by Robert Sobel
During the last four years the actual prosperity of the people, combined with the greater enlightenment of the industrial leaders, has removed from politics all serious economic causes of agitation. There has been no pressing reason for an alignment of “haves” and of “have nots,” and no reader of history needs to be told that when you remove economic discontent you remove what is certainly the greatest cause, if it is not the mainspring, of political activity. Politics carried on for justice, for liberty, for prestige, is never more than the affair of a minority. For the great majority of men political ideals are almost always based upon and inspired by some kind of economic necessity and ambition.
Other observers were not as sanguine as Lippmann. To them the American economy was dangerously unstable and liable to collapse. This was a period when several Austrian economists, among them Ludwig von Mises and Frederick Hayek, were arguing that artificially low interest rates were setting up the world economy for a major blowoff. During the Great Depression these critics and other like-minded individuals were featured in the press and public discussions as having accurately predicted the disaster, while bankers, stock market manipulators, and the Republican presidents of the 1920s, including Coolidge, came to be blamed for the bad times. Couldn’t they have realized the weaknesses in the system and done something to correct them? The answer was “no” to both. Because of this, the nature of Coolidge’s response to the economy is one of those features of his life and administration that requires attention and analysis.
William Z. Ripley, a well-known Harvard economist, was one of the American economists who in the Coolidge years sounded warnings about the economy, and, later, critics of the Washington leadership would invariably quote his statements. In Ripley’s view, American business was replete with unsound practices. To him, the leaders of American industry, especially the railroaders and their banker allies, were robber barons whose baleful influence and power were harming the American people. Their powers would have to be curtailed, their practices reformed.
At a time when academics were largely anonymous, Ripley became a fairly well-known figure. He ultimately earned a meeting with President Coolidge because he had written an article—which he later turned into a book—that came to Coolidge’s attention. This encounter became a touchstone for historians of the period, a symbol of the Coolidge approach to what, in retrospect, was the greatest economic tragedy in American history, the Great Depression.
In a January 1926 Atlantic Monthly article entitled “From Main Street to Wall Street,” Ripley argued that lax state incorporation laws and the growth of holding companies, especially in public utilities, were concentrating power in Wall Street. He was also concerned about the use of no-par capital stock, which to him indicated frivolous financing, and about the nonvoting stock some companies had begun to issue. Moreover, Ripley demonstrated how some companies’ financial reports—in those pre–Securities and Exchange Commission days, financial statements were not monitored—did not reflect the true situation of the corporations; some companies didn’t even issue reports. He also bemoaned the lack of responsibility taken by shareholders, many of whom didn’t even bother to vote; he saw the separation of ownership and management as a fundamental problem facing the nation. Although Ripley’s attitude appears strange to today’s investors, who don’t want the responsibilities of overseeing a company, he lived through an era that witnessed the great merger and incorporation wave that started to transform the face of American business—small, local companies disappeared into regional and national giants.
Although Ripley and his followers yearned for the time when a company’s assets were physical—like railroad cars, buildings, and machinery—there was a larger contingent, including some eminent academics, who believed the nation had entered a “new era” in which the old verities were no longer valid. They argued that intangibles such as trademarks, brand names, and labor forces were starting to count for more than they had in the late nineteenth century. Lippmann, for instance, suggested there was a “New Capitalism” abroad in the land, led by a new breed of businessman. He said, “There is no doubt that the large corporations are now under the control of a very different kind of man than they were when Roosevelt and Bryan and La Follette were on the warpath.” He continued:The new executive has learned a great deal that his predecessor would have thought was tommyrot. His attitude toward labor, toward the public, toward his customers and his stockholders is different. His behavior is different. His manner is different. His press agents are different. I am far from thinking he is perfect now, but I am certain that he is vastly more enlightened and that he will take ever more trouble to please. He is no doubt as powerful as he ever was, but his bearing is less autocratic. He does not arouse the old antagonism, the old bitter-end fury, the old feeling that he has to be clubbed into a sense of public responsibility. He will listen to an argument where formerly he was deaf to an agitation.
Lippmann spoke for those who challenged the pessimism of Ripley, stating, “Whatever may be the intrinsic good and evil of such things as the wide distribution of securities, however questionable may be some of the practices to which Professor Ripley has called attention, the net result of the new attitude on the part of capital has been to create a new attitude on the part of the public.”
Ripley’s writings had attracted the attention of Judson Welliver, a former Coolidge assistant who had become editor of the Washington Herald. Many years later, during the Great Depression, Welliver told William Allen White how the president came to be aware of Ripley. He said he went to see Coolidge about what he, Welliver, had read, and also spoke of his fears that speculation had gotten out of hand on Wall Street. “Well, Mr. Welliver,” Coolidge began, “even if you and Professor Ripley are right about it, what is there I can do? The New York Stock Exchange is an affair of the state of New York, not of the federal government. I don’t think I have any authority to interfere with its operations.”
The trouble with this recollection is that at the time Welliver was no longer on the White House staff, having left on November 1, 1925. And Coolidge was not in the habit of holding casual conversations with newspapermen, even former associates—although it could have happened.
