Transcript 16A

Supporting standards comprise
35% of the U. S. History Test
16 (A)
Supporting Standard (16)
The student understands significant economic
developments between World War I & World War
The Student is expected to:
(A) Analyze causes of economic growth &
prosperity in the 1920s, including Warren
Harding’s Return to Normalcy, reduced taxes, &
increased production efficiencies
Supporting Standard (16)
The student understands significant economic
developments between World War I & World War
The Student is expected to:
(A) 1 Analyze causes of economic growth &
prosperity in the 1920s, including Warren
Harding’s Return to Normalcy
Pro-Business Policies
The Republican presidents of the 1920s reversed the Progressive Era
trend of corporate regulation. Progressive trust-busting gave way to an
era of big business. The Republican presidents of the 1920s—
Harding, Coolidge, and Hoover—reversed the Progressive Era trend
of regulating big business and lowering tariffs. Instead, Republican
policies generally gave corporations free rein, raised protective
tariffs, and cut taxes for the rich. Big business and wealthy
businessmen especially benefited from the following policies:
1) The Supreme Court overturned a number of measures designed to
regulate the activities of big business. The Court declared boycotts by labor
unconstitutional and authorized the use of antitrust laws against unions.
2) The Fordney-McCumber Tariff of 1922 and the Smoot-Hawley Tariff of
1930 were two of six major tariffs passed that hiked importation rates to
all-time highs. These tariffs protected American companies from
international competition.
3) Andrew Mellon, treasury secretary from 1921 to 1932, persuaded
Congress to lower income tax rates for the wealthy.
“A return to normalcy”
normalcy” (i.e., a return to the way of life before World
War I)“Return
was U. S.
Warren G.
G. Harding’s campaign
normalcy” for
in the election
1920. Although
in theof1920s,
meant a detractors believed that the
word wasreturn
a neogolism
as well as a malapropism by Harding (as
to big business.
opposed to the more accepted term normality), there was
contemporary discussion and evidence found that normalcy had been
listed in dictionaries as far back as 1857.
In the early 1920s, weary from fighting a world war and disillusioned
by the failure of Wilson’s plans to
to create
create aa new
new world
world order,
Americans sought stability. Republicans ceased to promise
progressive reforms and instead aimed to settle into traditional
patterns of government.
Harding’s promise was to return the United States to pre-world war mentality;
without the thought of war tainting the minds of the American people. He states,
“America’s present need is not heroics, but healing; not nostrums, but normalcy;
not revolution, but restoration; not agitation, but adjustment; not surgery, but
serenity; not the dramatic, but the dispassionate; not experiment, but equipoise;
not submergence in internationality, but sustainment in triumphant nationality,” to
sum up his points.
Harding’s vice president, Calvin Coolidge, became president upon
Harding’s death in 1923 and was then elected himself in 1924. Coolidge
was staunchly pro-business, Coolidge opposed government regulation of,
or interference with, the economy.
In a demonstrable way, the domestic
desire for a “return to normalcy” had
its counterpart in foreign affairs.
As Americans wished to turn back the
clock to their domestic world before
the Great War . . .
so, disillusioned by the losses in war &
the sparse results of the Versailles
Peace Treaty, they longed for a return
to the isolationism which had
prevailed prior to 1917
Supporting Standard (16)
The student understands significant economic
developments between World War I & World War
The Student is expected to:
(A) 2 Analyze causes of economic growth &
prosperity in the 1920s, including reduced taxes
Joint Session of
Congress 1921
On April 12, 1921 Harding called a joint session of
Congress to address matters that he deemed of
national and urgent importance. That speech,
considered his best, contained few political
platitudes and was enthusiastically received by
Congress. On the economic front, Harding urged
Congress to create a Bureau of the Budget, cut
expenditures, and revise federal tax laws. Harding
urged increased protectionist tariffs, lower taxes,
and agriculture legislation to help farmers.
The effects of the 1920s tax rate cuts engineered by
Treasury Secretary Andrew Mellon under
Presidents Warren Harding and Calvin Coolidge
Changes in marginal income tax rates cause individuals and
businesses to change their behavior. As tax rates rise, taxpayers
reduce taxable income by working less, retiring earlier, scaling back
plans to start or expand businesses, moving activities to the
underground economy, restructuring companies, and spending more
time and money on accountants to minimize taxes.
Tax rate cuts reduce such distortions and cause the tax base
to expand as tax avoidance falls and the economy grows. A
review of tax data for high-income earners in the 1920s
shows that as top tax rates were cut, tax revenues and the
share of taxes paid by high-income taxpayers soared.
The Mellon Tax Cuts
When the federal income tax was enacted in 1913, the top rate
was just 7 percent. By the end of World War I, rates had been
greatly increased at all income levels, with the top rate jacked
up to 77 percent (for income over $1 million). After five years of
very high tax rates, rates were cut sharply under the Revenue
Acts of 1921, 1924, and 1926.
