The Politics of Normalcy
I can summarize Harding, Coolidge, & Hoover's fiscal policies, & I can evaluate their effects on the national economy.
The Harding Administration
The 1920s were dominated by the administrations of three Republican presidents: Harding, Coolidge, and Hoover. Elected in 1920 on a "Return to Normalcy" platform, Warren G. Harding was a hearty, kind, easy-going man—too kind and easy-going to be a good president. He found it difficult to refuse any requests his friends made of him. In addition, Harding was less gifted intellectually than a president ought to be. He admitted this weakness when he said, "I am a man of limited talents from a small town." To compensate, Harding attempted to surround himself with men of first-rate minds, and he delegated much responsibility to them. Harding's limitations made him unable to detect their deceitfulness or to protect the nation from these self-serving predators. In the most hurtful scandal of Harding's presidency, Secretary of Interior Albert Fall in 1921 persuaded Secretary of the Navy Edwin Denby to allow oil magnates Harry F. Sinclair and Edward L. Doheny to lease Teapot Dome in Wyoming and Elk Hills in California, in spite of the fact that these valuable oil fields had been set aside by Congress for the use of the Navy. Without fully understanding the documents presented to him, Harding signed over the leases. It was later discovered that Fall had taken a $100,000 bribe from Doheny and a $300,000 bribe from Sinclair to push this transaction through. Not until 1927 was the Supreme Court able to revoke the Elk Hills and Teapot Dome leases and return these reserves to the Navy.
Attorney General Harry Daugherty, part of the crooked "Ohio Gang" (Harding's poker cronies), failed to prosecute criminals in a consistent manner, giving special consideration to some who gave him "considerations." He was accused of selling pardons and liquor permits for his own remuneration. Daugherty went to trial in 1927, but not before making untruthful implications concerning the integrity of Harding, who by then was dead and could not defend himself.
Congress Promotes Supply-Side Economics
As Harding worked to keep his Cabinet under control, Congress worked to undermine the Progressive legislation that had gone into effect under Presidents Roosevelt, Taft, and Wilson. In accord with the new atmosphere of government partnership with business, antitrust laws were not enforced and many government agencies such as the Interstate Commerce Commission and the Federal Reserve Board were more sympathetic to the businesses they were monitoring than to the public they were supposed to be protecting. Companies in the same business were allowed to be in collusion in fixing wages, prices, and policies with regard to the government and other industries. To its credit, the Republican Congress in 1921 created the Bureau of the Budget, which for the first time provided the government with an accurate accounting of its income and expenditures and over the years proved to be a valuable tool for assessing past performance and planning government programs and appropriations. In addition, Secretary of Treasury Andrew Mellon introduced more efficient practice into government and crafted a set of tax laws that reduced taxes on individuals and business. During World War I, the national debt had climbed from about $2 billion to $24 billion in spite of a tax rate of as high as 66 percent. Mellon argued that lower taxes would free capital to be invested in production, which would eventually return a greater volume of tax revenue to the government due to an expanded economy. His theory was later echoed by the British economist John Maynard Keynes.
Mellon's policies carried through the 1920s and indeed the deficit was reduced to $16 billion. Most of the tax reductions went to the wealthy, however. Mellon defended this policy by saying that it is more beneficial to the general welfare if the rich have more capital to invest in large projects, than if individuals have more money in their pockets. Critics have claimed that by lowering taxes, excess cash became available for speculation on the stock market, thus contributing to the crash of 1929.
The Coolidge Administration
As Harding's vice president, Calvin Coolidge took office for the final year of Harding's presidency. He then ran for president the next year. The Election of 1924 was characterized by deep fragmentation of the Democratic Party over such issues as prohibition, progressivism, north/south sectionalism, urban/rural disaffection, and immigration. The Democratic convention chose John W. Davis, a conservative Democrat, to counter Coolidge, but the liberals decamped to field their own candidate, Wisconsin Senator Robert M. LaFollete, under a New Progressive Party banner. With the Democratic Party divided, Coolidge made a clean sweep into the White House. A no-nonsense New Englander, Coolidge believed "the business of America is business," and the sharks of industry forged ahead unrestrained in their ambitions, their production, and sometimes in their damage. Reserved, cautious, frugal, and intolerant of moral laxity, Coolidge quickly discouraged the "good ole boy" politicking that had led to scandal in Harding's administration.
