Transcript Politics of Boom and Bust

Politics of Boom and Bust
Chapter 32
The Republican “Old Guard”
Returns
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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)
Harding Domestic Agenda
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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
America Seeks Benefits
without Burdens
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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
Stench of Scandal
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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
Calvin Coolidge
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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
Frustrated Farmers
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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
Foreign Policy Flounderings
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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
1928 Election
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Herbert Hoover
– Republican
– Favored Prohibition (Dry
candidate)
– Would continue probusiness 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
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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
Al Smith
Hoover’s First Moves
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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
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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
Stock Market Crash
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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
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Black Thursday - October 24, 1929
– Stock prices begin to fall
– Margin calls cause many to sell
– Need to sell increases as prices fall
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Bankers met and agreed to buy stocks at inflated
prices to stop panic
– Temporarily worked
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Black Tuesday - October 29, 1929
– Severe drop in the market
– General Motors dropped from $73 to $8
– $40 billion lost in 2 months
Problems in Economy
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Gap between Rich and Poor
– Production of factories increase
• Profits of wealthy shot up
• Wages of workers stayed same
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Stock market crashed
– Wealthy stopped investing
– Average people could not buy products
– Resulted in factories closing and unemployment
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Foreign countries struggled paying back money
borrowed from America for War
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Holding companies owned stock in many companies
– Interested in stock prices, not running companies
Great Depression
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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
Causes of Depression
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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
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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
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Overproduction
More goods than buyers
– Overproduction drove prices down
Profits reinvested into factories and production
instead of wages
New technologies created unemployment
Hoover’s reaction
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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
Bonus Army
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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
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Hoover responded by sending Army
led by Douglas MacArthur to
disperse them with bayonets and
tear gas
Japan Invades Manchuria (in China)
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Japan invaded Manchuria in China
in September 1931.
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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)
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US would not recognize any territorial
acquisition done by force
Did not slow Japan’s aggression