Chapter 32: The Politics of Boom and Bust

Chapter 32: The Politics of Boom and Bust • (1920-1932)

Essential Questions • How did the United States’ lack of participation in the League of Nations determine the group’s effectiveness? • In what ways did the introduction of new technologies result in the Great Depression? • How did the United States and other European nations deal with the enormous financial crisis created by WW1?

Vocabulary • Warren G. Harding • Calvin Coolidge • Herbert Hoover • Merchant Marine Act • Adjusted Compensation Act • Disarmament Conference • League of Nations • Teapot Dome Scandal • Fordney McCumber Tariff • Agricultural Marketing Act • Hawley-Smoot Tariff • “Black Tuesday” • Bonus Expeditionary Force (BEF) • Stimson Doctrine • Reconstruction Finance Corporation (RFC)

Overview (1920-1932) • Only Republican Presidents during this time • Warren G. Harding • Calvin Coolidge • Herbert Hoover • Presidents allow retreat from Progressive Reform • serve public good less by direct govt. intervention, more through cooperation with big business • corrupt officials exploit public resources for profit • Return to isolationism and military unpreparedness

The Republican “Old Guard” Returns • President Warren G. Harding (inaugurated 1921) • Looked Presidential physically - tall, handsome • one of the best-liked men of his generation • like Grant, unable to detect moral corruption among associates • sought to collect the “best minds” for his administration • Charles Evans Hughes (Sec. of State) - very proactive in his role • Andrew Mellon (Sec. of Treasury) - managed budget extremely well • Herbert Hoover ( Sec. of Commerce) - demonstrated food-saving successes in WW1

The Republican “Old Guard” Returns (continued) • Still, some corrupt officials made their way into Harding’s administration (“worst minds”) • Albert B. Fall (Sec. of the Interior) - his role was to manage natural resources, but he was an avid anti-conservationist • Harry M. Daugherty (Attorney General) - small-town lawyer and participant in the “Ohio Gang”

GOP Reaction at the Throttle • Harding = well-intentioned, but weak-willed • McKinley-style Old Guard is therefore able to return • Goal is to improve on the old business doctrine of laissez-faire • Early 1920s • Supreme Court axes Progressive legislation • killed federal child-labor law • stripped away labor movement’s gains • restricted govt. intervention in economy

GOP Reaction at the Throttle (continued) • Adkins v. Children’s Hospital • Court reversed Muller v. Oregon reasoning, which had declared women deserving of special protection in the workplace • invalidated minimum wage law for women • erased idea of women’s protection at work • Anti-trust laws which had been applied during the Progressive years were set aside • Businesses in the Harding-era realized that expansion would be possible because of a lack of govt. interference • Example: The I.C.C. - The Interstate Commerce Commission, set up to regulate railroads, it was made up of men sympathetic to the railroad managers

The Aftermath of the War • With war’s end, the govt. stepped away from business intervention • War Industries Board was dismantled • Esch-Cummings Transportation Act - control of railroads went back to private enterprise • Merchant Marine Act (1920) • federal govt. reduced its involvement in shipping • authorized the Shipping Board to sell some 1,500 WW1-era ships to private shippers • Resulted in a smaller navy and less hassles

The Aftermath of the War (continued) • Because of laissez-faire and pro-business policies, the labor movement struggled • Bloody strike in the steel industry was broken in 1919 - crippled labor movement badly • 1922, the Railway Labor Board cut wages by 12% • started a two-month strike • Attorney General Daugherty laid down a stinging injunction, crushing the strike • Afterward, enrollment in labor unions dropped by 30% • Veterans began organizing to fight for their rights • Teddy Roosevelt, Jr. started the American Legion in Paris in 1919 • Distinguished for its militant patriotism, conservatism, and antiradicalism • Vets sought wages lost while away and/or veterans benefits • Congress agreed, passing the Adjusted Compensation Act, which gave every former soldier a paid-up insurance policy due in twenty years

America Seeks Benefits Without Burdens • Senate had not approved of the Treaty of Versailles, so America was technically at war with Germany, Austria, and Hungary three years after fighting ceased • Congress passed joint resolution in July 1921, officially ending war • U.S. did not officially participate in League of Nations • did send “unofficial observers” to meetings to keep an eye on their proceedings • lack of participation from U.S. kept the League from ever being truly successful • Harding recognized need for oil in the Middle East • Both Britain and the U.S. secured rights for drilling there

America Seeks Benefits Without Burdens (continued) • Disarmament was the trend of the time • cautious eye kept on Britain and Japan, who were starting a ship-building race • Disarmament Conference held 1921-1922 • all major powers invited, including U.S., Britain, Japan, France, and Italy • Several treaties were made • Five-Power Treaty: set up a 5:5:3 ratio (U.S. to Britain to Japan) to limit ship-building among world’s largest naval powers • Four-Power Treaty: required Britain, Japan, France, and the U.S. to “keep the status quo in the Pacific” • Nine-Power Treaty: kept the open-door policy with China (free trade for all) • International trend to end warfare as a means of solving disputes • 1928 Kellogg-Briand Pact: outlawed war • 62 nations signed the treaty - a beautiful idea, but incredibly naive