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Coolidge's fragile state of health undoubtedly influenced his presidency. He has been characterized as the least active president in history, taking daily afternoon naps and proposing no new legislation. However, Coolidge inherited a number of issues from the Harding Administration. One issue was pressure from veterans to be repaid for wages they had lost while they were in the service. Veterans had pressured Congress into passing a "bonus" bill in 1922. Harding vetoed it, but Congress was again prevailed upon and passed the Adjusted Compensation Act in 1924. This act gave each veteran a paid-up insurance policy with a 20-year maturity date. The projected cost of the plan was $3.5 billion—a hefty sum for the time. Coolidge also vetoed the bill, but Congress overrode his veto in its fear of veteran voter backlash.
While veterans were pressuring Congress for compensation, American diplomats at this time indulged themselves with pacifist fantasies, and two million signed a petition to outlaw war. Though skeptical of its actual utility, Secretary of State Frank B. Kellogg took the petition to France and used it as a basis for the Kellogg-Briand Pact, which was eventually signed by 62 countries. Kellogg won a Nobel Peace prize for this diplomatic feat. Unfortunately, outlawing war was a concept limited to the imagination.
Foreign policy in the 1920s staggered under the burden of the foreign debt as America tried to squeeze the $10 billion owed to the Treasury from war-impoverished Britain and France. These countries then had no option but to pressure Germany, which was in even worse economic shape, to pay the $33 billion in reparations demanded in the Treaty of Versailles. Germany could not begin to keep up with its repayment schedule, and in 1923 France sent troops into the Ruhr Valley to force the issue. Germany responded by running the printing presses and allowing the German mark to inflate to an astounding one trillionth of its prewar value. Germany then tried to pay its debts with worthless paper, but runaway inflation proved catastrophic to German economic recovery and led to deep political unrest that fostered radicalism and fascism in the 1930s.
To attempt to pay their debts and finance recovery, Europeans borrowed heavily from American banks and other private sources, increasing the European debt burden to Americans. To repay these debts, they needed to be able to sell their goods in the vast American marketplace. But with American tariffs climbing ever higher, Europeans found themselves shut out of this avenue to recovery.
Many diplomats and political analysts of the time believed that the war debts and reparations should have been reduced or canceled, but those to whom the debts were owed did not want to lose hope of retrieving these payments. The Dawes Plan of 1924 streamlined the loan reparation/repayment revolving flow of money between Europe and America by reducing Germany's reparations and expanding American credit to Germany through government guaranteed loans. This scheme might have ultimately been successful except for the worldwide depression of the thirties. The last round of payments was made in 1933. In the final analysis, Germany paid to England and France what the Americans lent it, and England and France paid to America what Germany paid in reparations. Middlemen may have made money along the way, but the American economy still had to absorb the $10 billion loss as a cost of war.
The Hoover Administration
Calvin Coolidge declined to run in the 1928 presidential election, paving the way for Herbert Hoover who had ably run the Department of Commerce under both Coolidge and Harding. Hoover was educated as a mine engineer and had become a wealthy and successful businessman on his own merits before being appointed to Harding's cabinet. He had been brought up as a Quaker and espoused a practice of business and government that he called "Associationalism," a term that might be translated as individual initiative within a cooperative framework. This approach served him well in his business enterprises, when he served as head of the Food Administration for Belgian relief in World War I, and as secretary of commerce under Harding and Coolidge. He had never been elected to office, however, and found the ever-present campaign mudslinging by those in both parties to be a painful experience. His opponent, Al Smith, was a Catholic and a Tammany Hall Democrat from New York City who believed in ending prohibition. The country was not yet ready to give up the "noble experiment" of outlawing alcohol, however. In addition, many Americans did not like the idea of a non-Protestant president. Some also felt that a person born and bred in the urban environment of New York could not have either sympathy or understanding for those living in other circumstances.
The Election of 1928 was the first to combine old-time whistle stop campaigning with addresses to the electorate over the new-fangled radio. Although he was not a powerful orator, Hoover's plain speech and solid mid-western accent transmitted a sense of sincerity across the radio waves, while Smith's more flamboyant expressions and downtown twang did not come across well. Besides, the great prosperity machine was still running at full speed. Voters showed their approval of conservative government by voting in Hoover by a landslide as well as installing an overwhelmingly Republican Congress.
Except for the debt-riddled farming sector, the economy seemed strong when Hoover took office.
Profitable new industries seemed to make up for struggling old ones, and stock prices rose far above the actual worth of the companies they represented. These high prices were fueled by such levels of borrowing and speculation that the government became worried. Hoover tried unsuccessfully to slow speculation through the Federal Reserve Board, but it was too little too late, and the speculation bubble burst in October 1929 as a first harbinger of the long drop to the bottom of the Great Depression. |