The combined top marginal normal and
surtax rate fell from 73 percent to 58
percent in 1922, and then to 50 percent
in 1923 (income over $200,000). In 1924,
the top tax rate fell to 46 percent
(income over $500,000). The top rate
was just 25 percent (income over
$100,000) from 1925 to 1928, and then
fell to 24 percent in 1929.
Secretary Mellon believed that high tax rates
caused the tax base to contract and that lower rates
would boost economic growth. In 1924, Mellon
noted: “The history of taxation shows that taxes
which are inherently excessive are not paid. The
high rates inevitably put pressure upon the
taxpayer to withdraw his capital from productive
business.” He received strong
strong support
support from
President Coolidge,
Coolidge, who argued that “the wise and
correct course to follow in taxation and all other
economic legislation is not to destroy those who
have already secured success but to create
conditions under which everyone will have a better
chance to be successful.”
The Effects of the
Mellon Tax Cuts
Detailed Internal Revenue Service data show that the acrossthe-board rate cuts of the early 1920s-including large cuts at the
top end-resulted in greater tax payments and a larger tax share
paid by those with high incomes. Figure 1 focuses on those
earning more than $100,000. As the marginal tax rate on those
high-income earners was cut sharply from 60 percent or more
(to a maximum of 73 percent) to just 25 percent, taxes paid by
that group soared from roughly $300 million to $700 million per
year. The share of overall income taxes paid by the group rose
from about one-third in the early 1920s to almost two-thirds by
the late 1920s. (Note that inflation was virtually zero between
1922 and 1930, thus the tax amounts shown for that period are
essentially real changes).
The tax cuts allowed the U.S. economy to grow rapidly during the
mid- and late-1920s. Between 1922 and 1929, real gross national
product grew at an annual average rate of 4.7 percent and the
unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon
tax cuts restored incentives to work, save, and invest, and
discouraged the use of tax shelters.
The decade of the 1920s had started with very high
tax rates and an economic recession. Tax rates were
massively increased in 1917 at all income levels.
Rates were increased again in 1918. Real GNP fell
in 1919, 1920, and 1921 with a total three-year fall
of 16 percent. (Deflation between 1920 and 1922
may also help explain the drop in tax revenues in
those years, evident in Table 1).
As tax rates were cut in the mid-1920s, total tax revenues initially fell.
But as the economy responded and began growing quickly, revenues
soared as incomes rose. By 1928, revenues had surpassed the 1920
level even though tax rates had been dramatically cut.
The tax cuts of the 1920s were the first federal experiment with
supply-side income tax rate cuts. Data for the period show an initial
decline in federal revenues as tax rates were cut, but revenues grew
strongly during the subsequent economic expansion. After the cuts,
total tax payments and the share of total taxes paid by the top income
earners soared.
After Harding’s death, Calvin
Calvin Coolidge
Coolidge generally
generally continued
continued his
predecessor’s policies. Just
Just before
before the
the Republican
Republican Convention
of 1924 began, Coolidge signed into law the Revenue Act of
1924, which decreased personal income tax rates while
increasing the estate tax, and creating a gift tax to reinforce the
transfer tax system.
Coolidge signing the
Revenue Act of 1924
Coolidge’s address to the American Society of Newspaper Editors,
Washington D.C., January 25, 1925: “It is probable that a press which
maintains an intimate touch with the business currents of the nation
is likely to be more reliable than it would be if it were a stranger to
these influences. After all, the chief business of the American people
is business. They are profoundly concerned with buying, selling,
investing and prospering in the world
Coolidge’s taxation policy was that of his Secretary of the
Treasury, Andrew Mellon: taxes should be lower and fewer people
should have to pay them. Congress agreed, and the taxes were
reduced in Coolidge’s term. In addition to these tax cuts, Coolidge
proposed reductions in federal expenditures and retiring some of
the federal debt. Coolidge’s ideas were shared by the Republicans in
Congress, and in 1924 Congress passed the Revenue Act of 1924,
which reduced income tax rates and eliminated all income taxation
for some two million people.
Harding & Coolidge reduced taxes again by
passing the Revenue Acts of 1926 and 1928, all
the while continuing to keep spending down
so as to reduce the overall federal debt. By
1927, only the richest 2% of taxpayers paid
any federal income tax. Although federal
spending remained flat during Coolidge’s
administration, allowing one-fourth of the
federal debt to be retired, state and local
governments saw considerable growth,
surpassing the federal budget in 1927.
With the exception of favoring increased tariffs, Coolidge disdained
regulation, and carried about this belief by appointing commissioners
to the Federal Trade Commission and the Interstate Commerce
Commission who did little to restrict the activities of businesses
under their jurisdiction. The regulatory state under Coolidge was, as
one biographer
biographer described
described it,
it, “thin to the point of invisibility.”