Hiking the Tariff Higher • In the pro-business mood of the time period, businesses sought to increase the tariff to protect their markets from those of cheaper European goods • Fordney-McCumber Tariff: increased tariff rates from 27 to 38.5% • Presidents Harding and Coolidge were given authority to fluctuate tariff all the way to 50% • Pro-business men at heart, they leaned toward higher tariffs • Snag in the high-tariff system • Europe owed money to the U.S. for WW1. In order to pay it back, they needed to export goods. But because of the high tariff, Americans refused to buy from foreign markets. Therefore, European nations could not pay off their debt, and the U.S. was not getting paid back for its financial aid during the war.

The Stench of Scandal • Harding was an honest man, but many in his administration were not • Col. Charles R. Forbes skimmed money as chief of the Veterans Bureau. He and his crowd pilfered $200 million while building veterans hospitals, and he only spent two years in jail. • Worst scandal was the Teapot Dome Scandal, which involved oil • Sec. of the Interior Albert B. Fall managed natural resources • When oil was discovered near the “Teapot Dome” in Wyoming, Fall had the land placed under his power • He then accepted bribes for oil drilling rights from Edward Doheny and Harry Sinclair for about $100,000 and $300,000 • the scandal was uncovered in 1923 • Fall served only one year in prison, while Doheny and Sinclair were let off the hook

The Stench of Scandal (continued) • These high-priced scandals and skimpy sentences jolted people’s trust in the court system • More scandals involved Attorney General Harry Daugherty • often suspected of selling pardons and liquor permits (during the Prohibition) • President Harding died August 2, 1923 of pneumonia and thrombosis: the stress of all these scandals, and his feeling betrayed by his fellow administrators may have added to his illness • he had proven too weak for the Presidency

“Silent Cal” Coolidge • With Harding’s death, V.P. Calvin Coolidge became President • was serious, calm, shy, somewhat boring (especially in his speech-making), but a very moral man • was even more pro-business than Harding had been • Once said, “The man who builds a factory builds a temple,” and “The man who works there, worships there.”

Frustrated Farmers • During WW1, farmers had enjoyed a boom. • After war, new technologies like the tractor made farm work easier and increased production • but the unnecessary increase in supply decreased crop prices • farmers fell into tough times during the 1920s • Farmers turned to Congress • Capper-Volstead Act: exempted farmer cooperatives from antitrust laws • McNary-Haugen Bill: kept price of agricultural goods high by allowing the government to buy excess surpluses and selling them to other nations

A Three-Way race for the White House in 1924 • 1924 Presidential election • Coolidge reelected as a conservative Republican • John W. Davis nominated by the Democrats after much debate • In the changing times, Democrats had difficulty defining themselves and their positions (they remained split and unorganized) • Senator Robert La Follette nominated by the Progressives • he was endorsed by the American Federation of Labor (AF of L) and the Socialists • would receive a sizable 5 million votes • Still, Coolidge easily reelected

Foreign-Policy Flounderings • Isolationism continued during the Coolidge era: America still refused to participate in the League of Nations • In an exception to the U.S.’s isolationism was its armed interventionism in the Caribbean and Central America • Had troops in the Dominican Republic, Haiti and Nicaragua at various times • settled a situation with Mexico over disputed oil rights in 1926 • many Latin Americans resented American intervention • The most pressing issue was still international debts • The U.S. wanted payment from the European Allies • The Europeans maintained that they repayment was unnecessary and unfair

Unraveling the Debt Knot • America demanded that Britain and France pay off their war debts • But they were unable to pay, so Britain and France demanded that Germany pay more reparations payments, totaling some $32 billion, as compensation for war-inflicted damages. Britain and France would use this money to pay off their debts to the U.S. • Germany certainly could not pay • it was in the midst of financial crisis and societal anarchy • many Europeans urged that war debts be scaled down or erased completely • Coolidge, both conservative and thrifty, refused to erase the debt • Finally, Charles Dawes introduced the Dawes Plan: stated that America would loan money to Germany, Germany would make payments to Britain and France, and Britain and France would repay the U.S. • U.S. never got repaid for all of its loans • European nations felt bullied by America, and therefore resented their wartime ally

The Triumph of Herbert Hoover, 1928 • Sec. of Commerce Herbert Hoover became Republican candidate in 1928 election • he spoke of “Rugged Individualism” • stated that America was made great by strong, self-sufficient individuals • Democrats nominated NY Governor Alfred E. Smith • had the people’s touch, but was Catholic (which turned off many) and a drinker (during the days of Prohibition) • Radio was a factor in an election for the first time • Hoover made better use of the technology and it greatly improved his campaign • Campaign was full of mudslinging on both sides • Hoover triumphed in a landslide

