But even the notion that the stock market crash caused the Depression itself is egregiously wrong. Although the market may have temporarily reflected a downturn in the economy, the Depression was a confluence of several dramatic shocks (especially the Smoot-Hawley Tariff Act), which were made worse by foolish Federal Reserve Board policies and then rapidly accelerated into the abyss by government attempts to “solve” the problems. We begin to correct the host of thoroughly confused writings about the nation’s worst economic episode with an accurate appraisal of the 1920s.
Time Line
1920:
Warren Harding elected president
1922:
Washington Conference
1923:
Harding dies in office; Calvin Coolidge assumes presidency
1923–24:
Upheaval in Germany; near collapse of Weimar Republic
1924:
Coolidge reelected
1926:
Locarno Pact
1928:
Kellogg-Briand Treaty; Herbert Hoover elected president
1929:
Stock market crash
1930:
Smoot-Hawley Tariff passes Congress; Reconstruction Finance Corporation started
1930–32:
Bank collapse; money supply contracts by one third
1932:
Franklin Roosevelt elected president
Return to Normalcy
Anyone looking at the American economy from 1919 to 1921 might have been completely misled about the future. The end of World War I brought the return of millions of soldiers and sailors to farms and factories in the United States and Europe, and the destruction wreaked by several years of combat had disrupted normal economic activities, fattened the U.S. government, and glutted the job markets. Farmers were especially devastated, with farm prices plummeting after the European farmers—who had been holding rifles instead of hoes just months earlier—abruptly returned to the land. In the United States, the weakening of the agricultural sector, although not in itself debilitating, had severe but largely hidden repercussions.
After 1921, however, the nation made a sharp U-turn. First came a new administration when Warren G. Harding defeated Woodrow Wilson’s handpicked successor, James M. Cox. Cox, a Dayton, Ohio, newspaper publisher and governor of Ohio, saw economic activity in a static bureaucratic way. In his view, the high national debt needed for the war had to be paid off by high taxes. He could not have been more wrong. Andrew Mellon, Harding’s secretary of the treasury, commissioned a study of why the wealthier classes had paid less and less in taxes as the government raised the tax rate on them repeatedly. He found that high tax rates actually drove money underground. The rich tended to invest abroad rather than build new factories and mills in the United States and then suffer from the 73 percent tax on any income from those investments. At any rate, Cox’s misfortune to be with the incumbent party during a recession was not aided in any way by his view that a correction required more of the same. Wilson’s League of Nations had proven equally unpopular, and the infirm president could not campaign for his would-be successor.
Oddly enough, Warren Harding (1865–1923), the winner in the 1920 election, would die before the ailing Wilson, whose series of strokes had left him little more than a figurehead during his final months in office. (Wilson hung on until 1924.) Harding had defeated Cox by the largest plurality up to that time in history, 16.1 million to 9.1 million (the electoral college vote was 404 to 127). The election was also notable for the showing of socialist Eugene V. Debs, who, while in jail, had still pulled almost 1 million votes, as he had in 1912 and 1916.
Debs had “run” for office from the hoosegow while Senator Harding essentially campaigned from his home in Marion, Ohio. A self-made man, Harding, like Cox, created a successful newspaper (The Marion Star). After his nomination by the Republicans, Harding copied Harrison, campaigning from his Marion front porch and greeting the more than six hundred thousand people who had made the pilgrimage. He invited many reporters to join him in a chew of tobacco or a shot of whiskey. When Harding finally hit the campaign trail, he told a Boston crowd that America needed “not nostrums but normalcy,” thus coining the phrase that became his unintended theme. His association with Madison Avenue marketing whiz Albert Lasker led him to introduce state-of-the-art advertising.4
Without a doubt, Harding’s most astute appointment was Andrew Mellon at Treasury. Mellon, whose Pittsburgh family had generated a fortune from oil and banking, understood business better than any Treasury secretary since Hamilton. After his study of falling tax revenues revealed that the amont of money gleaned from the upper classes had declined with each new rate increase, Mellon concluded that lowering the rates on everyone, especially the wealthiest classes, would actually result in their paying more taxes. From 1921 to 1926, Congress reduced rates from 73 percent on the top income earners and 4 percent on the lowest taxpayers to 25 percent and 1.5 percent, respectively, then down even further in 1929. Unexpectedly, to everyone except Mellon, the tax take from the wealthy almost tripled, but the poorer classes saw their share of taxes fall substantially. The nation as a whole benefited as the national debt fell by one third (from $24 billion to $18 billion) in five years.
Mellon’s tax policies set the stage for the most amazing growth yet seen in America’s already impressive economy. Had Harding appointed a dozen Mellons, he would have been remembered as a great president, but he did not, of course, and many of his appointees were of less than stellar character.