On September 21, 1922, Harding enthusiastically signed
the Fordney–McCumber Tariff Act. The protectionist legislation was
sponsored by Representative Joseph W. Fordney and Senator Porter
J. McCumber. It increased the tariff rates contained in the
previous Underwood-Simmons Tariff Act of 1913, to the highest level
Harding became
became concerned
concerned when
when the
in the nation’s history. Harding
agriculture business suffered economic hardship from the high
Previously, on May 21, 1921 Harding had signed emergency legislation that put tariffs on select
foreign inputs. By 1922, Harding began to realize that the long-term effects of tariffs could be
detrimental to national economy, despite the short-term benefits. Harding’s successors, President
Calvin Coolidge and President Herbert Hoover, also advocated tariff legislation.
Supporting Standard (16)
The student understands significant economic
developments between World War I & World War
The Student is expected to:
(A) 3 Analyze causes of economic growth &
prosperity in the 1920s, including increased
production efficiencies
The Efficiency Movement was a major movement in the United
States, Britain and other industrial nations in the early 20th century
that sought to identify and eliminate waste in all areas of the
economy and society, and to develop and implement best
practices. The concept covered mechanical, economic, social, and
personal improvement. The quest for efficiency promised effective,
dynamic management rewarded by growth. As a result of the
influence of an early proponent, it is more often known as Taylorism.
The Efficiency Movement played a central role in the Progressive
Era in the United States, where it flourished 1890–1932. Adherents
argued that all aspects of the economy, society and government were
riddled with waste and inefficiency. Everything would be better if
experts identified the problems and fixed them. Perhaps the best
known leaders were engineers Frederick Winslow Taylor (1856–
1915), who used a stopwatch to identify the smallest inefficiencies,
and Frank Bunker Gilbreth, Sr. (1868–1924) who proclaimed there
was always “one best way” to fix a problem.
Efficiency engineer Frederick “Speedy” Taylor (1856-1915) is
considered the founder of “the theory of scientific management.”
Many ideas about the scientific management of work and the work
place current during the twenties had evolved in the three preceding
decades under Taylor’s leadership. In the 1920s, adaptations of
Taylor’s ideas supplied the motor driving the economy to fruition in
production and distribution of goods on a mass scale.
During Coolidge’s presidency the United States experienced the
period of rapid economic growth known as the “Roaring Twenties.”
He left the administration’s industrial policy in the hands of his
activist Secretary of Commerce, Herbert Hoover, who energetically
used government auspices to promote business efficiency.
A mining engineer by training, Commerce Secretary Hoover was much influenced
by the ideas of Frederick "Speedy" W. Taylor (1856-1915), an efficiency engineer
regarded as the father of “scientific management.” Under Hoover's leadership,
initiatives undertaken within the Department of Commerce by the Bureau of
Standards and the Division of Simplified Practice reflected the impact of Frederick
W. Taylor on the business world, and set the tone for a nationwide effort to
maximize worker, managerial and industrial productivity.
Armed with an immense faith in the power of scientific
data and data-gathering and the ability of techniques of
scientific efficiency to foster stability in the nation’s
work life, Hoover promoted research into business and
industrial topics by enlisting the cooperation of
business, government, organized philanthropy, and
social science research agencies. The fact-finding
investigations were aimedGovernment
at promoting business and
worker prosperity under the umbrella, though not the
direct intervention, of the federal government. The
resulting survey data, made available
at minimal cost
in the form of Government Printing Office pamphlets
and brochures, constituted a kind of early data bank of
enormous value to businesses.
Among Secretary Hoover’s most significant initiatives
in this “war on waste” in both government and the
private sector was standardization and simplification of
industrial parts and procedures. For example, the
formulation of standard weights for loaves of bread,
standard sizes for cans, and uniform rating of canned
goods for quality, as well as standardization of
packaging units—as in numbers of cans or boxes
packed for shipping per carton—at a time when there
was little conformity, greatly facilitated distribution,
retailing and accounting. Standardization became a
prime subject of surveys and statistics, too, as is evident
in Progress in Elimination of Waste, an extract from the
Fourteenth Annual Report of the Secretary of
Commerce .
Despite labor’s abhorrence of the “speeding up”
practices associated with Taylor's efficiency revolution
in production and the keying of wages to measurable
standards of efficiency as determined by time and
motion studies, some version of these ideas gradually
became standard and even generally accepted, even
among workers. In a 1926 Encyclopedia Britannica
entry for “Mass Production,” the author, "HF,"
presumed to be Henry Ford, brilliantly analyzes the
impact of the tenets of the early twentieth century
“efficiency movement” on mass production on the
assembly line in the automobile industry. Even workers
cooperatives, such as those formed by farmers, were
operated on Tayloresque assumptions.