The Politics of Boom and Bust

The Politics of Boom and Bust Chapter 32

Vocabulary • Adkins v. Children’s Hospital (1923) • Esch-Cummins Transportation Act of 1920 • Merchant Marine Act of 1920 • Railway Labor Board • Veterans Bureau • Adjusted Compensation Act of 1924 • Washington “Disarmament” Conference of 1921-1922 • Five-Power Naval Treaty of 1922 • Teapot Dome Scandal • Capper-Volstead Act • McNary-Haugen Bill • World Court • Agricultural Marketing Act • Grain Stabilization Corporation • The Norris-La Guardia Anti-Injunctions Act of 1932 • Four-Power Treaty • Nine-Power Treaty of 1922 • Kellogg-Briand Pact (Pact of Paris) • Fordney-McCumber Tariff Law of 1922 • Charles Evans Hughes • Andrew W. Mellon • Albert B. Fall • Harry M. Daughtery • Ohio Gang • Interstate Commerce Committee • Harry F. Sinclair • Edward L. Doheny • Dawes Plan of 1924 • Cotton Stabilization Corporation • The Hawley-Smoot Tariff • Federal Farm Board

Essential Questions • What were the causes of the Great Depression? • Why did the collection of war debts not work out? • Why was Harding not a good president?

The Republican “Old Guard” Returns • Harding For President • was inaugurated in 1921 • He was extremely friendly but only had a mediocre mind; Harding admitted that he was overwhelmed as President. • Due to his personality, he could not discriminate friends from enemies and his political enemies took advantage of him. • Since he admitted his “scanty mental furnishings,” he said he’d gather the “best minds” of his party. • The “Best Minds” • Charles Evans Hughes-Secretary of State • Andrew W. Mellon-Secretary of Treasury • Herbert Hoover-Secretary of Commerce. • And the worst minds • Albert B. Fall-an anti-conservationist who was appointed to Secretary of Interior (he was now considered “guardian of the nation’s natural resources”). • Harry M. Daugherty-new Attorney General and party of the “Ohio Gang.”

GOP Reaction at the ThrottleIs Harding really the one in charge? • The new “Old Guard” • They wanted to improve the laissez-faire doctrine • Wanted the government to guide business’ so they were insured profits. • The group was able to put associates in courts and administrative bureaus, such as the Supreme Court • The Supreme Court • Harding had appointed 4 of the 9 judges, even though he was only lived less then three years as president. • His one good choice was putting Taft as chief justice

The Supreme Court and Progressive Reforms GOP (cont.) • Harding’s presidency led to the downfall of progressive reforms. • The Supreme Court denied a child-labor law and restricted government intervention in the economy • Adkins v. Children’s Hospital led to gender debates throughout the rest of the century. • Adkins v. Children’s Hospital • The Supreme Court reversed the decision they had made during Muller v. Oregon. • The debate was that since women could now vote and were equal to men in the eyes of the law…should they have special protection in the workplace? • The end result was that women could no longer be protected by special legislation because of their equality.

Welcome Back Big Business The Antitrust Laws were ignored or barely enforced by the Attorney General. Interstate Commerce Committee became dominated by railroad sympathizers. Monopolies (or associations) were once again being built. Hoover encouraged these associations because he believed that business’ should regulate themselves

The Aftermath of War • Government Controls Go Away • As the War Industries Board was quickly dissolved, progressive hopes of government control were crushed. • The railroads were returned to private management in 1920. • Congress passed the Esch-Cummins Transportion Act of 1920 which encouraged the private consolidation of railroads and the Interstate Commerce Committee was there to guarantee their success. • Merchant Marine Act of 1920 gave the Shipping Board permission to get rid of most of the wartime fleet (they were sold at extremely low prices). • The Downfall of Labor Unions • Strikes were harshly broken by the government. • The Railway Labor Board ordered a 12% wage cut in 1922 that set off a two-month strike. • Union membership shrunk by 30% between 1920 and 1930

The Veterans The Veterans Bureau was formed by Congress in 1921 and was allowed to operate hospitals and “vocational” rehab centers for the disabled. The American Legion was founded in 1919 in Paris by Colonel Theodore Roosevelt as a chance for veterans to come back together and talk. They (American Legion) soon became known for their aggressive demand for veterans’ benefits. Mostly, the veterans wanted the money that was owed to them for their service. But they also demanding “adjusted compensation” to make up for the money they lost when they left their factory jobs to fight. The group reached success in 1924 when Congress passed the Adjusted Compensation Act which gave each solider a paid-up insurance policy that was due in twenty years.

