The Politics of
Boom & Bust
1920-1932
The American Pageant
Chapter 35
“Old Guard” Returns
 Likable but inept Harding was unable to say no to corrupt friends: led
to “Ohio Gang.”
 Harding’s “best minds” in-cluded brilliant Hughes (State), aluminum
king Mellon (Treasury), & energetic Hoover (Commerce).
“Old Guard” Returns (2)
 But “best minds” were offset by worst: Fall was anticonser-vationist
who headed Interior, & crook Daugherty was Attorney General.
GOP Reaction
 Return to old order after war crushed Progressive reform.
 New Rep Old Guard used bureaucracies/courts to aid business: beyond
laissez-faire.
 Harding’s 4 Sup. Ct. appoint-ees (except Taft) provided reactionary
influence.
GOP Reaction (2)
 Early 20s: Sup. Ct. killed progressive laws covering child-labor, labor,
gov’t regulation of economy.
 1923: Adkins v. Children’s Hospital overturned Muller: women could
now vote, not entitled to special protection.
GOP Reaction (3)
 Attorney General’s office, ICC friendly to business interests: anti-trust
laws not enforced.
 In opposition to anti-trust law, Hoover encouraged industry
associations to boost efficiency, urged them to regulate them-selves to
avoid gov’t reg.
Aftermath of War
 Wartime gov’t controls on economy were ended quickly: RRs returned
to private hands with profitability guarantee from Congress (1920:
Esch-Cummins Act).
 1920 Merchant Marine Act sold off wartime fleet cheap.
Aftermath of War (2)
 20s hard on labor: 1919 steel strike crushed using racial div-isions,
labeled as “reds.”
 Railway Labor Board ordered 12% wage cut: AG Daugherty crushed
strike with injunction.
 Union membership declined by 30% in decade.
Aftermath of War (3)
 1921: Congress created generous Veterans’ Bureau to operate
hospitals, etc.
 Veterans organized into pressure groups like American Legion:
became conservative, patriotic, antiradical.
Aftermath of War (4)
 Legion lobbied for veterans’ benefits: compensation for lost wages
during war.
 1922: browbeat Congress into bonus bill: Harding vetoed.
 1924: Congress overrode Coolidge veto to pass Adjusted
Compensation Act.
Benefits w/o Burdens
 July, 1921: Congress passed joint resolution to officially declare war
over.
 Harding admin. was suspi-cious of League of Nations: but sent
observers.
 But U.S. could not be isola-tionist in oil-rich Middle East.
Benefits w/o Burdens (2)
 WWI showed strategic importance of oil: Sec. of State Hughes
negotiated drilling rights for U.S. companies.
 Harding did take action on disarmament: naval race w/ Britain, Japan
was becoming too expensive.
Washington Conference
 1921-22: U.S. invited all major naval powers but Russia to Wash.
“Disarmament” Conf.
 Sec. Hughes proposed 10-year “holiday” from building battleships,
scrapping some existing ones to get 5:5:3 ship ratio with U.K., U.S.,
Japan.
Washington Conference (2)
 To get Japan to sign 5-Power Naval Treaty (5:5:3), U.S., U.K. agreed
not to fortify Far East holdings.
 4-Power treaty replaced Anglo-Japanese alliance: U.K., Japan, France,
U.S. agreed to keep status quo in Pacific.
Washington Conference (3)
 9-Power Treaty made Open Door official in China.
 Harding pleased at battleship reduction, but other powers built more
cruisers, subs, etc.
 Senate’s lack of commitment to use of force neutered 4-Power Treaty.
Washington Conference (4)
 Naive wishful thinking was demonstrated in American call for
“outlawry of war.”
 1928: Coolidge’s Sec. of State Kellog crafted Kellog-Briand Pact:
largely useless agree-ment w/ France to no offensive war – 62 nations
later signed.
Hiking the Tariff
 Isolationism, fear of cheap European goods, robust U.S. market led to
higher tariff.
 1922: Fordney-McCumber Tariff passes – sent avg. rate from 27% to
38.5% to “equal-ize” the cost of U.S. and foreign production.
Hiking the Tariff (2)
 Tariff also gave president (w/ Tariff Commission) flexibility to change
rates up to 50%.
