The Politics of Boom & Bust1920-1932
The American Pageant
Chapter 35
“Old Guard” Returns
Likable but inept Harding was unable to say no to corrupt friends: led to “Ohio Gang.”
Harding’s “best minds” in-cluded brilliant Hughes (State), aluminum king Mellon (Treasury), & energetic Hoover (Commerce).
“Old Guard” Returns (2)
But “best minds” were offset by worst: Fall was anticonser-vationist who headed Interior, & crook Daugherty was Attorney General.
GOP Reaction
Return to old order after war crushed Progressive reform.
New Rep Old Guard used bureaucracies/courts to aid business: beyond laissez-faire.
Harding’s 4 Sup. Ct. appoint-ees (except Taft) provided reactionary influence.
GOP Reaction (2)
Early 20s: Sup. Ct. killed progressive laws covering child-labor, labor, gov’t regulation of economy.
1923: Adkins v. Children’s Hospital overturned Muller: women could now vote, not entitled to special protection.
GOP Reaction (3)
Attorney General’s office, ICC friendly to business interests: anti-trust laws not enforced.
In opposition to anti-trust law, Hoover encouraged industry associations to boost efficiency, urged them to regulate them-selves to avoid gov’t reg.
Aftermath of War
Wartime gov’t controls on economy were ended quickly: RRs returned to private hands with profitability guarantee from Congress (1920: Esch-Cummins Act).
1920 Merchant Marine Act sold off wartime fleet cheap.
Aftermath of War (2)
20s hard on labor: 1919 steel strike crushed using racial div-isions, labeled as “reds.”
Railway Labor Board ordered 12% wage cut: AG Daugherty crushed strike with injunction.
Union membership declined by 30% in decade.
Aftermath of War (3)
1921: Congress created generous Veterans’ Bureau to operate hospitals, etc.
Veterans organized into pressure groups like American Legion: became conservative, patriotic, antiradical.
Aftermath of War (4)
Legion lobbied for veterans’ benefits: compensation for lost wages during war.
1922: browbeat Congress into bonus bill: Harding vetoed.
1924: Congress overrode Coolidge veto to pass Adjusted Compensation Act.
Benefits w/o Burdens
July, 1921: Congress passed joint resolution to officially declare war over.
Harding admin. was suspi-cious of League of Nations: but sent observers.
But U.S. could not be isola-tionist in oil-rich Middle East.
Benefits w/o Burdens (2)
WWI showed strategic importance of oil: Sec. of State Hughes negotiated drilling rights for U.S. companies.
Harding did take action on disarmament: naval race w/ Britain, Japan was becoming too expensive.
Washington Conference
1921-22: U.S. invited all major naval powers but Russia to Wash. “Disarmament” Conf.
Sec. Hughes proposed 10-year “holiday” from building battleships, scrapping some existing ones to get 5:5:3 ship ratio with U.K., U.S., Japan.
Washington Conference (2)
To get Japan to sign 5-Power Naval Treaty (5:5:3), U.S., U.K. agreed not to fortify Far East holdings.
4-Power treaty replaced Anglo-Japanese alliance: U.K., Japan, France, U.S. agreed to keep status quo in Pacific.
Washington Conference (3)
9-Power Treaty made Open Door official in China.
Harding pleased at battleship reduction, but other powers built more cruisers, subs, etc.
Senate’s lack of commitment to use of force neutered 4-Power Treaty.
Washington Conference (4)
Naive wishful thinking was demonstrated in American call for “outlawry of war.”
1928: Coolidge’s Sec. of State Kellog crafted Kellog-Briand Pact: largely useless agree-ment w/ France to no offensive war – 62 nations later signed.
Hiking the Tariff
Isolationism, fear of cheap European goods, robust U.S. market led to higher tariff.
1922: Fordney-McCumber Tariff passes – sent avg. rate from 27% to 38.5% to “equal-ize” the cost of U.S. and foreign production.
Hiking the Tariff (2)
Tariff also gave president (w/ Tariff Commission) flexibility to change rates up to 50%.
