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 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” Herbert Hoover 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 Overproduction 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

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