Introduction to Prosperity and Depression
The United States emerged from World War I as the wealthiest nation in the world. Yet much industrial and social unrest marked the years immediately following the war. Business depression alternated with prosperity. In contrast to prewar standards, wages were relatively high, but much of this gain was offset by high prices. Many strikes occurred. Rapid demobilization of the armed forces and abrupt cancellation of wartime contracts resulted in heavy unemployment.
For a time there was widespread fear of radical doctrines, European in origin, that preached the overthrow of existing political and economic systems. In the "red scare" of 1919-20, many aliens suspected of being sympathetic to Communism were arrested and a number were deported. The "red scare" continued well into the 1920's.
Another reflection of social unrest was the rise of a politically powerful secret organization calling itself the Ku Klux Klan, an imitation of the organization of the same name that operated during the Reconstruction period. The KKK spread prejudice not only against blacks but also against Roman Catholics, Jews, and foreign-born citizens.
A vast migration of blacks from the South began during the war and continued in the postwar period. Hundreds of thousands moved to the industrial centers of the North in search of improved social and economic conditions. Most met widespread discrimination and were forced into overcrowded ghetto areas.
The Volstead Act to enforce prohibition of the sale of alcoholic beverages was passed by Congress over President Wilson's veto in 1919. There was widespread violation of this law. Bootlegging (the selling of illegal liquor) became an organized activity dominated by gangsters.
Three Republican Presidents, Warren G. Harding, Calvin Coolidge, and Herbert Hoover, served from 1921 to 1933.
Harding's Administration,
- -23. Harding was elected in 1920 by a large majority. The nation, it appeared, wanted a rest from problems connected with the war and was tired of reform movements. Harding appealed to this mood, promising a return to "normalcy."
The Bureau of the Budget was established to achieve better control over government spending. Congress sharply limited immigration, breaking with the traditional policy of welcoming nearly all persons from abroad who wished to come. The country returned to a system of high tariffs. A tax reduction program, which critics viewed as too favorable toward large corporations and wealthy individuals, was begun. Backers of the tax program said it was a major step toward national prosperity.
When Harding died in August, 1923, with 18 months of his term remaining, Vice President Calvin Coolidge became President. The nation then learned of the corruption of some of the Harding administration's high officials, including two cabinet members. The Teapot Dome affair, involving bribery and fraudulent leasing of government-owned oil land, was one of several major scandals that came to light.
Coolidge's Administration, 1923-29
Coolidge's honesty and forthrightness helped to remove the stigma of scandal from the Republican party, and he was elected President by a landslide in 1924. The poor showing of Democrat John W. Davis was partly the result of the candidacy of Senator Robert La Follette, who ran for President as a Progressive and attracted many Democratic votes. Another factor, probably the most important cause of the Republican landslide, was that business was entering a period of prosperity. The prices of securities soared and everyone—except the farmer—seemed to be making money. It later became clear, however, that this boom was not soundly based.
Hoover's Administration, 1929-33
Herbert Hoover defeated Democrat Alfred E. Smith in the election of 1928. Hoover announced that the United States in 1928 was nearer than any country had ever been to achieving "a final triumph over poverty." But collapse of prosperity came within a few months after he took office. In October, 1929, prices of securities fell so sharply that billions of dollars were lost in a matter of days. This stock-market crash began an economic slump so severe and long-lasting that it is known as the Great Depression. Millions of workers lost their jobs as factories reduced production or closed. Banks failed by the hundreds. Prices of farm products fell disastrously. Thousands of families lost their farms or homes when they became unable to make payments on their mortgages. Many people depended on charity for food.
The Hoover administration hoped that natural economic forces or voluntary action by business groups would end the depression. As the crisis deepened, however, the administration sponsored or approved some proposals for government action to promote recovery and relieve distress. The Reconstruction Finance Corporation (RFC) was created in 1932 to lend government funds to banks, insurance companies, railways, and other large enterprises. Funds were provided with which banks could grant more generous loans to farmers and businesses. To help banks extend mortgages on homes, the Home Loan Bank Act was adopted in 1932. To provide employment, construction of federal buildings was increased.
Hoover's administration opposed direct assistance to individuals by the federal government. It argued that states, cities, and private agencies should carry that responsibility. However, under the Relief and Construction Act of 1932, loans were made available to states for relief purposes. Franklin D. Roosevelt, Democratic candidate against Hoover in 1932, said that Hoover's program was inadequate. The emphasis, Roosevelt urged, should be on the welfare of "the forgotten man at the bottom of the economic pyramid." Roosevelt promised a "new deal for the American people." He was elected by a large majority, carrying all but six states.
The 20th Amendment to the Constitution, which changed inauguration day from March 4 to January 20, was adopted in February, 1933. (It was too late to affect Roosevelt.) It shortened the "lame duck" period (the period between an election and the day new officials take office).