In 6 years, Harding & Coolidge increase rates 32x (vital products), while lower-ing only 5x (less sig. products).
Hiking the Tariff (3)
But Europeans needed to sell products in U.S. to recover from war, and needed profits to buy U.S. goods and pay back war debts to U.S.
1920s: Tariff hurt European economy, so they responded with their own high tariffs.
The Stench of Scandal
Corruption of Harding admin. shown by scandals:
1923: Head of Veterans’ Bur-eau Forbes stole $200M from gov’t, got 2 years in prison.
1921: Interior Sec. Fall was bribed to lease naval oil reser-ves in Teapot Dome scandal.
The Stench of Scandal (2)
March, 1923: scandal expos-ed, Fall & bribers Doheny & Sinclair were indicted.
1929: Bribers acquitted, but Fall convicted, sentenced 1 yr.
Sellout of U.S. vital resources, acquittals resulted in cynicism toward fed. gov’t & courts.
The Stench of Scandal (3)
1924: Reports to Senate alleg-ed that AG Daugherty was sel-ling pardons, liquor permits.
Daugherty forced to resign, but hung jury did not convict.
Before scandals were widely known, Harding left for speak-ing tour: died in SF (8/2/23).
Yankee in White House
VP Coolidge sworn in by his father in New England.
“Silent” Coolidge represented New England values: honesty, morality, industry, frugality.
Coolidge a mediocre leader, supported status quo, called “high priest” of business.
Yankee in White House (2)
“Cautious Cal” oversaw 5 1/2 years of prosperity: supported Mellon’s tax/debt policies.
Coolidge slowly brought moral reform to Harding regime, though outrage of scandals was dulled by prosperity.
Frustrated Farmers
End of war brought end to gov’t guaranteed high grain prices & large purchases by other nations.
Gas tractor improved cultiva-tion & sowing: increased farm production.
Frustrated Farmers (2)
War boom had led farmers to increase size of farms.
Price-lowering surpluses led to farming depression in 20s: 1 in 4 farms sold for debt or taxes.
1921: Political “farm bloc” in Congress emerged from agricultural states.
Frustrated Farmers (3)
Farm bloc passed Capper-Vol-stead Act: exempted farmers’ coops from anti-trust action.
1924-28: Bloc’s favorite was McNary-Haugen Bill: gov’t would buy farm surpluses & sell them abroad - Coolidge twice vetoed.
3-Way Race for Pres.
1924: Reps nominated Coolidge in Cleveland.
But Dems in NY split between “wets” & “drys,” urbanites & farmers, etc.: failed by one vote to condemn KKK.
After 102 ballots, finally chose conservative lawyer Davis.
3-Way Race for Pres. (2)
But liberals lacked candidate: La Follette (WI) stepped up to lead new Progressives: farmers, labor, socialists.
Platform: gov’t ownership of RR, farm relief, opposition to monopolies & anti-labor injunctions.
3-Way Race for Pres. (3)
La Follette got 5M votes, but Coolidge (15M votes) won easily in Electoral College: 382-136-13.
Prosperity hurt chances of liberal reformer La Follette.
Foreign Pol. Flounderings
Isolationism continued: Senate would not adhere to World Court, Coolidge half-hearted in naval disarmament efforts.
But U.S. continued interven-tion in Caribbean, Central America (Haiti, Nicaragua).
Foreign Pol. Flounderings (2)
Coolidge diffused crisis w/ Mexico & U.S. oil companies.
U.S. intervention bred resent-ment in Latin America.
But war debts to U.S. were biggest foreign-policy issue.
War had changed U.S. from debtor to creditor nation.
Foreign Pol. Flounderings (3)
Dollar was rivaling British pound as leading currency.
After war, U.S. loaned $10B in 20s, but held back $ to invest in thriving domestic economy.
U.S. demanded that $10B in U.S. Treasury loans to Allies be repaid.
Foreign Pol. Flounderings (4)
French & British arguments for debt forgiveness:
1.Their price had been millions of lives, U.S. mainly lost $.