 In 6 years, Harding & Coolidge increase rates 32x (vital products),
while lower-ing only 5x (less sig. products).
Hiking the Tariff (3)
 But Europeans needed to sell products in U.S. to recover from war,
and needed profits to buy U.S. goods and pay back war debts to U.S.
 1920s: Tariff hurt European economy, so they responded with their
own high tariffs.
The Stench of Scandal
 Corruption of Harding admin. shown by scandals:
 1923: Head of Veterans’ Bur-eau Forbes stole $200M from gov’t, got
2 years in prison.
 1921: Interior Sec. Fall was bribed to lease naval oil reser-ves in
Teapot Dome scandal.
The Stench of Scandal (2)
 March, 1923: scandal expos-ed, Fall & bribers Doheny & Sinclair
were indicted.
 1929: Bribers acquitted, but Fall convicted, sentenced 1 yr.
 Sellout of U.S. vital resources, acquittals resulted in cynicism toward
fed. gov’t & courts.
The Stench of Scandal (3)
 1924: Reports to Senate alleg-ed that AG Daugherty was sel-ling
pardons, liquor permits.
 Daugherty forced to resign, but hung jury did not convict.
 Before scandals were widely known, Harding left for speak-ing tour:
died in SF (8/2/23).
Yankee in White House
 VP Coolidge sworn in by his father in New England.
 “Silent” Coolidge represented New England values: honesty, morality,
industry, frugality.
 Coolidge a mediocre leader, supported status quo, called “high priest”
of business.
Yankee in White House (2)
 “Cautious Cal” oversaw 5 1/2 years of prosperity: supported Mellon’s
tax/debt policies.
 Coolidge slowly brought moral reform to Harding regime, though
outrage of scandals was dulled by prosperity.
Frustrated Farmers
 End of war brought end to gov’t guaranteed high grain prices & large
purchases by other nations.
 Gas tractor improved cultiva-tion & sowing: increased farm
production.
Frustrated Farmers (2)
 War boom had led farmers to increase size of farms.
 Price-lowering surpluses led to farming depression in 20s: 1 in 4 farms
sold for debt or taxes.
 1921: Political “farm bloc” in Congress emerged from agricultural
states.
Frustrated Farmers (3)
 Farm bloc passed Capper-Vol-stead Act: exempted farmers’ coops
from anti-trust action.
 1924-28: Bloc’s favorite was McNary-Haugen Bill: gov’t would buy
farm surpluses & sell them abroad - Coolidge twice vetoed.
3-Way Race for Pres.
 1924: Reps nominated Coolidge in Cleveland.
 But Dems in NY split between “wets” & “drys,” urbanites & farmers,
etc.: failed by one vote to condemn KKK.
 After 102 ballots, finally chose conservative lawyer Davis.
3-Way Race for Pres. (2)
 But liberals lacked candidate: La Follette (WI) stepped up to lead new
Progressives: farmers, labor, socialists.
 Platform: gov’t ownership of RR, farm relief, opposition to
monopolies & anti-labor injunctions.
3-Way Race for Pres. (3)
 La Follette got 5M votes, but Coolidge (15M votes) won easily in
Electoral College: 382-136-13.
 Prosperity hurt chances of liberal reformer La Follette.
Foreign Pol. Flounderings
 Isolationism continued: Senate would not adhere to World Court,
Coolidge half-hearted in naval disarmament efforts.
 But U.S. continued interven-tion in Caribbean, Central America (Haiti,
Nicaragua).
Foreign Pol. Flounderings (2)
 Coolidge diffused crisis w/ Mexico & U.S. oil companies.
 U.S. intervention bred resent-ment in Latin America.
 But war debts to U.S. were biggest foreign-policy issue.
 War had changed U.S. from debtor to creditor nation.
Foreign Pol. Flounderings (3)
 Dollar was rivaling British pound as leading currency.
 After war, U.S. loaned $10B in 20s, but held back $ to invest in
thriving domestic economy.
 U.S. demanded that $10B in U.S. Treasury loans to Allies be repaid.
Foreign Pol. Flounderings (4)

1.
2.
3.
