THE POLITICS OF BOOM AND BUST

Chapter 32

Republican “Old Guard” Returns

• Warren Harding was one of the best-liked men of his generation.

• But, weak, inept and only a mediocre mind.

• The country wasn’t looking for more. – Why?.

• Harding surrounded by scoundrels. – “Ohio Gang”

GOP Reaction At The Throttle

• Harding = Laissez Faire • Progressivism was dead.• Goal was Laissez-faire plus; help guide

business toward profits. • Put many like-minded people into

administration and the courts.• In Harding’s three years as President, he

appoints four S. Ct. judges. – Taft as Chief Justice

Rolling Back Progressivism• In 1920s the Supreme Court supported

business. – minimum wage law. – federal Child Labor law, – Adkins v. Children’s Hospital overturned a law that

gave women special protections in the work place.

• Progressive legislation regulating business was ignored and unenforced.

• trade associations.

The Aftermath Of War• After war, Government got out of the

governmental control of business • Merchant Marine Act of 1920

– Purpose?

• Labor saw major setbacks. – A violent steel strike crushed in 1919 – Membership in unions declined by nearly

30 percent between 1920 and 1930. – Strikes were ruthlessly crushed.– RR strike injunction.

Veterans• Veterans were one of the few

groups to achieve lasting gains through the war.

• 1921 Veterans Bureau

• American Legion

• Adjusted Compensation Act– Bonus bill in 1922. Harding vetoes.

– 1924, Congress repasses the bill.. • Terms?

• Cost 3.5 billion.

– Coolidge vetoes, but Congress over-rides.

Benefits Without Burdens

• Harding was intent on isolationism, but U.S. couldn’t be completely isolationist.

• US still technically at war with Axis– 1921 Congress passed a joint resolution that declared the war officially

ended.

• Republicans continued to despise the League of Nations – Eventually forced to send unofficial observers

• Mid-East: GB and America were competing for oil-drilling rights of oil-rich Arab nations

• Business wants disarmament. Why? • Hard to draw down the navy. Why?

Five-Power Naval Treaty

• Washington “Disarmament” Conference in 1921-22.• Two main issues: Naval disarmament and the situation in the

Far East.• What does the US propose??• Becomes the Five-Power naval Treaty of 1922:

– US England and Japan agree to ratio of 5:5:3– Brits and Americans agreed not to fortify their Far East possessions,

including the Philippines. Japan has no such restrictions.– Anglo-Japanese alliance replaced by the Four-Power Treaty. Brit,

Japan, France and US agree to preserve the status quo in Pacific.– China boosted by Nine-Power Treaty of 1922 which guarantees a full

open-door policy in China.• What is the flaw in the treaty?

Limits Imposed by Washington Conference, 1921–1922

Kellogg-Briand Pact (1928)• Idealistic Americans urged nations to

foreswear war as an instrument of national policy.

• US Sec. of State Kellogg reluctantly supports after nearly 2 Million US signatures

• Signed by 62 nations pledging not to use war as an instrument of national policy.

• Americans believed that this would prevent war.

• Huge loop-hole.

Hiking The Tariff Higher• Isolationism reflected in economic policy. • Business wanted to keep American markets for

American business. • Fordney-McCumber Tariff Law. 1922 Hiked tariff

from 27 percent to 35%. • President given the power to raise or lower tariffs by

50%. Mostly used to adjust rates higher. (32 up, 5 down)

• Tariffs hurt European countries trying to recover from the war and pay war debts.

• Leads to international tariff war and to feeling of economic oppression in countries such as Germany.

The Stench Of Scandal

• Harding Administration was beset with scandals.

• Charles Forbes,

• Attorney General Daugherty

• Teapot Dome- What happened?

Harding Dies

• Harding dies in August, 1923, before the full scope of these scandals has come to light.

• His administration is the most scandal-ridden since Grant.

• Coolidge President.

Calvin Coolidge• Coolidge embodies Yankee

Puritanism.• Is not a dynamic leader. • His policies compared to

Harding?• His five years are relatively

uneventful and isn’t forced to grapple with any serious crisis.

• Coolidge helps to save the Republican Party. How?

Frustrated Farmers

• Farmers hit hard after the war. Prices plummet. Why?

• In 1920s one-in-four farms goes bankrupt.

• Great depression starts in farm economy long before it hits the rest of the economy.

• Capper-Volstead Act.

• McNary-Haugen Bill. What would it do?– Coolidge twice vetoes this measure. Political ire of

farmers stays high as a result.

Election of 1924• Rep. nominate Coolidge to be elected in his

own right, and he campaigns on the basis of the status quo.

• Democrats are hopelessly divided – Nominate John W. Davis, a wealthy corporation

lawyer who didn’t excite anyone. 102 ballots

• La Follette runs as third-party Progressive candidate.

• Coolidge wins nearly 2-1 over Davis.