2.Allies used money to buy U.S. goods, fueled U.S. economy.
3.Postwar U.S. tariff made it hard for them to make $.
Unraveling Debt Knot
To pay debts to U.S., Allies demanded $32B in reparations from Germany.
France sent troops into Ger-many to extort late payments.
Berlin responded by allowing enormous inflation – threat of international financial chaos.
Unraveling Debt Knot (2)
Reasonable officials argued for reduction/cancellation of war debts & reparations, but U.S. refused, denied linkage between debts & reparations.
Future Coolidge running mate Dawes negotiated Dawes Plan to address problem (1924).
Unraveling Debt Knot (3)
Plan: reschedule German rep. payments, make U.S. private loans available to Germany.
Relied on U.S. credit, which dried up after ‘29 crash.
1931: Pres. Hoover declared 1-year debt moratorium, soon all debtors but one defaulted.
Unraveling Debt Knot (4)
U.S. was not fully repaid, but did generate ill will.
Anger of Europe left bad taste in U.S.: led to neutrality legislation of 1930s.
Triumph of Hoover
1928: Coolidge declined to run, obvious Rep nominee was Hoover.
Platform: prosperity & prohibition.
Dems chose 4-time NY gov. Al Smith: liberal, “wet,” Roman Catholic.
Triumph of Hoover (2)
Many dry, rural, Protestant Fund. Dems did not support.
Smith had more charm, but Hoover was better on radio.
Hoover combined 19th cent. self-reliance w/ 20th cent. progressive efficiency.
Triumph of Hoover (3)
Hoover believed in avoiding foreign entanglements, small gov’t, free enterprise.
Hoover not accustomed to soliciting votes, political battle.
Power lay in integrity, human-itarianism, administrative talent, loyalty he inspired.
Triumph of Hoover (4)
Self-made millionaire, Hoover rejected any kind of socialism, but was supportive of progres-sive ideas like labor unions, regulation of broadcasting.
Campaign went dirty: whis-pering campaign said vote for Smith was vote for Pope.
Triumph of Hoover (5)
“100% American” South did not support Smith.
Hoover got 21M votes to 15M, won 444-87: Reps got large majority in Congress.
Hoover was 1st Rep to win former confederate states (except Harding won TN).
Hoover’s 1st Moves
20s prosperity did not benefit farmers, unorganized labor.
1929: Hoover led passage of Agricultural Marketing Act - created Federal Farm Board to loan $ to producers’ coop-eratives in order to buy, sell, & store surpluses.
Hoover’s 1st Moves (2)
1930: Farm Board created Grain/Cotton Stabilization Corps. to buy surpluses, but were buried by supply.
During campaign, Hoover had pledged to help farmers, partly through limited changes in tariff.
Hoover’s 1st Moves (3)
1930: Senate added 1000 amendments to Hawley-Smoot Tariff: resulted in highest avg. rate ever – almost 60%.
Tariff was declaration of economic warfare to rest of world: plunged world deeper into depression.
Great Crash ends 20s
New industries (auto, radio, movie) stimulated prosperity: some felt it permanent.
Hoover attempted but failed to curb speculation through Federal Reserve Board.
British raised interest rates to bring capital from U.S.
Great Crash ends 20s (2)
Speculators dumped paper profits to move $ to British securities: massive selling snowballed.
10/29/29: “Black Tuesday” saw panicked selling, $40B lost by end of year.
Great Crash ends 20s (3)
Crash announced longest, most severe U.S. depression.
U.S. had worst setback of industrialized nations.
End of 1930: 4M jobless, 12M in 1932 – others had pay reduced.
Great Crash ends 20s (4)
5000 banks collapsed in 1st 3 years of depression, took people’s life savings.
Jobless fathers blamed selves, though problem seem caused by economic system.
Depression started decade-long decline in birthrate.
Hooked on Plenty
Causes of Depression?
