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.