“But Mr. President,” Welliver continued, “whether through the Federal Trade Commission, the Federal Reserve Board, or any other agency, you have legal authority, you are the president and have a measure of moral authority that would be effective. President Roosevelt and President Wilson many times invoked this moral authority, and made it effective.” Welliver suggested that Coolidge invite Ripley to the White House: “This gesture of interest in him, at this time, will be all the hint the stock market boys will need.” Coolidge agreed to do so.
Coolidge knew Ripley from his days as Massachusetts governor, and had even consulted with him on economic matters. In addition, he had discussed Ripley’s 1926 article at several of his press conferences. On August 27, 1926, for example, he spoke of Ripley’s criticism of nonvoting stock, and about state “blue sky” laws that controlled the issuance of equities. “So I assume,” Coolidge had said, “that what Professor Ripley is discussing is the question of corporate financing and the management of its business and the opportunity of the ordinary investor to get accurate information in relation to his investment.” All of which, he told reporters, was clearly within the purview of the states, not the federal government.
According to Welliver, Coolidge greeted Ripley, and the two men sat and talked for hours, with Ripley doing most of the talking, and Coolidge smoking and listening. Although Coolidge had to break for an appointment, he asked the professor to return in the afternoon, and at that time Ripley spoke of the dangers in the economy, of how speculation was triggering a massive bull market. Later he would tell Welliver about the “prestidigitation, double-shuffling, honey-fugling, hornswoggling, and skulduggery” being practiced.
In a letter to White eight years later, Ripley wrote that Coolidge leaned back in his chair and asked, “We
ll, Mr. Ripley, is there anything we can do down here?” “No, it’s a state matter,” Ripley replied. Coolidge had been right—nothing could be done at the presidential or even the federal level. Besides, few at the time agreed with Ripley’s forebodings. As we have seen, this was a period of peace, prosperity, and business expansion.
Nevertheless, when the meeting took place—probably in early 1927—the boom on Wall Street was not too heady, prices were not abnormally high. The postwar depression ended, and business was expanding. Earlier in the decade, trading volume had grown, jumping from 261 million shares in 1922 to 452 million in 1925. But then activity leveled off.
Though prices continued to rise, the figures were not outlandish. As measured by the Dow-Jones averages, the market had gone nowhere in 1926—the Industrials started out at 156.66 and ended at 157.20, while the Rails rose from 112.93 to 120.86. In the January–March 1927 period, during which Ripley probably visited Coolidge, the Industrials traded between 155.20 and 160.08, not a particularly lively market. There had certainly been an upward move until that time, but it was hardly wild; in January 1920, even as the country was experiencing postwar economic problems, the Industrials had traded above 100, and the Rails were in the mid-70s. True, trading was 50 percent higher seven years later, but this was a period of economic growth and high corporate earnings. So it is puzzling that Welliver and Ripley thought prices were high.
As it turned out, their warnings were ill-timed. The real boom didn’t hit until a year or so later; in April 1928 the Dow Industrials was over 200. This suggests that the alarms were being rung in the early stages of a major bull market. The Industrials would top out in September 1929 at 381.17, more than doubling since the early 1927 warning.
Welliver and Ripley didn’t know at the time that the market was about to soar; and Coolidge did not know there would be a crash a year-and-a-half later. This is not to say that Coolidge refrained from acting because he thought that the market was healthy, or that, if it were in trouble, the federal government had no duty to interfere. He only gave off signals and made some comments, but, as usual, he made no definitive statement revealing what he truly thought of the situation.
Both he and Ripley were correct in believing that regulation of the New York securities markets was a state matter. But in 1927–1928, Governor Al Smith did nothing about the situation on Wall Street, perhaps because he did not believe it dangerous. Nor did Governor Franklin D. Roosevelt, who was sworn into office only nine months before the Great Crash.
Coolidge’s inaction did not reflect a lack of concern for the economy and the market. In fact, inviting Ripley to the White House and listening to him for hours showed he was concerned. But what could he do? Even Ripley had little by way of agenda to offer, and he did not think the situation critical. At the end of his Atlantic Monthly article, he wrote:I would not conclude with the advocacy of any particular plan. The first duty is to face the fact that there is something the matter. For a remedy I am groping as yet like a child in the dark. I am conscious that things are not right. The house is not falling down—no fear of that! But there are queer noises about, as of rats in the wall or borers in the timbers. I believe that the trouble has to do with the dissociation of ownership of property from responsibility for the manner in which it shall be put to use.
In short, Ripley was not calling for government intervention. Rather, he appealed to shareholders themselves, and he sought ways to energize these people to take command of business—what some today might call “shareholder capitalism.”
Critics of Coolidge often doubt whether he understood what was happening on Wall Street. He was not, of course, an economist. Only two presidents—Ronald Reagan and George Bush—have majored in economics in college, and both had probably forgotten whatever they learned by the time they arrived at the White House. Most presidents learn on the job, which is what Coolidge did. He held to his core principles, and never veered from them.
