1. Politics of Boom and Bust
Chapter 32

2. What was the economic philosophy of Republican presidents in the 1920’s? Examples?

3. 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)

4. 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

5. 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
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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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