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Politics of Boom and Bust. Chapter 32. What was the economic philosophy of Republican presidents in the 1920’s? Examples? . The Republican “Old Guard” Returns. Harding said America needed “Return to Normalcy” – elected 1921 People don’t want changes of Progressives

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The Republican “Old Guard” Returns

  • Harding said America needed “Return to Normalcy” – elected 1921
    • People don’t want changes of Progressives
    • Harding was weak, incompetent President
  • Ohio Gang
    • Harding’s corrupt friends were put into government offices
    • Several scandals involving people taking money from the government
  • Harding believed in laissez-faire
    • limited government
    • little role in business or personal lives
    • Old Guard Republicans manipulated Harding to allow business to dictate government
  • Tax cuts
    • Intended to increase investment
  • Supreme Court
    • Conservatives put on court and their decisions rolled back many Progressive reforms (Adkins v Children’s Hospital)

Harding Domestic Agenda

  • Anti-trust legislation was frequently ignored
    • Cooperation amongst businesses were encouraged if they supported efficiencies even at the expense of competition or free trade
  • Budget and Accounting Act
    • Established Bureau of Budget
    • Established General Accounting Office
    • Allowed public to see how money is being spent
  • Fordney-McCumber Act (1922)
    • Protective tariff – increased tariff to rates similar to 1909
    • Started tariff “war” – hurt the economy
      • Europeans needed to be able to sell to American markets to pay off war debts
  • Bonus Bill (Adjusted Compensation Act (1924)
    • Payment given to veterans from war for lost wages to be given in 20 years
  • Veterans Bureau
    • Created to provide hospitals and vocational training for war vets
  • War Industries Board was dismanteled following war
  • Esch-Cummins Transportation Act moved railroads from national control to private business
  • Merchant Marine Act (1920) ended US government controlled shipping fleet

America Seeks Benefits without Burdens

  • America First
    • Isolationism – no fighting in European Wars and stay out of affairs of other nations
  • Harding opposed League of Nations but sent observers to monitor proceedings
  • Washington “Disarmament” Conference 1921-1922
    • Designed to end naval arms race as Britain and Japan attempted to limit American naval growth
    • Five Power Treaty
      • Reduced size of Navies of US, UK, Japan, France and Italy.
      • Established ration of 5:5:3:1:1
      • 10 year hiatus on building battleships
    • Nine Power Treaty
      • Nations commit to following Open Door Policy in China
    • Four Power Treaty (US, UK, Japan, France)
      • Nations will respect each others colonial possessions in Pacific
    • Treaties did not limit construction of smaller naval ships
  • Kellog-Briand Pact (Pact of Paris) (1928)
    • “outlaws” war except in self defense

Stench of Scandal

  • Veteran’s Bureau (1923)
    • Charles Forbes stole money from building of veteran’s hospitals
  • Teapot Dome Scandal
    • Interior Secretary Albert Fall
      • Allowed oil companies led by Harry Sinclair and Edward Doheny pay him for rights to drill on federal land
      • Paid in cash, stocks, bonds
      • Both Sinclair and Doheny were acquitted in court
      • Symbolize corruption of era
  • Attorney General Daugherty was investigated for selling pardons and liquor permits

Calvin Coolidge

  • Calvin Coolidge becomes President when Harding dies of a heart attack
    • Silent Cal, No nonsense, typical New England – hard work, thrifty
  • Pledge to clean up corruption of Harding presidency
  • Domestic Policies
    • Believe if people work hard, they will succeed
    • Government should not help poor, charities should
    • Laissez Faire towards big business
    • Work with businesses, not against

Frustrated Farmers

  • Farmers suffer through difficult economic times
    • End of World War I drastically reduced prices because of increased competition, reduced demand and the elimination of government protections
  • Mechanization of farming such as tractors and reaper resulted in increased production
  • Farmer’s blocs created to pass laws to protect farmers
    • Capper-Volstead Act – exempted farmers from anti-trust laws
    • McNary-Haugen Bill would subsidize crops to keep prices higher
    • Government hold crops or sell them overseas
  • Coolidge vetoed bill

Foreign Policy Flounderings

  • US Isolationism in Europe
    • Does not follow the World Court; limited compliance with naval disarmament
  • Dollar Diplomacy
    • Policy to use financial and trade incentives to further American interests
  • US Intervention in Latin America
    • US sent military to Dominican Republic, Nicaragua, Mexico and others to protect American interests
  • European debt
    • France struggled repaying WWI debt and Germany struggled with reparations
    • US refused to allow debt cancellation
    • Dawes Plan (1924)
      • US extended German reparations and loaned Germans money to repay Britain and France who then paid America
      • Worked as long as US could extend credit
      • US credit ended with stock market crash
      • US was blamed for international crisis