French & British arguments for debt forgiveness:
Their price had been millions of lives, U.S. mainly lost $.
Allies used money to buy U.S. goods, fueled U.S. economy.
Postwar U.S. tariff made it hard for them to make $.
Unraveling Debt Knot
 To pay debts to U.S., Allies demanded $32B in reparations from
Germany.
 France sent troops into Ger-many to extort late payments.
 Berlin responded by allowing enormous inflation – threat of
international financial chaos.
Unraveling Debt Knot (2)
 Reasonable officials argued for reduction/cancellation of war debts &
reparations, but U.S. refused, denied linkage between debts &
reparations.
 Future Coolidge running mate Dawes negotiated Dawes Plan to
address problem (1924).
Unraveling Debt Knot (3)
 Plan: reschedule German rep. payments, make U.S. private loans
available to Germany.
 Relied on U.S. credit, which dried up after ‘29 crash.
 1931: Pres. Hoover declared 1-year debt moratorium, soon all debtors
but one defaulted.
Unraveling Debt Knot (4)
 U.S. was not fully repaid, but did generate ill will.
 Anger of Europe left bad taste in U.S.: led to neutrality legislation of
1930s.
Triumph of Hoover
 1928: Coolidge declined to run, obvious Rep nominee was Hoover.
 Platform: prosperity & prohibition.
 Dems chose 4-time NY gov. Al Smith: liberal, “wet,” Roman
Catholic.
Triumph of Hoover (2)
 Many dry, rural, Protestant Fund. Dems did not support.
 Smith had more charm, but Hoover was better on radio.
 Hoover combined 19th cent. self-reliance w/ 20th cent. progressive
efficiency.
Triumph of Hoover (3)
 Hoover believed in avoiding foreign entanglements, small gov’t, free
enterprise.
 Hoover not accustomed to soliciting votes, political battle.
 Power lay in integrity, human-itarianism, administrative talent, loyalty
he inspired.
Triumph of Hoover (4)
 Self-made millionaire, Hoover rejected any kind of socialism, but was
supportive of progres-sive ideas like labor unions, regulation of
broadcasting.
 Campaign went dirty: whis-pering campaign said vote for Smith was
vote for Pope.
Triumph of Hoover (5)
 “100% American” South did not support Smith.
 Hoover got 21M votes to 15M, won 444-87: Reps got large majority in
Congress.
 Hoover was 1st Rep to win former confederate states (except Harding
won TN).
Hoover’s 1st Moves
 20s prosperity did not benefit farmers, unorganized labor.
 1929: Hoover led passage of Agricultural Marketing Act - created
Federal Farm Board to loan $ to producers’ coop-eratives in order to
buy, sell, & store surpluses.
Hoover’s 1st Moves (2)
 1930: Farm Board created Grain/Cotton Stabilization Corps. to buy
surpluses, but were buried by supply.
 During campaign, Hoover had pledged to help farmers, partly through
limited changes in tariff.
Hoover’s 1st Moves (3)
 1930: Senate added 1000 amendments to Hawley-Smoot Tariff:
resulted in highest avg. rate ever – almost 60%.
 Tariff was declaration of economic warfare to rest of world: plunged
world deeper into depression.
Great Crash ends 20s
 New industries (auto, radio, movie) stimulated prosperity: some felt it
permanent.
 Hoover attempted but failed to curb speculation through Federal
Reserve Board.
 British raised interest rates to bring capital from U.S.
Great Crash ends 20s (2)
 Speculators dumped paper profits to move $ to British securities:
massive selling snowballed.
 10/29/29: “Black Tuesday” saw panicked selling, $40B lost by end of
year.
Great Crash ends 20s (3)
 Crash announced longest, most severe U.S. depression.
 U.S. had worst setback of industrialized nations.
 End of 1930: 4M jobless, 12M in 1932 – others had pay reduced.
Great Crash ends 20s (4)
 5000 banks collapsed in 1st 3 years of depression, took people’s life
savings.
 Jobless fathers blamed selves, though problem seem caused by
economic system.
 Depression started decade-long decline in birthrate.
Hooked on Plenty
Causes of Depression?
