The World War Adjusted Compensation Act of 1924 authorized bonuses for veterans of World War I, to be paid in 1945. The bonuses, which were calculated based on length of service, averaged approximately $1,000 each. In February 1931, shortly after the start of the Great Depression, Congress voted on legislation that would authorize veterans to borrow up to 50 percent of the value of these bonuses. The administration of President Herbert Hoover vigorously opposed the legislation, arguing that the cost of the new loan program, approximately one billion dollars, would place the nation in even greater financial peril. After the House of Representatives passed the Emergency Adjusted Compensation Bill, commonly referred to as the bonus loan bill, President Hoover sent a letter to the Senate Finance Committee outlining his objections and urging the Senate to reject the legislation. Hoover explained why the government could not afford the expenditure and argued that it was unfair to single out veterans for special assistance when the entire population was suffering economic hardship.

Defining Moment

Almost immediately after World War I ended, groups began to lobby Washington to pay bonuses to veterans, a tradition dating back to 1776. After five years of debate, Congress passed the World War Adjusted Compensation Act, or Bonus Act for short, authorizing payment of bonuses averaging about $1,000 each. The bonuses were awarded in the form of certificates, which could not be redeemed for cash until 1945. These bonuses were intended to serve as a kind of pension for aging veterans. President Calvin Coolidge vetoed the legislation, but Congress overrode the veto, and the Bonus Act became law. The law was later amended to allow veterans to borrow up to 22.5 percent of the value of their bonus at low interest.

When the country went into a financial tailspin in 1929, Representative Wright Patman of Texas led a campaign to allow veterans covered by the Bonus Act to receive immediate cash payments of the full value of their bonus. Patman and others saw this move as a way to assist veterans suffering financial hardship in the early days of the Great Depression. Similar legislation, granting extended disability pensions to Spanish-American War veterans, was passed in 1930; President Hoover vetoed the bill, but Congress overrode the veto.

Late in 1930, support for immediate cash payment of bonuses began to grow in both houses of Congress. The American Legion and the Veterans of Foreign Wars (VFW) weighed in on the debate early, lobbying members of Congress to support the bill. The Hoover administration stood firm against the legislation, pointing out that the cost of immediate cash payments could exceed $3 billion–nearly equal to the federal government's $3.6 billion annual budget for the fiscal year.

When Senator Arthur Vandenberg of Michigan proposed a compromise that would replace immediate cash payments with a provision allowing veterans to borrow up to 50 percent of the value of their bonus, some thought the administration might change its position. However, Treasury Secretary Andrew Mellon appeared before the Senate Finance Committee on January 28, 1931, to state the administration's strong objections to any proposal that would add to the nation's debt in a time of financial crisis.

Despite the administration's efforts to kill the legislation, on February 16, the House passed the Emergency Adjusted Compensation Bill by a vote of 363–39, and the Senate seemed ready to follow suit. In an effort to sway votes, Senator Reed Smoot of Utah, chair of the Senate Finance Committee and an ally of the president, invited Hoover to send a letter to the committee outlining his reasons for opposing the legislation. The letter was released to the press, and newspapers across the country printed it over the next two days, providing Hoover a national platform for his objections.

Author Biography

Herbert C. Hoover was born August 10, 1874, in West Branch, Iowa. Orphaned at age nine, he grew up with relatives in Iowa and Oregon before entering Stanford University in 1891, the same year it opened. After graduation, Hoover worked as a mining engineer in Australia and China. In 1899, he married Lou Henry, a fellow Stanford graduate with a geology degree. By the outbreak of World War I, he was a multimillionaire. During the war, he helped establish the Commission for Relief in Belgium and later became head of the United States Food Administration, both agencies that organized relief efforts to feed millions in Europe. After hostilities ended, Hoover became head of the American Relief Administration, continuing his relief work in Europe and Russia.

From 1921 to 1928, Hoover served as secretary of commerce for Presidents Warren G. Harding and Calvin Coolidge. In 1928, he was elected president of the United States. During the next four years, as the country entered a period of severe financial crisis, Hoover held fast to his principles, believing that limited government and private-sector initiatives would lead the United States out of the Great Depression. His policies, coupled with worsening conditions in the nation that culminated in the Bonus Army incident of 1932, made him highly unpopular, and he was defeated in his reelection bid by Franklin Delano Roosevelt. Following World War II, Hoover chaired two presidential commissions and served as an adviser to several government officials. He died on October 20, 1964.