President Hoover’s First Moves • At first, Hoover enjoyed the economic prosperity of the day • His philosophy of helping one’s self prompted him to pass the Agricultural Marketing Act • It set up a Federal Farm Board, which would lend money to farmers • The Board started the Grain Stabilization Corp. and the Cotton Stabilization Corp. in 1930 • They were supposed to buy surpluses of their respective crops to keep prices high • Isolationism was carried into economics • Hawley-Smoot Tariff was hiked up to almost %60, which angered other nations and resulted in numerous negative effects • slowed trade and would thus deepen the depression • moved U.S. into full-fledged isolationism and allowed for Hitler’s rise to power

The Great Crash Ends the Golden Twenties • The beginning months of 1929 showed no sign of impending economic disaster (stock market prices continued to climb) • “Black Tuesday”, October 29, 1929 • stock market crashed • the sell-off of shares began and prices plummeted • Stock-holders had lost $40 billion in value by the end of 1929 • Results of the crash • Businesses went out of business • unemployment shot up • over 5,000 banks went bankrupt • soup kitchens and homeless shelters grew in number

Hooked on the Horn of Plenty • Stock market crash was the trigger of the Depression, but it was not the only cause • over-speculation (in stock) and over-production (in farms and factories) led to the depression • American production and consumerism had over-reached the consumers’ ability to buy • The Great Depression was international • Europe was already struggling with wartime debt and could not handle more economic burdens • Natural disasters added to the tough times • drought sizzled in Mississippi Valley in 1930 (ruined many farmers) • “Rugged Individualists” became “Ragged Individualists” • even they could not escape poverty (often lived in homemade slums named “Hoovervilles”)

Rugged Times for Rugged Individualists • Hoover received backlash of economic downturn • his “rugged individualist” nature made him slow to take any government action • but ultimately, his humanitarian side showed through • he would assist railroads, banks, and credit corporations, restoring the top of the economic pyramid • Hopefully, financial health would be restored, unemployment relieved, on a trickle-down basis • many criticized him for aiding the big corporations who had allegedly gotten the country into the depression in the first place

Hoover Battles the Great Depression • Hoover recommended that Congress dole out $2.25 billion for useful public works (government spending would jump start the economy) • Hoover Dam (begun 1930, completed 1936) • serves to generate electricity, help with irrigation, flood control, and recreation • created the Reconstruction Finance Corporation ( RFC) • would lend money to finance the massive government projects of FDR’s “New Deal” • Congress passed the Norris-La Guardia Anti-Injunction Act • outlawed antiunion contracts • said that federal courts could not hinder strikes, boycotts, or peaceful protesting by unions • Hoover did get the government to battle the Great Depression (it just happened later rather that sooner)

Routing the Bonus Army in Washington • Many WW1 veterans still clamored for “bonuses” during the Depression • Created the Bonus Expeditionary Force (BEF) • consisted of 20,000 veterans • They marched to Washington and set up camp, waiting for the government to grant them their bonuses • riots emerged in the unsanitary encampment • Hoover ordered the BEF to be evicted from the premises • Eviction carried out by General Douglas MacArthur • used bayonets and tear gas to force the BEF out - resulted in the “Battle of Anacostia Flats” • The entire affair further damaged Hoover’s image

Japanese Militarists Attack China • 1931, Japan invaded Manchuria (Northern China) • This action violated the League of Nations covenant, as well as various other international agreements signed by the Japanese government • some suggested that the League of Nations should use boycotts and blockades to put the economic stranglehold on Japan • League wary of taking such action without the assistance of the U.S. (not an official member) • America formulated its own response • Stimson Doctrine: stated that the U.S. would not recognize any territories acquired by force • Japan reacted to Stimson Doctrine by bombing Shanghai in 1932 • Japan’s aggressive actions marked the first step towards WW11

Hoover Pioneers the Good Neighbor Policy • U.S. relations with Latin America had been hurting since around 1900 • Hoover went on a good-will tour of Latin America in an attempt to extend the hand of friendship • During Depression • Americans had less money to engage in Taft-like “dollar diplomacy” (“economic imperialism”) with Latin America • new policies allowed American troops to be pulled out of Haiti and Nicaragua • These policies laid the groundwork for FDR’s “Good Neighbor” policy

Review: Short Answer Questions • How did new legislation after WW1 demonstrate the United States’ growing isolationist attitude? Use examples. • What were some of the main reasons that Labor Unions struggled after the war? • What did the Disarmament Conference seek to accomplish? • How did President Hoover attempt to aid struggling farmers? • What were some causes and effects of the Great Depression?

Chapter 32: The Politics of Boom and Bust