The Debt Problem• Biggest foreign policy issue in second Coolidge term

was foreign debt owed US.• America had gone from a debtor nation before the

war to a creditor nation after the war. • The dollar was beginning to supplant the Pound

Sterling.• America had loaned 10 Bill. to Allies during and after

the War, and American investors had loaned an equal amount to Europe in the 1920s.

• US wants this money back, but Allies are having a hard time repaying.

Europe asks for a Break

• Allies argue that US should write off as war expense.

• What is their argument?– Allies had sacrificed millions of lives while sat on

the sidelines. Allies can’t get repaid for lost lives and manpower.

– US tariffs making it very hard to earn the money necessary to repay the debt.

– Money Allies had borrowed had been spent in US, helping to refuel the US economy.

Unraveling The Debt Knot

• American government intransigent on debt.• Allies response? • Effect on Germany.• German reaction? • Many urged that debts and reparations be drastically

scaled down or canceled.• Coolidge response• Contribution to isolationism.• 1924. Dawes plan.

– Why is it fatally flawed.

Election of 1928• Coolidge decides not to run.• Herbert Hoover.• Hoover platform.• Democrats, still quite divided,

nominate liberal New York Governor Al Smith. Seemingly and odd choice. Why?

• Many dry, rural, fundamentalist democrats choked on his candidacy.

Hoover• Hoover is American success story. • Against foreign entanglements.

Believed in isolationism.• Had never run for or held office

before. He was used to the business model. – Uncomfortable asking for votes. Shy

and standoffish personally.

• Integrity and personal honor; great humanitarian administering US foreign aid.

• Very efficient and very bright.President Herbert Hoover

poses with his dog, King Tut.

Hoover Landslide• Hoover runs as a business candidate.

• Did have some progressive instinct.

• Hoover and Smith try to keep the campaign clean, but minions take it into the sewer.

• “Rum, Romanism and Ruin.”

• Hoover wins in a landslide, and Smith can’t even hold all of the solid democratic South.

• Also a very solid Republican majority in Congress.

Presidential Election of 1928

President Hoover’s First Moves• Economy was roaring, but Farmers and non-union wage earners

were not getting their share of the prosperity:.• Hoover did not believe in direct aid. Wanted private sector

response. • Agricultural Marketing Act. Sets up Federal Farm Board.• What does it do? Why doesn’t it work?• Farmers then turn to the tariff to cure their ills. • Leads to the Hawley-Smoot Tariff of 1930. Probably one of the

worst pieces of legislation in US history. Why?– Biggest tariff in US peacetime history.– Raised tariff from 38.5 to nearly 60%. – Foreign nations outraged. – Seemed to be a declaration of economic warfare. – Helped push the world toward depression. layed into the hands of rising

Nazism in Germany.

Stock Market Crash• Economy was near the

bursting point. – Prices on the stock market

were vastly over-valued. – Many had bought on the

margin. Problem with this.

• Black Tuesday. October 29, 1929. – Causes– In two months, investors lost

40 Bill, in paper value. More than total cost of WWI.

Great Depression• Opening bell of the worst and longest

depression in US and World history. • By the end of 1930, more than 4 Million

unemployed. By 1932, 12 Mill. • Wages and hours slashed. People

weren’t buying, so factories weren’t producing, so there were no jobs.

• Many lost their life’s savings in the Market.

• Was a huge hit to the America Psyche. – Where was Manifest Destiny?– Where was the American Dream?

Causes of the Great Depression• Over-production of both farm and factory. • Too little being paid in wages.• Over-expansion of credit through installment buying helped

over-stimulate production and over-extend the buying power of consumers.

• Technology pushed people out of jobs.• Economic anemia overseas caused by the debt burden (and

Hawley-Smoot). Dried up purchasing from Europe.• Terrible drought in the Mississippi Valley caused a number of

farm foreclosures, putting farmers out of business.• Antiquated economic theory• Lack of deposit insurance

Rugged Times For Rugged Individualists

• Hoover trapped by traditional economic theory

• Had great sympathy for those suffering.

• Wedded to the idea of Laissez faire, saw governmental handout as sacrilege.

• Why did he fear governmental handouts?

• Hoover believed that recovery was just around the corner.

Hoover Props Up Business• As the depression drags

on private relief organizations run out of money.

• Hoover agrees to provide aid to RR, banks and credit corps.

• What is the intent.– What do critics claim?– Why doesn’t it work?

Herbert Hoover: Pioneer Of The New Deal

• Hoover eventually recommends that Congress vote 2.25 Bill. for useful public works.

• 1932—Reconstruction Finance Corporation (RFC).

• Norris-La Guardia Anti-Injunction Act.

• Compared to his predecessors Hoover did a great deal.

• Republican Congress was often very hostile to Hoover’s plans.

The Bonus Army In Washington• Vets of WWI were hard hit. • Bonus Expeditionary Force.

Congress, riots ensue and two are killed.

• Hoover orders the army to force the marchers to leave.

• Gen. Douglas MacArthur. Battle of Anacostia Flats.

• Brings down more abuse on Hoover.