America Seeks Benefits Without Burdens. • After the War • Since the Treaty of Versailles was rejected by the United States, they were still at war with Germany until July of 1921 when Congress declared a joint resolution that ended the war. • Then Washington embraced the idea of isolationism and refused to support the League of Nations. • The Beginnings of Oil Disputes in the Middle East • The rivalry between Britain and America for oil reserves in the Middle East began • Oil was a necessity for winning wars. • Secretary Hughes ended up securing the reserves for America

The Washington “Disarmament” Conference (1921-1922)Burdens (cont.) • Time for Disarmament • A “deadly contest” had begun between Britain and Japan to build up their navies • America was about to take Britain over as the largest naval power. • The Washington “Disarmament” Conference was called and all the major powers were invited (except Bolshevik Russia; the US did not recognize that government). • The Conference • Secretary Hughes surprised everyone with his ten-year “holiday” plan on the construction of battleships and even suggested destroying some of the ships already built. • This would create a 5:5:3 ratio ( America: Britain: Japan); the Japanese hated this ratio. • Many treaties were created to attempt to make everyone happy.

Treaties from the Conference • Five-Power Naval Treaty of 1922: included the ratios that Secretary Hughes had originally included but included extras for Japan; the extras were that America and Britain would not fortify their Far Eastern Possessions, even the Philippines (the Japanese were excluded from this rule) • Four-Power Treaty: served as a replacement of the old Anglo-Japanese alliance; this time it bound Britain, Japan, France and the United States to “preserve the status quo in the Pacific.” • Nine-Power Treaty of 1922: promised to keep the Open Door Policy for China

Issues with the TreatiesBurdens (cont.) • Disarmament Failure • There was no restriction put on small warships or the construction of cruisers, destroyers, and submarines. • The US fell far behind other countries, who continued building. • When Congress declared that they were not making a commitment to the use of armed forces or any kind of joint action, the Four-Power Treaty was useless. • Outlawing War • Americans believed that if fighting countries would “take a pledge to forswear war as an instrument of national policy”, then weapons could be thrown aside. • Frank b. Kellogg signed the Kellogg-Briand Pact (Pact of Paris) which was then ratified by 62 countries. • Even though the goal of the pact was to prevent wars, defensive wars were still allowed.

Hiking the Tariff Higher • Tax Raises • In 1922, Congress passed the Fordney-McCumber Tariff Law which raised the duties from 27% to 38.5% • The duties on farm produce rose • The President became authorized to raise or reduce tariffs by up to 50%. • During Harding and Coolidge’s presidency there were 32 tax increases and only 5 reductions. • Domino Effect • America’s high tariffs effected postwar Europe • In order for Europe to pay back its war debts to Washington, they had to sell their manufactured goods to America • The increase in taxes decreased consuming and then Europe had to raise its taxes in order to get the money.

The Stench of Scandal • The Veterans Bureau • In 1923, Colonel Charles R. Forbes was caught stealing money from the Veterans Bureau • He resigned from head of the department and was sentenced to two years in prison. • He and his accomplices stole about $200 million from the government, mostly the money was taken away from the hospitals. • More Scandal • Actions by Attorney General Daughtery prompted a Senate investigation in 1924 due to the illegal sale of liquor. • He was tried in 1927 but acquitted because the jury could not agree.

The Teapot Dome Scandal • Involved the naval oil reserves at Teapot Dome in Wyoming and Elk Hills, California. • Albert B. Fall (Secretary of the Interior) convinced his friend (Secretary of the Navy) to transfer these holding to the Interior Department. • Harding carelessly signed the “secret order” • Fall then leased these lands to Harry F. Sinclair and Edward L. Doheny(oilmen) after he received a bribe of $100,000 from Doheny and around $300,000 from Sinclair. • Punishment • Details began to be known in March of 1923 • All three participants were indicted in 1924 but the case continued until 1929 • Fall was sentenced to a year in jail after being found guilty of taking a bribe. • Sinclair and Doheny were acquitted (Sinclair had to serve a few months in jail because he refused to testify before the Senate and he “shadowed” the jurors.

President Harding Dies • Harding had just begun his speechmaking tour around the country by the time the scandals were being announced. • As he was returning, he caught pneumonia and thrombosis. • He died August 2, 1923 in San Francisco.

“Silent Cal” Coolidge • The New President • Was known for his moments of silence • Had mediocre leadership skills • Restored the citizens faith in the government • The public quieted down and forgot about the scandals quickly. • Fixing Some Problems • He sympathized with the Secretary of Treasury (Mellon) to reduce the taxes and debts. • Business’ were again allowed to have their head.

