The 1920s: Business Boom or False Prosperity?

President Calvin Coolidge. Source: Wikipedia. 

For many Americans, the "return to normalcy" promised by Warren G. Harding and Calvin Coolidge in the postwar years was a welcomed change. However, bubbling beneath the surface were a series of political and economic problems.

Greed and Scandal Under Harding

Prior to entering politics, President Warren G. Harding was an Ohio newspaper publisher with little political experience. Historians have credited Harding with pardoning socialist Eugene V. Debs (who had been jailed for opposing the Great War), as well as for supporting anti lynching legislation. President Harding also appointed dedicated people to office, including Charles Evans Hughes as Secretary of State.

However, no presidency is without faults, and Harding also gave political jobs to members of the so-called Ohio Gang, corrupt associates who took advantage of him. After Harding's death in 1923, the public became aware of several scandals during his administration, including:

1. Theft--The head of the Veterans Bureau was convicted of selling hospital supplies for his own profit. He was imprisoned and fined for his crime.

2. Fraud--The Alien Property Custodian was imprisoned for selling former German property for private profit.

3. The Teapot Dome Scandal--Secretary of the Interior Albert Fall was convicted of accepting bribes from two oil executives in exchange for allowing them to lease government owned petroleum reserves. One of the oil fields was at Teapot Dome, Wyoming.

Enter Coolidge, Prosperity for Some

Calvin Coolidge became president after Harding's death in office in 1923. In the 1924 election, Coolidge was returned to office. President Coolidge is best known for his laissez-faire approach to the ecnomy as well as for his strong commitment to business interests. Due to this strong commitment to business interests, Coolidge retained financier Andrew Mellon as Secretary of the Treasury; Mellon acted on the philosophy that the government's role was to serve businesses.

Recession and Recovery

The end of World War I was followed by a recession caused by the shift from a wartime economy to a peacetime economy. During this recession, production, farm income, and exports fell while unemployment rose to 11.7% in 1921.

In other sectors of the economy, however, a period of economic recovery had begun around 1923, when Coolidge became president. The years between 1923 and 1929 were seen as a time of booming business. The Gross National Product (GNP) rose to 40%; per capita income increased by 30%; and with little inflation, actual purchasing power and thus the standard of living increased as well.

Pro-Business Policies

During the period of the 1920s, some groups, especially big businesses/corporations and the wealthy, greatly benefitted from Coolidge's pro-business policies.

During this time:

1. Businesses and the wealthiest citizens were helped by tax laws that reduced personal income tax rates, particularly for upper income groups, removed most excise taxes, and lowered corporate income taxes.

2. The government reduced the national debt and balanced the budget by raising tariffs and demanding repayment of war debts.

3. Tariff rates were raised in a return to protectionism. Republicans argued that higher tariffs would limit foreign imports, thus protecting American industry and agriculture from foreign competitin, but the actul effect was to weaken the global economy.

4. Regulatory agencies such as the Federal Reserve Board, the Federal Trade Commission, and the Interstate Commerce Commission were staffed with people who saw their role with assisting business rather regulating it.

5. A relaxed attitude towards corporte mergers was supported by the Executive Branch and by the Supreme Court. By 1929, about 1300 corporations produced three-fourths of all American manufactured goods, and 200 companies owned half of the nation's wealth.

Economic Boom Bypasses Others

Not everyone felt the economic prosperity under the Coolidge administration that the 1920s was known for. Key segments of the population failed to share in the general rise in the standards of living.

1. Labor--Strikes had dropped sharply during World War I, mainly due to the Wilson administration supporting collective bargaining in return for a no-strike pledge. Membership in the American Federation of Labor grew, and wages for war industry employees rose sharply. However, inflation wiped out any real gains in buying power. 

The 1920s saw a reversal of many union gains. Strikes in the steel, mining, and railroad industries failed, in part, due to government using military force to break up the strikes as well as the use of injunctions (court orders that prohibit specific actions). During this time, the Supreme Court also ruled against child labor laws and against the establishment of a minimum wage for female and child laborers. In addition, some companies began to offer health and life insurance as a way to lessening the desire for their workers to join unions, which was a strategy that was successful for many of these companies as membership in labor unions fell from 5 million in 1921 to under 3.5 million in 1929.

2. Farmers--The only farmers to benefit from the prosperity of the Coolidge administration were those involved in large commercial operations. Small farmers were hurt by a variety of factors, including:

* Farmers expanded production during World War I in response to rising prices and the increased need for food for the troops. They added to their acreage and purchased new machinery.

* The new machinery and increase in acreage coupled with new farming techniques increased farmers' crop yield per acre.

* After the war, when European farms began to produce again, American farmers were growing too much. With this overproduction of agricultural goods, the prices of both farm products and farmland decreased dramatically.

* Net farm income fell 50% during the 1920s. As farm income fell, many farmers lost their land when they could not make their mortgage payments. As a result, the number of farmers decreased as well; by 1930, only about 20% of the labor force made a living by farming.

3. Native Americans--During the 1920s, Native Americans had the highest unemployment rate of any group as well as the shortest average life span. At the time, most Native Americans lived on reservations without basic living needs such as running water and heat.

4. African Americans--African Americans who migrated from the South to the North in the Great Migration enjoyed on average a higher standard of living. However, they still earned significantly less than their white counterparts in the same employment fields and experienced a higher unemployment rate than their white counterparts.

For some, the 1920s was seen as a positive era, but it is important to note that this era of prosperity was not felt by everyone. Next time here on the blog, we're going to examine the stock market speculation and mass conspicuous consumption that is typically thought of when this time period is mentioned.