A Scandal for Every Occasion
Self-discipline and trustworthiness proved to be lacking in Harry Daugherty, the attorney general; Charles Forbes of the Veterans Bureau; and Albert Fall, the interior secretary—all of whom either directly or indirectly fleeced the government. Forbes resigned after a scandal in which he sold U.S. veterans hospital supplies to his friends; Fall resigned after the infamous Teapot Dome scandal, during which he granted favorable leases for government oil fields in Elk Hills, California, and Teapot Dome, Wyoming, in return for kickbacks totaling $400,000. Teapot Dome would join Crédit Mobilier as among the worst scandals in American history. It had its origins in a fight over the environment between “developmentalists” and “conservationists.”5 Had the conservationist wing of the Republican Party not become aware of the leases, which it opposed, and thus made a public issue of them, it is unlikely that the newspapers would have picked up on the issue or that the public would have exhibited such outrage. It would not be the last time that environmental issues would color the political debate over economic development.
Any one of the three scandals alone might not have damaged Harding. Taken together, however, the impact tainted his entire administration. Worse, swirling amid those scandals were the suicides of Charles Cramer, the counsel for the Veterans Bureau, and Jess Smith, an associate of Daugherty’s. An odor of corruption started to cling to Harding, who, Grant-like, had a knack for appointing crooks and bunglers. Harding commented after the unwelcome publicity that followed one suicide, “I can take care of my enemies all right. But my damned friends…they’re the ones who keep me walking the floor nights.”
In 1923, before any image restoration could occur, Harding died of a heart attack. His successor, Calvin Coolidge, although eminently capable, had altogether the wrong personality for using the public relations machinery of the White House to rebuild his predecessor’s image. On the other hand, as historian Robert Maddox concludes, “‘Silent Cal’ was in fact the only public figure to come away from the mess with his reputation enhanced.”6
As part of the twenties myth, Coolidge has been ridiculed as lazy, with one text even claiming that he “spent only about four hours daily on his executive duties,” and another offering without qualification that “Coolidge hardly worked at all: he napped in the mornings before lunch, dozed a bit after eating, [and then he] lay down for a few minutes prior to dinner.”7 Yet his work habits reflected the view of government’s role in Ameri
can life, and he also refused to play the public relations game that most politicians practiced. Coolidge had a remarkable ability to refrain from small talk. Known as Silent Cal, Coolidge was once the subject of a bet by two dinner guests: one woman bet another she could get Coolidge to say three words in succession. After several unsuccessful tries, she explained the bet to Coolidge, who said, “You lose.” Coolidge may not have been a friend of the elites, and he probably was not the quotable, boisterous type the public had become accustomed to with Roosevelt, but he was thoroughly American.
Literally born on the Fourth of July in 1872, Coolidge grew up on a Vermont farm. A redheaded youngster prone to allergies, Coolidge experienced a constant loneliness that stemmed first from punishments at the hands of his grandmother, then later, in 1890, from the death of his sister Abbie from appendicitis. These and other events contributed to Coolidge’s famous shyness and standoffish nature.
Young Coolidge moved off the farm, studied law, and advanced up the ranks in the Massachusetts Republican Party. He became governor of Massachusetts, where he demonstrated his approach to limited government. Explaining that public institutions could never take the place of the private sector and hard work, Coolidge saw self-government as meaning self-support. As Harding’s vice president, Coolidge avoided the scandals that had enveloped other members of the administration and remained clean. Appropriately enough, he was asleep at his father’s farmhouse the night that a postal messenger arrived with the telegram informing Coolidge that Harding had died, and he needed to take the oath of office immediately. The Coolidge home did not have a telephone, but it did have a notary public (Calvin’s father) to administer the oath of office by kerosene lamp. Silent Cal pulled off a silent coup within the GOP itself, effectively overthrowing the old guard in that party that had stood with Harding. In his inaugural address—an astoundingly brief 102 words—Coolidge warned Americans not to expect to build up the weak by pulling down the strong, and not to be in a hurry to legislate. When a business or union endangered the public, however, Coolidge acted with decisiveness and skill. During the 1919 Boston Police strike, the then-governor Coolidge had given the strikers enough rope to hang themselves when public opinion ultimately turned against them. At that point he summoned the National Guard, stating that there was no right to strike “against the public safety at any time.”8 That perspective remained with President Coolidge, and it sent a message to business and consumers that he would protect private property from government confiscation.
Government expenditures plummeted under the Republicans, falling almost to 1916 levels. Outlays remained low under both Harding and Coolidge (though they soared under Herbert Hoover), and even after defense expenditures were factored in, real per capita federal expenditures dropped from $170 per year in 1920 to a low of $70 in 1924, and remained well below $100 until 1930, when they reached $101.9
Coolidge’s reluctance to involve the government in labor disputes combined with general prosperity to drive down union membership. Unemployment reached the unheard-of low mark of less than 2 percent under Coolidge, and workers, overall, had little to complain about. The AFL’s membership dropped by 4 million during the decade, and overall union membership shrank slightly faster. Union leaders shook their heads and complained that affluence and luxury produced by the economy had made unions seem irrelevant. But business had contributed to the weakening of unions as well through a strategy called welfare capitalism, preemptively providing employees with a wide range of benefits without pressure from unions. Government refused to support strikers, and when the Railway Brotherhoods rejected the Railway Labor Board’s 12 percent reduction in wages for shop men, the subsequent labor stoppage was met with an injunction from Attorney General Harry Daugherty.
