Economic Boom & Bust

Warren G. Harding 1865 – 1923 29th President (1921-3) Elected on a campaign of a “Return to Normalcy” – a return to isolationism, less social reform, and increased economic growth Harding was an honest man, but put too much trust in his friends and political allies, giving them positions in his cabinet Died in office from a massive heart attack, possibly brought on by the stress of scandals

The Ohio Gang Harding’s corrupt friends from back home came to be called the “Ohio Gang” They abused their positions by accepting bribes, illegally selling government property Harding was deeply embarrassed by the actions of his friends Most notorious member was Secretary of the Interior Albert B. Fall

Teapot Dome Scandal Sec. Fall had secretly leased federal lands to private oil companies in return for $300,000 in bribes When the scandal broke, Fall became the first cabinet member to go to prison and Harding’s reputation was ruined

Calvin Coolidge 1872 – 1933 30th President (1923-9) Became President upon Harding’s death Known as “Silent Cal” for his terse, serious manner “The business of the American people is business”: Coolidge supported businesses and a laissez-faire economy

Andrew Mellon & the Mellon Program 1855 – 1937 Sec. of Treasury to 3 Presidents His program included applying business principles to managing the federal budget Believed that economic growth required balancing the budget, reducing the federal deficit, and cutting taxes

Economic Boom Rise in the standard of living during the 1920s led to increased sales of consumer goods which in turn created more jobs Mechanization of factories led to greater efficiency and a drop in prices for manufactured goods, further encouraging consumerism

Consumer Credit For the first time, individuals began to regularly borrow money and go into debt to purchase consumer goods (cars, appliances, radios, etc.) because credit became easy to come by and carried no social stigma Consumers began to use “installment plans” to buy expensive items

Growth of the Middle Class As corporations began to expand and have specialized departments such as sales, marketing, accounting, engineering, and management, the number of people living at the middle-class level grew tremendously

Welfare Capitalism Companies began allowing workers to buy shares of stock, participate in profit sharing, and receive benefits such as medical care and pensions This led to increased spending among the working class and less reliance on unions, since they no longer seemed necessary

Farmers in Crisis Technological advances such as pesticides and tractors led to both higher crop yields and increased debt for farmers Increased crop yields led to a drop in crop prices Government efforts to help farmers were repeatedly vetoed by Pres. Coolidge, who believed in laissez-faire

Election of 1928 Coolidge decided to not run for re-election, instead supporting his Sec. of Commerce Herbert Hoover as the Republican nominee Democrats ran NY Gov. Alfred E. Smith, the first Catholic to run for President Hoover won in a landslide

Herbert Hoover 1874 – 1964 31st President (1929-33) Took office at a time of unparalleled prosperity and optimism, but by the end of his presidency, the US was at the bottom of its deepest economic depression in history

Stock Speculation A long period of growth in the stock market convinced millions of Americans to take a risk and invest in stocks Investors began “buying on margin” – borrowing the money to buy stocks, believing those stocks would grow in value and allow them to easily repay the loans; but, if prices dropped, they panicked and sold quickly to avoid taking large losses

“Black Tuesday” In late October, 1929 stock prices began to slip, triggering a mass sell-off as investors panicked On Tuesday, Oct. 29 the bottom fell out – the market lost $15 billion in a single day The market continued to plunge for the next 3 years and didn’t recover until after WWII – a period known as the “Great Depression”

Banking Collapse Banks had made numerous loans to stock speculators and had also invested heavily themselves in the stock market When the market collapsed, banks lost big and had to stop lending With credit restricted, the economy went into a recession Many banks could not absorb their losses and closed; people who had deposited their money in these banks lost everything – this caused further panic and people began to withdraw their money from banks

Hawley-Smoot Tariff Tariff Act of 1930 Government passed the 2nd highest tariff in US history in an attempt to protect US industry, but the tariff badly hurt the sale of US goods overseas as foreign nations raised their tariffs against the US This worsened the US economic situation

Rugged Individualism or Direct Relief? US had long believed in “rugged individualism” – the idea that it was up to the individual to take care of himself As the economy collapsed and unemployment soared, people began to support the idea of “direct relief” – the government should act to help those who could no longer help themselves