Frustrated Farmers • The Falling Prices of Wheat • Farmers had made a lot of profits off the war since farms in Europe had been destroyed. • By the spring of 1920, wheat cost $3 a bushel • When the war ended, so did the guaranteed high prices because of government purchases and giant purchases of other countries. • Impacts of Tractors • Farmers had an overabundance of crops, which kept increasing due to the invention of the tractor. • Farmers could sit on the tractor instead of walking behind a plow and they were able to plow larger areas with fewer hired hands.

Farmers (cont.) • Surplus leads to Recession • Since there was a large surplus, prices were driven way down. • The “agricultural districts” experienced a horrible depression in the 1920s when one in every four farms was sold for debt or taxes. • Relief for Farmers • The Capper-Volstead Act which exempted farmers marketing cooperation's from antitrust prosecution. • McNary-Haugen Bill was the most important bill to the farmers. The goal was to keep crop prices high by authorizing the government to buy up surpluses, and in return farmers would have to pay a special tax. • Every time the Bill was passed by Congress, Coolidge would veto it. • The crop prices remained low.

A Three Way Race to the White House • Republicans • Calvin Coolidge • Democrats • Were split again when they met in New York (wet ; dry, urban ; farm) • Eventually settled on John. W. Davis: a lawyer connected to J.P. Morgan and Company on Wall Street. • Liberal • Candidate was Senator La Follette (of Wisconsin) • Was supported by the American Federation of Labor • Their platform included: Government ownership of the railroads; relief for farmers; punishment for monopolies and anti-labor injunctions. • Also they pushed an amendment to limit the Supreme Court’s power to invalidate laws passed by Congress.

Results of the Election • Liberal La Follette polled 5 million votes • Republicans beat the Democrats with 15,718,211 popular votes to 8,385,283. • The electoral count was 382 for Coolidge, 136 for Davis, and 13 for La Follette.

Foreign-Policy Flounderings • Past Policies • Isolationism: despite nudges from Coolidge, the Senate continued to be unwilling to join the World Court (the judicial part of the League of Nations). • President Coolidge hardly pursued further naval disarmament.

Armed Interventionism in the Caribbean and Central AmericaFlounderings(cont.) • American troops were taken out of the Dominican Republic in 1924 • Soldiers remained in Haiti from 1914 to 1934. • Coolidge used “diplomatic negotiating” when Mexico began to assert their right to the oil reserves in Mexico. • Soldiers were sent to Nicaragua in 1909 until Coolidge removed them in 1925, only to send 5 thousand troops back in 1926 and keep them there until 1933.

International Debtsflounderings (cont.) • Involved Allied debts, and German reparation payments • WWI had made America a leading financial nation; in 1914 American had been in debt by about $4 billion but by 1922 it had “become a creditor nation in the sum of about $16 billion.” • Also American investors had loaned about $10 billion to foreigners. • The largest problem was the $10 billion the US Treasury had loaned to the Allies. • The US was demanding to be paid but the Allies were saying that the payment was unfair (since America entered the war so late) and that the United States should write off the war costs. • The Allies also pointed out that America’s high tariffs made it basically impossible for Europe to sell its goods to get the money to pay America back.

Unraveling the Debt Knot • Collecting the debts • As America demanded their money, Britain and France began demanding their reparation money from Germany • German reparation payments totaled about $32 billion. And the Allies hoped to get this money and then pay off their debts with it. • The French sent troops into the Ruhr Valley in 1923 to collect the money and the demand for money caused Berlin to allow its currency to inflate extremely high. • The demand created chaos in Germany. • The Dawes Plan of 1924 • Negotiated by Charles Dawes, it “rescheduled German reparations payments and opened the way for further American private loans to Germany.”

The Debt Cycle • US bankers would loan money to Germany • Germany would pay their reparations to France and Britain • Those Allies would then pay their debt to America. Germany US Banks France Great Britain US Treasury

The Triumph of Herbert Hoover, 1928 • Was nominated after Calvin Coolidge declared that he wouldn’t run • Used the radio to his advantage. • Had been a poor orphan who went to Stanford University; had been a successful mining engineer and a great businessman. • He believed in avoiding foreign entanglement and strengthening American individualism, free enterprise and small government. • Since he served as Secretary of Commerce he had some progressive ideals, such as endorsing labor unions and supporting federal regulation of the radio. • The Democrats • Nominated Alfred E. Smith • Was “politically handicapped” • Drank too much during prohibition time period • Was from New York • Was Roman Catholic in a mostly Protestant country.

Triumph of Hoover (cont.) • Smith’s downfall • His campaign was plagued by his “handicaps.” • The mostly Protestant South stayed away from the “city-slicker.” • The End Results • Hoover received 21,391,993 popular votes to Smith’s 15,016,169. • The electoral vote was 444 to 87. • Hoover was the first Republican president “in 52 years to carry a state that had seceded. He swept five states of the former Confederacy, as well as all the Border States.