But Coolidge knew much more about the economy and Wall Street than most realize. The evidence for this, as with so much regarding Coolidge, comes from letters to his father.
On January 21, 1897, the twenty-five-year-old Coolidge wrote to his father about the prospects for a new street railroad:Mr. Hammond has gone today to look it over, he has had the matter in mind for several years. If the road is made the Northampton Company will lease it for twenty years and guarantee 5 percent dividend. This stock is not taxable in this state. It will rise above par…. I do not feel that I can advise you at all in a matter of this kind. I only thought you might like to consider it. Should you desire to examine it further, I should be pleased to keep you informed as it progresses or declines.
In a letter of September 30, 1897, Coolidge sent his father information regarding the Northampton & Amherst Street Railway, a new company. “It seems to me that the enclosed promises to be a good investment. Street ways around here have always paid well and the stock has risen above par.”
This was a period when fortunes were made in trolley car lines by the so-called “traction magnates,” which included Nelson Aldrich of Providence, Peter A.B. Widener and William L. Elkins of Philadelphia, and Charles T. Yerkes of Chicago. Recommending such stocks at that time was like suggesting the purchase of shares in software companies today. Then again, this was a period when prudent investors purchased and held railroad bonds, not stocks. His recommendations were somewhat racy for the time. Coolidge recognized this. In a letter postmarked October 4, 1897, he told his father, “Now of course I do not believe in speculation any more than you do. I think I am more timid in making investments than you are—and on which I do not believe I should dare to make and on which I presume the returns are ‘small’ enough to please even you.”
Coolidge also seemed to understand some of the dynamics of an international economy. In a February 26, 1898, letter to his father, he wrote, “There is considerable chance of a war with Spain and a more remote war involving all of Europe which no one can tell the end. These conditions will very probably cause Govt. Bonds to fall in price.”
Not many of these letters survive. There were two in 1908, when Coolidge was a member of the Massachusetts House of Representatives. In one he referred to the quarterly dividend of the Union Pacific Railroad, a stock he earlier had recommended John Coolidge purchase. Then, a letter of May 26, which sounds like market letters of the 1920s, offered an analysis of several stocks: Good securities in railroads sell in good times on about a 4 percent basis. U.P. has not paid 10 percent for two years, yet it sold at 195. Penn has been to 180, Anaconda to 75. There is every human probability that in the course of a year they will go higher than they are now. Copper is only 13 cents now; last year it was 26. I do not know where you could put money with any better prospect of a fair return on a safe investment than leave it in these securities for the present. There will come a time when it is best to sell and take 3½ percent in a safe bank. That will be when times are good like they were last year in the winter. It is very likely these will drop off 10 or 15 percent—not points—but there is the same likelihood they will thereafter go higher than they are now. It usually takes two years or more for business to recover. No one can tell when it is best or worst. This is all I know or anybody else about the general market. You use your own judgment, if you think the nation won’t get any more prosperous than it is now, sell.
Apparently the Coolidge of 1927–1928 had the same interests and concepts as the Coolidge of twenty years earlier; he was monitoring the markets and had some idea of what was happening. In any event, at the time of the Coolidge–Ripley meeting neither the economy nor the markets appeared a major concern. Indeed, no consequential problems were present or on the horizon.
After Charles Lindbergh’s visit to the temporary White House, the Coolidges departed for their vacation in the Black Hills of South Dakota, arriving there on June 15. Washington was closed down for the summer, but Republican Party Chairman Butler was busy preparing for Coolidge’s renomination in 1928. The pre
sident would not go unchallenged, for Columbia University President Nicholas Murray Butler, a perennial hopeful, had indicated he would enter the contest. And some progressive Republicans were talking about backing Hoover, but the commerce secretary wasn’t making a move. Instead, Hoover was making another of his many reputations by leading the fight against the Mississippi River flood, but he could not translate the popularity earned along the Mississippi into support at the convention.
There were several major news stories that year. The biggest revolved around the speculation regarding whether Nicola Sacco and Bartolomeo Vanzetti would be executed for their crimes. There was the Florida land boom, one of the largest speculative bubbles in the history of real estate, which was deflated in the aftermath of a hurricane in September 1926, but in the summer of 1927 speculators did not yet fully realize it, and Florida land prices were rising once more. The Geneva Conference on Naval Reduction opened, but Coolidge had nothing to say on the matter. Baseball, not politics, interested the American people. Somewhere in between was the stock market. Industrial stocks were trading in a narrow range, but the Rails were moving higher, close to an all-time record.
In late July Coolidge told his secretary, Everett Sanders, “Now—I am not going to run for president. If I should serve as president again, I should serve almost ten years, which is too long for a president in this country.” After recovering from his surprise, Sanders remarked, “I think the people will be disappointed.” Coolidge said nothing, but handed Sanders a slip of paper on which he had written, “I do not choose to run for president in nineteen twenty-eight.” Sanders asked, “You feel sure that you have reached a definite decision about the matter?” Coolidge said he did, to which Sanders replied, “Well, since there is no occasion for speaking now, I do not see why there should be any hurry about making the announcement.”
