Mr. Sandler
US III
Name:________________________________________
Unit: The Great Depression
LT 1: Government Policy prior to the Great Depression
The Economy and Laissez Faire
Warm-up: Use the graph to explain whether we are still in a recession today. How do you know?
Economy:

Production:
Distribution:
Consumption:
Examples of ECONOMY
1. The war altered the country's economy by...
2. An increase in tourism will help the city's economy. (How?)
3. Create your own example sentence which shows you understand the definition:
Private vs. public sectors of a society
Regulation:

Policy:

Directions: Use the article below to answer the questions on the back. You do not need complete sentences.
Laissez Faire in the 1920s
Economic Policy of the Harding, Coolidge, and Hoover Administrations
Nov 18, 2009 William L. Wunder
The three Republican administrations [government staff] of the 1920's adhered to a hands-off policy when it came to the government's
relationship to the economy.
After a world war and the progressive crusading of Presidents Theodore Roosevelt and Woodrow Wilson, Americans in 1920 were
ready to get down to business. Republican nominee for president, Warren Harding, sensed the mood change…The stage was set for
laissez faire: the…policy opposed to government regulation of or interference in the economy.
As president, despite supporting federally funded highway construction, Harding followed laissez faire to the letter. He rejected a
minimum wage and always sided with company owners during strikes, "American business isn't a monster. It is the guardian of our
happiness." During the President's Conference on Unemployment in 1921, Harding remarked that any plan involving government
spending would increase trouble.
Balanced Budget
After Harding's untimely death in 1923, Calvin Coolidge grasped the laissez faire baton. "The chief business of the American people
is business," he proclaimed. Business was also a religion to Coolidge, "The man who builds a factory builds a temple...The man who
works there worships there." Further, "man has a right to make as much money as he can, and the more money he makes, the more he
can pay his workmen."
Coolidge believed that "the government can do more to remedy the economic ills of the people by a system of rigid…public
expenditure [spending].." He successfully balanced the budget, reduced the government’s deficit [amount spent beyond what one
earns each year], and steered clear of social programs [helping the needy]. River control projects, farm relief, and WWI veteran bonus
payments were deemed [considered] too expensive. Meanwhile, the general economy boomed.
Andrew Mellon
But the chief architect of economic policy of all three administrations was Secretary of the Treasury Andrew Mellon. He viewed
government as "just a business and can and should be run on business principles." Mellon believed money should stay in the private
sector, "when initiative [the ability to act on your own] is crippled by legislation [laws] or by a tax system which denies him the right
to receive a reasonable share of his earnings, then he will no longer exert himself [make an effort]..."
Central to Mellon's strategy was tax reduction, "a decrease of taxes causes an inspiration to [buy and sell goods and services]." Mellon
achieved an elimination of the war profits tax, a sharp reduction of the excess profits tax, and cuts in the rates of corporate and
personal income taxes. Some of the rich had been paying as much as 73% in income taxes. Mellon also dispensed $3.5 billion in cash
refunds, credits, and abatements.
All that money from tax cuts and refunds helped the economy of the 1920's grow significantly. But it worked too well. There was
more money for [risky business decisions in hopes of making even more money] by individuals, businesses, and banks. The Stock
Market Crash of 1929 deflated overvalued stock prices, and people lost their savings, jobs, or businesses. Also lost was laissez faire,
as the federal government has increased its participation in the economy ever since.
1.
Define laissez faire in your own words.
2.
During what decade did three Republican presidents use laissez faire as their economic policy? ________
3.
What did President Coolidge believe the gov’t could do to remedy, or fix, the economic problems of the people? What effect
did his actions have on the general economy?
4.
Who was the chief architect of the economic policy of the 1920s? Where did he believe money should stay and why?
5.
What was central to Mellon’s economic strategy? How much were some rich people paying out of their income in taxes?
6.
What good and bad effects did Mellon’s strategy have? How are each of them connected to laissez faire?