President Hoover’s First Moves • Helping the Farmers • The Agricultural Marketing Act: Passed in June of 1929 by Congress was created to “help farmers help themselves,” by using producers’ cooperatives. • Federal Farm Board: was set up with $500 million , and the money was lent to the farming organizations that wanted to buy, sell, or store agricultural surpluses.

The Farm Boardfirst moves (cont.) • The Farm Board created the Grain Stabilization Corporation and the Cotton Stabilization Corporation in order to bring up the prices by buying surpluses. But they collapsed when prices continued dropping; wheat became 57 cents a bushel and cotton was 5 cents a pound.

The Hawley-Smoot Tariff of 1930 • The tariff started out as protective but as it was being passed, a lot of amendments were tacked on. • It became the highest protective tariff during a peacetime. The duty on nonfree goods went from 38.5% to about 60%.

The Great Crash Ends the Golden Twenties. • The “Long Boom” • The only downer was the poor state of farmers. • America was highly productive with cars, radio, movies and other industries. • Few people thought that the boom would end. • The Crash • In October of 1929, the stock market crashed. • It was partly due to the British raising their interest rates.

“Black Tuesday” • October 29, 1929; 16,410,030 shares of stock were sold. • By the end of 1929, stockholders had lost about $40 billion in paper money. • By the end on 1930 about 4 million people were unemployed and by 1932 about 12 million people were. • Those who did have a job, had their wages cut. • Over 5 thousand banks crashed in the first three years. When they collapsed so did the life savings of “tens of thousands of people.”

Hooked on the Horn of Plenty • Causes of the Great Depression • Overproduction on farms and in factories. • “The nation’s ability to produce goods had clearly outrun its capacity to consume or pay for them.” • There was too much money in only a few hands who invested it in factories and not enough of that money was going towards wages. • If the money had gone to wages then it would have been put back into purchasing power. • Overexpansion because of credit. • The results • Started a chain reaction in Europe, which led to the collapse of the Vienna banking house. • More Disasters • The Mississippi Valley suffered a drought in 1930. • Thousands of farms had to be sold at auctions for taxes. • Renting farms became popular.

Rugged Times for Rugged Individualists • Hoover and the Depression • He couldn’t handle the depression years. • He did not like the idea of government handouts, thinking it would weaken the “national fiber” • Hoover’s Solution • He would help the railroads, banks and rural credit corporations • He believed that his would restore the “economic pyramid”

Hoover Battles the Great Depression • He got $2.25 billion from Congress for helping the railways, etc. • One of the biggest projects was the Hoover Dam, built on the Colorado River. • It was begun in 1930 and finished in 1936 (under Roosevelt’s presidency) • It was built for irrigation, flood control, and electric power. • He opposed anything “socialistic” such as the Muscle Shoals Bill (damming the Tennessee River)

The Reconstruction Finance CorporationGreat Depression (cont.) • In 1932, Congress established the RFC. • It had a beginning capital of $500 million; and it was designed to “provide indirect relief by assisting insurance companies, banks, agricultural organizations, railroads, and even hard-presses state and local governments. • The Norris-La Guardia Anti-Injunctions Act of 1932 was passed which outlawed antiunion contracts and forbade the federal courts to issue injunctions to restrain strikes, boycotts, and peaceful picketing.

Routing the Bonus Army in Washington. • The Veterns • They wanted their money early, the money that Congress had promised them in 1924 (and was due in 1945). • “The Bonus Expedition Force” about 20,000 and set up “hoovervilles” (slums)

Japanese Militarists Attack China • In September of 1931, Japan invaded Manchuria. This closed the Open Door policy in that area. • America had economic ties in Japan and also were shocked at the invasion because it openly violated the League of Nations. • America began boycotts and blockades. • The Stimson Doctrine (1932) stated that the United States would not recognize any territorial acquisitions achieved by force. • Japan bombed Shanghai in 1932.

Japan • WWII was born in 1931 after Japan invaded Manchuria. • The League of Nations had the power to stop Japan but not the courage.

Review • The outcome of Adkins v. Children’s Hospital was reversed from the Supreme Courts decision in ______________. • The ________________ of 1920 encouraged the private consolidation of railroads. • The ________________ gave each solider a paid-up insurance policy that was due in twenty years. • October 29, 1929 is known as “_____________” • The __________________ was created to give money to farm organizations that wanted to buy, sell, or store agricultural surpluses. • The ______________________ exempted farmers marketing cooperation’s from antitrust prosecution.

The Politics of Boom and Bust