1. Overproduction of farm, fact-ory: depression of abundance.
2. Too much money in hands of too few that was fed back into factories; workers’ pay not enough to generate broad purchasing power.
Hooked on Plenty (2)
3. Easy credit led to debt burden, overproduction.
4. Machines replaced workers.
5. Post-1931 financial collapse in Europe.
6. Hawley-Smoot Tariff cut international trade.
Hooked on Plenty (3)
7. 1930 Miss. Valley drought.
Resulted in national despair: U.S. lost its uniqueness.
Initiative, self-respect lost as many panhandled, lived in “Hoovervilles.”
Foundations of U.S. social/ political structure trembled.
Rugged Times
Depression ended Hoover’s wonder-working reputation.
As humanitarian, Hoover was deeply troubled by misery.
But felt gov’t handouts would weaken or destroy the self-reliant national fiber that made America great.
Rugged Times (2)
Hoover felt efficient industry would bring prosperity back.
But depression worsened, local gov’t agencies broke down: Hoover began to accept fed. responsibility for general welfare.
Rugged Times (2)
Hoover compromise: aid RRs, banks, rural credit, which would in turn help individuals w/o “soul destroying” dole.
Critics: gov’t feeds Belgians, pigs, but not Americans.
But Harding’s plan was revo-lutionary for time.
Pioneer for New Deal
Consistent w/ “trickle down,” Hoover had Congress spend $2.25B for public works, incl. Hoover Dam (1930-36).
But rejected Muscle Shoals Bill (future TVA) as socialist-ic: gov’t should not compete with private citizens.
Pioneer for New Deal (2)
1932: Congress passed Hoover’s RFC: $500M for loans to insurance, banks, ag. orgs, RRs, state-local gov’ts.
RFC loans were of benefit, but too late, didn’t fund sustain-able projects, gov’t made profit, large corps. benefited.
Pioneer for New Deal (3)
1932: Hoover helped labor by signing Norris-La Guardia Anti-Injunction Act: no yellow dog contracts or injunctions.
Despite criticism, Hoover began significant new policy toward government assistance.
Pioneer for New Deal (4)
But 1930 midterm elections gave Dems House: hostile Congress created problems for Hoover.
Routing Bonus Army
1924 Veterans’ bonus was pay-able in 1945: but Depression led to drive to pay it all early.
1932: “Bonus Expeditionary Force” of 20,000 marched on D.C. to demand payment.
Created unsanitary camps/ shacks: threat to public health.
Routing Bonus Army (2)
But bonus bill failed: most refused to leave, riots killed 2.
Hoover ordered eviction by army: Gen. MacArthur car-ried out order with severity.
Event brought more abuse on Hoover, as Dems employed “smear” artists against him.
Japanese Attack China
Taking advantage of Western depression, Japanese overran Manchuria, shut Open Door.
A failure of League of Nations to force Japan out would effectively kill League.
League invited U.S. member-ship, U.S. sent unofficial rep.
Japanese Attack China (2)
League commission called attack unjustified, so rather than leave Manchuria, Japan left League.
U.S. isolationists, incl. Hoover, did not want involvement.
U.S. response to League: we will not interfere w/ embargo.
Japanese Attack China (3)
Stimson Doctrine: Sec. of State Stimson did convince Hoover to proclaim that U.S. would not recognize territory gained by force (1932).
But this verbal reprimand had little effect: Japanese bombed Shanghai, killed civilians.
Japanese Attack China (4)
Americans began informal boycotts of Japanese goods, but no sentiment for armed intervention.
Collective security died & WWII born in Manchuria, largely b/c League could not count on U.S. support.
Good Neighbor Policy
Hoover interested in Latin America: took goodwill tour (1928).
Collapse of U.S. economy led to softened attitude toward Latin America, economic imperialism less popular.
Good Neighbor Policy (2)
Hoover rejected TR Corollary: signed treaty w/ Haiti to remove troops by 1934.
1933: 20-year stay of Marines ended in Nicaragua.
Hoover laid foundations for FDR’s “Good Neighbor” policy.