1. Overproduction of farm, fact-ory: depression of abundance.
2. Too much money in hands of too few that was fed back into factories;
workers’ pay not enough to generate broad purchasing power.
Hooked on Plenty (2)
3.
4.
5.
6.
Easy credit led to debt burden, overproduction.
Machines replaced workers.
Post-1931 financial collapse in Europe.
Hawley-Smoot Tariff cut international trade.
Hooked on Plenty (3)
7. 1930 Miss. Valley drought.


Resulted in national despair: U.S. lost its uniqueness.

Foundations of U.S. social/ political structure trembled.
Initiative, self-respect lost as many panhandled, lived in
“Hoovervilles.”
Rugged Times
 Depression ended Hoover’s wonder-working reputation.
 As humanitarian, Hoover was deeply troubled by misery.
 But felt gov’t handouts would weaken or destroy the self-reliant
national fiber that made America great.
Rugged Times (2)
 Hoover felt efficient industry would bring prosperity back.
 But depression worsened, local gov’t agencies broke down: Hoover
began to accept fed. responsibility for general welfare.
Rugged Times (2)
 Hoover compromise: aid RRs, banks, rural credit, which would in turn
help individuals w/o “soul destroying” dole.
 Critics: gov’t feeds Belgians, pigs, but not Americans.
 But Harding’s plan was revo-lutionary for time.
Pioneer for New Deal
 Consistent w/ “trickle down,” Hoover had Congress spend $2.25B for
public works, incl. Hoover Dam (1930-36).
 But rejected Muscle Shoals Bill (future TVA) as socialist-ic: gov’t
should not compete with private citizens.
Pioneer for New Deal (2)
 1932: Congress passed Hoover’s RFC: $500M for loans to insurance,
banks, ag. orgs, RRs, state-local gov’ts.
 RFC loans were of benefit, but too late, didn’t fund sustain-able
projects, gov’t made profit, large corps. benefited.
Pioneer for New Deal (3)
 1932: Hoover helped labor by signing Norris-La Guardia AntiInjunction Act: no yellow dog contracts or injunctions.
 Despite criticism, Hoover began significant new policy toward
government assistance.
Pioneer for New Deal (4)
 But 1930 midterm elections gave Dems House: hostile Congress
created problems for Hoover.
Routing Bonus Army
 1924 Veterans’ bonus was pay-able in 1945: but Depression led to
drive to pay it all early.
 1932: “Bonus Expeditionary Force” of 20,000 marched on D.C. to
demand payment.
 Created unsanitary camps/ shacks: threat to public health.
Routing Bonus Army (2)
 But bonus bill failed: most refused to leave, riots killed 2.
 Hoover ordered eviction by army: Gen. MacArthur car-ried out order
with severity.
 Event brought more abuse on Hoover, as Dems employed “smear”
artists against him.
Japanese Attack China
 Taking advantage of Western depression, Japanese overran
Manchuria, shut Open Door.
 A failure of League of Nations to force Japan out would effectively
kill League.
 League invited U.S. member-ship, U.S. sent unofficial rep.
Japanese Attack China (2)
 League commission called attack unjustified, so rather than leave
Manchuria, Japan left League.
 U.S. isolationists, incl. Hoover, did not want involvement.
 U.S. response to League: we will not interfere w/ embargo.
Japanese Attack China (3)
 Stimson Doctrine: Sec. of State Stimson did convince Hoover to
proclaim that U.S. would not recognize territory gained by force
(1932).
 But this verbal reprimand had little effect: Japanese bombed Shanghai,
killed civilians.
Japanese Attack China (4)
 Americans began informal boycotts of Japanese goods, but no
sentiment for armed intervention.
 Collective security died & WWII born in Manchuria, largely b/c
League could not count on U.S. support.
Good Neighbor Policy
 Hoover interested in Latin America: took goodwill tour (1928).
 Collapse of U.S. economy led to softened attitude toward Latin
America, economic imperialism less popular.
Good Neighbor Policy (2)
 Hoover rejected TR Corollary: signed treaty w/ Haiti to remove troops
by 1934.
 1933: 20-year stay of Marines ended in Nicaragua.
 Hoover laid foundations for FDR’s “Good Neighbor” policy.