Document Analysis

In his letter to Senator Smoot and members of the Senate Finance Committee, President Hoover presents a three-pronged attack on the Bonus Loan Bill before the committee: first, the legislation places an onerous financial burden on the government and, ultimately, on the American people; second, those veterans requiring special assistance are already receiving help; and third, providing special assistance to veterans at a time when the entire populace is suffering economic hardship is unfair and could be counterproductive in leading the United States out of the Great Depression.

Unlike the rhetoric employed by lobbying groups such as the American Legion and the VFW, which argued that veterans deserved a cash bonus because they had already made great sacrifices for the country, Hoover's letter is remarkably dispassionate and businesslike. A good portion of it is devoted to technical discussion of monetary policy that the senators on the committee would understand without special explanation. Most notable, however, is his repeated use of numbers as a means of calling attention to the magnitude of the issue before Congress. Perhaps aware that his letter would be printed in newspapers across the nation, Hoover carefully works through a series of calculations to spell out the cost to the country that could be incurred if the Bonus Loan Bill is passed: $1 billion. Hoover concludes his case against the bill on financial grounds with a veiled warning: since the United States is already running a budget deficit, this additional money “will need to be raised by the Treasury.” Senators would realize immediately that the government would have to either raise taxes or borrow additional funds, further weakening its financial position.

Hoover goes on to argue that, besides finding the measure fiscally unsound, he has other “serious objections, some of which are… matters of fundamental principle.” He acknowledges that the nation owes a debt of gratitude to those who served in combat, and that when they are “in ill health, distress and in need,” the government has an obligation to provide help. However, he points out that 700,000 veterans are already receiving monthly assistance because of illness or disability. He follows this with a statement not of fact but of principle, one that would resonate with Americans who believed strongly in the idea of limited government: “The country should not be called upon… to support or make loans to those who can by their own efforts support themselves.” After once again reviewing the financial burdens posed by the Bonus Loan Bill, Hoover closes with a strong emotional appeal for fairness. To provide special treatment to veterans is to unfairly burden other groups in the United States, and doing so would “inflict injury to the country as a whole.”

Essential Themes

The events surrounding the eventual passage of the 1931 Bonus Loan Bill over Hoover's objections offer a lesson in the power of sentiment and effective lobbying at the national level. The president's dispassionate, reasoned argument had little effect on the Senate, which passed the bill on February 19 by a vote of 72–12. On February 26, Hoover vetoed the bill, returning it to the House of Representatives with a stinging rebuke. Unimpressed and undaunted, the House voted within an hour to override the veto, 328–79. The next day, the Senate followed suit, voting 76–17. The fact that the potential $1 billion cost of the loans was equal to one quarter of the entire federal budget for the year did not sway many in either house.

The passage of the Bonus Loan Bill also raised hopes of those in favor of immediate cash payment of the entire bonus that they might muster sufficient support for their cause in the future. Both the American Legion and the VFW continued their lobbying efforts, and individual veterans were urged to show their support as well. In the summer of 1932, a contingent of more than 40,000 veterans and their families traveled across the country to Washington, DC, to protest in favor of immediate cash payments. This group, known as the Bonus Expeditionary Force or Bonus Army, remained in the capital from late May until late July, when federal troops under the command of General Douglas MacArthur forcibly evicted them from the District of Columbia. This unusual and almost unprecedented decision to use military forces against civilian protesters became a factor in the 1932 presidential election, when Hoover was defeated by Franklin Delano Roosevelt.

Bibliography and Additional Reading
  • Daniels, Roger. The Bonus March: An Episode of the Great Depression. Westport: Greenwood, 1971. Print.
  • Dickson, Paul, & Thomas B. Allen. The Bonus Army: An American Epic. New York: Walker, 2004. Print.
  • Lisio, Donald J. The President and Protest: Hoover, Conspiracy, and the Bonus Riot. 2nd ed. New York: Fordham UP, 1994. Print.
  • Ortiz, Stephen R. “Rethinking the Bonus March: Federal Bonus Policy, the Veterans of Foreign Wars, and the Origins of a Protest Movement.” Journal of Policy History 18.3 (2006): 275–303. Print.
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