1928 Election

  • Alfred Smith “Happy Warrior”
    • Democrat
    • Against Prohibition (Wet candidate)
    • Irish Catholic
      • Faced anti Catholic discrimination
    • Represented urban-rural conflict in America
    • Rose to power through Tammany machine
  • Herbert Hoover
    • Republican
    • Favored Prohibition (Dry candidate)
    • Would continue pro-business policies of Coolidge
    • “Chicken in every pot, a car in every garage”
    • Successful communicator through radio
    • Gained reputation during World War I as Food Administration for Europe’s war and reconstruction
    • Self made millionaire and business owner

Herbert Hoover

Al Smith


Hoover’s First Moves

  • Farmers did not benefit from booming economy and demanded support
  • Agricultural Marketing Bill (1929)
    • Designed to help farmers help themselves
    • Created Federal Farm Board
      • Fund to buy sell and store agricultural surpluses
    • Grain Stabilization Corp; Cotton Stabilization Corp
      • Organized to buy surplus to increase price
  • Hawley Smoot Tariff (1930)
    • Highest protective tariff for American industry in history
    • Effect was US exports and imports cut in half
    • It pushed US and other nations towards depression

Stock Market Crash

  • Investors buy stocks hoping price increases resulting in dividends
  • Margin buying
    • Borrow money to pay for stock, pay it back with dividends
  • Bubble
    • When price of product exceeds its value
  • Black Thursday - October 24, 1929
    • Stock prices begin to fall
    • Margin calls cause many to sell
    • Need to sell increases as prices fall
  • Bankers met and agreed to buy stocks at inflated prices to stop panic
    • Temporarily worked
  • Black Tuesday - October 29, 1929
    • Severe drop in the market
    • General Motors dropped from $73 to $8
    • $40 billion lost in 2 months

Problems in Economy

  • Gap between Rich and Poor
    • Production of factories increase
      • Profits of wealthy shot up
      • Wages of workers stayed same
  • Stock market crashed
    • Wealthy stopped investing
    • Average people could not buy products
    • Resulted in factories closing and unemployment
  • Foreign countries struggled paying back money borrowed from America for War
  • Holding companies owned stock in many companies
    • Interested in stock prices, not running companies

Great Depression

  • Stock market crash led to collapse of industry
    • Part of world-wide depression
  • 1 in 4 Americans unemployed – over 12 million lost jobs
  • Many became homeless
    • Some moved in shantytowns – Hoovervilles
    • Soup kitchens and bread lines became common
    • HoBo’s; “Hoover Blankets”; Brother Can You Spare a Dime
  • Run on Banks (over 5,000 banks closed)
    • Federal Reserve Act (1913)
      • Was supposed to give banks a reserve to prevent bank failures
    • Drop in farm prices meant farmers couldn’t pay back loans
    • Increased tariffs meant fewer foreign companies deposits
    • Banks did not have money to cover withdrawals
      • Resulted in failure of banks

Central Park, NYC


Causes of Depression

Farm Debt

  • Farmers needed loans to pay for farming
  • When farmers couldn’t repay bank, foreclosed the farm when loans weren’t paid then sold farm and its equipment
  • Farmer was left with nothing
  • Droughts destroyed crops in 1930

Decline in Trade

  • US raised tariffs to protect American businesses
    • 1930 – Hawley Smoot Tariff – highest tariff in history
  • Other nations responded by limiting trade with the US
  • Europe also struggled with reparations and War debt

Consumer Debt

  • Installment buying and margin buying increased personal debt


  • More goods than buyers
    • Overproduction drove prices down
  • Profits reinvested into factories and production instead of wages
  • New technologies created unemployment

Hoover’s reaction

  • Secretary of Treasury Andrew Mellon
    • Advised no government action
    • Weak companies would be weeded out of system
  • Hoover called on local governments and charities to help people and cut income taxes
  • Avoided direct assistance to homeless or unemployed
  • Attempted to improve economy by helping railroads, banks and rural credit believing success at top of economic chain would trickle down to rest of society
  • Tried to keep farm prices up with government subsidies
  • Spend money on public works projects and infrastructure
    • Hoover Dam
    • Vetoed Muscle Shoals bill as too “socialistic” because it would have government compete against private business
  • Reconstruction Finance Corporation (1932)
    • Gave loans to help banks, railroads, insurance companies
    • No aid to individuals
  • Federal Home Loan Bank Act
    • Helped people pay mortgages
  • Hoovers policies were unpopular but prevented a more serious collapse

Andrew Mellon


Bonus Army

  • World War I veterans marched on Washington demanding their bonuses be paid early
    • Were not supposed to be paid until 1945
    • 20,000 veterans went to Washington in 1932
  • Hoover responded by sending Army led by Douglas MacArthur to disperse them with bayonets and tear gas

Japan Invades Manchuria (in China)

  • Japan invaded Manchuria in China in September 1931.
    • Assumed Europe and America would not be able to respond because of Depression
  • League of Nations was unable to initiate an effective boycott of Japan
  • Stimson Doctrine (1932)
    • US would not recognize any territorial acquisition done by force
    • Did not slow Japan’s aggression