Government’s shifting attitude toward workers, which had been increasingly favorable prior to the 1920s, reflected the difficulty of having Washington involved at all in such matters as setting private sector wages. Many such episodes of the government’s refusing to act clearly illustrated the central belief during the Harding-Coolidge years that the government should butt out. The Supreme Court largely agreed, ruling on a number of issues related to government interference: whether to impose taxes on “undesirable” products (those manufactured by children), Bailey v. Drexel Furniture Company (1922), or to require that companies pay minimum wages, Adkins v. Children’s Hospital (1923). In so doing, the Court reflected the culture of the day in which children often assumed adult roles in their early teens, and although adolescents were victimized in some instances, the workplace often remained the only path to upward mobility for those who lacked the opportunity to attend college. In addition, the refusal to allow government to set minimum wages for women, far from aiming at depriving women of better-paying jobs, was designed to strengthen the role of the husbands who were primary breadwinners in families.
An Economic (and Cultural) Goliath
Harding’s scandals and untimely death did nothing to impede the steadily expanding economy. Both Harding and Coolidge proved to be good friends to business if only because they moved the federal government out of the way of economic growth. The main fact was this: unleashed, and with government playing only a small role in people’s everyday affairs, American entrepreneurs produced the most vibrant eight-year burst of manufacturing and innovation in the nation’s history. It was a period that easily compared with any other eight-year period at any time, anywhere, including during the Industrial Revolution.
American businesses did more than simply turn out more goods, as is implied by critics of the Roaring Twenties. They fostered an environment that enabled the invention of breakthrough devices and products that fundamentally changed the structure of society, perhaps more than the Industrial Revolution itself. Consider the automobile. Prior to the widespread availability of cars—made possible in large part by Henry Ford’s moving assembly line and his keen understanding that what people needed was an affordable automobile—people either walked, took trains, or sailed on ships and riverboats. Auto registration rose from just over 9 million in 1921 to 23 million by 1929, whereas automobile production soared 225 percent during the decade. Ford, of course, had already seen demand for his own product peak prior to the war, when the price of a Ford Model T stood at $345, allowing Ford to sell 734,000 units.
Ford’s company already was being eclipsed by a new giant, General Motors (GM), a merger of Chevrolet, Oldsmobile, Buick, Cadillac, Fisher Body, Delco, and other firms. Between 1918 and 1920, William Durant, GM’s founder, created a company that could satisfy all tastes (whereas with Ford’s Model T, “You could have any color you wanted as long as it was black”). Durant, however, was unable to manage the monster he had created, yielding control to Alfred P. Sloan Jr., who led GM’s surge past Ford during the decade. Whether a Ford or a Chevrolet, however, it was irrelevant which auto Americans drove. What was important was that they were driving more than ever before, generating an unprecedented demand for a wide variety of related materials—metal, lumber, steel, cotton, leather, paint, rubber, glass, and, of course, gasoline. Production of a vast legion of auxiliary items sparked expansion in those businesses as well as in all the firms needed to supply them. Cement plants, housing construction, gasoline, and spare parts firms grew at a dramatic rate. Moreover, the demand for autos led to a related clamoring on the part of drivers that cities and states build roads. State highway road construction soared tenfold between 1918 and 1930. As politicians moved to meet the public need for roads, often through bond financing, states and municipalities often turned to Wall Street either to supply the capital directly or to place the bond issues.
In ways less visible, though, the auto also encouraged opportunity and occupational freedom never before seen in American history. People were no longer tied to inner-city jobs or to sharecropper farms. Instead, they had hope that good jobs awaited just down the road or in California, which itself became a success story during the decade.
Another new technology, the ra
dio, had also leaped onto the scene. The Radio Corporation of America (RCA) had been formed in 1919 to take over the assets of the American Marconi Company. The new radio medium utilized broadcasting in which the transmitter sent signals out over the airwaves for whoever wanted to pick them up, as opposed to the two-way wireless communication associated with a walkie-talkie. RCA expected that it could make money by providing the broadcasting free and selling the radio sets. In 1920, Westinghouse, one of the RCA partners, applied for the first radio station license, in Pittsburgh, and on November second of that year some five hundred listeners tuned in to coverage of Harding’s presidential victory. The following week the first World Series broadcast was heard. By 1922 more than two hundred stations were operating, and radio soon began to feature paid advertisements for products, giving birth to the modern practice of sponsor payment for programming on public airwaves.
Perhaps it was no coincidence that the best-known baseball player of all time, and perhaps the most dominant athlete in any sport at any time in American history, George Herman “Babe” Ruth (1895–1948), captured America’s imagination just as radio could broadcast his exploits, among which was setting the record, in 1927, of sixty home runs in a single season. A larger-than-life figure, Ruth not only led all of baseball in both home runs and strikeouts, but according to most contemporary newspaper accounts, he also surpassed any other player in his ability to party all night, carouse, smoke cigars, and then play a doubleheader.10
A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror Page 89
