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Politics of Boom and Bust

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

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Politics of Boom and Bust

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  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 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

  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” • 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 Andrew Mellon

  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

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