The Politics of Boom and Bust, 1920-1932Chapter 32

Supreme Court CasesSchenck v. U.S. Gitlow v. New York

• Schenck sent letters to men drafted into WWI urging them not to report for duty and was convicted of violating the Espionage Act

• He claimed he was exercising his right to free speech

• Justice Oliver Wendell Holmes said the government could silence free speech when there is a “clear and present danger” to the nation, comparing what Schenck had done to falsely shouting “Fire!” in a crowded theater

• Gitlow, a socialist, was convicted of “criminal anarchy” for publishing calls in 1919 to overthrow the government by force

• He claimed his rights to freedom of speech and the press had been violated

• The Court upheld his conviction

The Red Scare• The home of the U.S. Attorney

General, A. Mitchell Palmer, was damaged severely in an explosion

• He led a committee to conduct raids and arrest suspected “subversives” including Communists, Socialists, and anarchists

• Thousands of suspected radicals were arrested and charged with anarchy, without evidence▫ Over 500 would be deported

• New York’s State Assembly removed from office five socialist members

• April 15, 1920 two men shot and killed two employees of a shoe company in Massachusetts and stole $15,000

• Police arrested Nicola Sacco and Bartolomeo Vanzetti▫ Anarchists from Italy who people

automatically assumed were guilty• The two would be denied multiple

attempts at appeal and were executed in 1927

The Harding Presidency• Harding preached a return to

“normalcy” after WWI and this appealed to most Americans

• Made some good decisions in his Cabinet appointments, but also placed some inexperienced, incompetent, and dishonest friends in important jobs

• Foreign policy▫ Isolationism▫ Called for disarmament▫ Reduce war debts from

European countries to amounts they were better able to pay

• Domestic Issues▫ Nativism revived▫ Restrictions on Immigration

Scandal• "My god, this is a hell of a job!

I have no trouble with my enemies . . . but my damned friends... They’re the ones that keep me walking the floor nights." 

• Charles Forbes▫ served time for fraud and

bribery in connection with government contracts

▫ took millions of dollars from the Veteran's Bureau

• Harry Daugherty▫ implicated for accepting

bribes

The Teapot Dome Scandal• Major corruption scandals in Harding’s

administration came to light▫ One official had stolen government

funds▫ Others had taken bribes in return for

help in getting contracts approved or laws passed

▫ Others were accused of other wrong-doing

▫ Two committed suicide• No evidence that Harding was involved

▫ He became terribly disturbed when he heard about them and the strain may have contributed to his death of a heart problem in 1923

• Worst was Teapot Dome▫ Secretary of the Interior, Albert B. Fall,

secretly gave oil-drilling rights on government oil fields in Elk Hills, CA, and Teapot Dome, WY to two private oil companies

▫ In return he received more than $300,000 in illegal payments and gifts disguised as loans

The Coolidge Presidency• Coolidge was visiting his parents in

Vermont when he learned of Harding’s death

• At 2:30 AM his father (a justice of the peace) administered the oath of office of President of the United States

• Coolidge was widely respected as governor of Massachusetts and played no part in the Harding scandals

• He ran again after completing Harding’s term and won

• “The chief business of the American people is business”▫ Laissez Faire▫ Fueled the economic boom

• Coolidge wouldn’t even allow the government to restrict the purchase of stocks on easy credit

• Wouldn’t give help to flood victims because the government had no duty to protect citizens “against the hazards of the elements”

Coolidge•“The business of America is business.”

•Coolidge was least active American president▫Took daily naps▫Proposed no new

legislation

Agriculture• Republican policies in

agriculture did nothing to help farmers share in the prosperity

• Rising farm prices 1900-1920

• Farmers opened up poor lands to produce more during wartime▫ Bought goods and

machinery they couldn’t afford previously

• Largest factor in downfall after WWI was the loss of foreign markets because of tariffs

• Long-term agricultural depression hit in the 1930s

Kellogg-Briand Pact• Most foreign-policy decisions

were left up to Secretary of State Frank B. Kellogg

• Kellogg received a suggestion from French Foreign Minister Aristide Briand▫ Thought the U.S. and France

should formally agree not to declare war on each other

▫ Eventually, 60 other nations agreed to participate

▫ Pact was unrealistic and unworkable because there was no way to enforce it

▫ By 1941 many of the nations that had signed the pact would be at war

Election of 1928• Coolidge chose not to run

again• Republicans nominated

Herbert Hoover• Hoover’s main opponent

was Alfred E. Smith of NY▫ First Roman Catholic to be

nominated for President and opposed Prohibition

▫ Appealed to people living in cities

• Hoover supported Prohibition and was a Protestant, appealed to people living in small towns across the country

• Hoover won by a huge margin

Hoover’s Fall from Grace• “We in America today are

nearer to the final triumph over poverty than ever before in the history of any land.” Hoover▫ One year before the stock

market crash• Within 6 months of taking office

the stock market crashed and the Great Depression began

• Hoover philosophically unequipped to take the needed actions to relieve the suffering of the unemployed and farmers nor initiate legislation to remedy the factors that caused the Depression

The Roots of the Depression•Uneven distribution of income

▫Companies overproduced goods and people didn’t make enough money to buy the goods that were being made

•Loss of Export Sales▫Hawley-Smoot Tariff raised tax to buy things from

America and for us to buy foreign products•Mistakes by Federal Reserve

▫Interest rates were kept low which encouraged banks to make risky loans and led business leaders to borrow money to expand production for a falsely growing economy

▫When the depression hit the Reserve raised interest rates, causing worse conditions

The Long Bull Market•After a long period of rising stock prices many

people invested in stocks•People bought stocks on margin

▫A loan to buy the stock▫Example: A stock worth $10 was bought with $1 and

the rest of the $9 was a loan. When the stock rose in price to $11, the person could sell their share, pay back the loan and end up with a $1 profit.

•Buyers who didn’t know the companies or the system and didn’t educate themselves bought stock in companies randomly and this made the price of the stock rise, even if the company wasn’t doing well (SPECULATION)

The Great Crash• Once new investors stopped

coming in to the market, prices stopped rising and professional investors started to sell their stocks to keep from losing money

• The stock market fell when people started selling stocks at a fast pace

• October 29 “Black Tuesday” the market finally hit bottom with stocks losing $10 to $15 billion in value

• Eventually, $30 billion was lost, roughly the same amount of money earned by all Americans in 1929

Banks in a Tailspin• The market crash undermined

banks▫ Banks had lent money to

speculators▫ Banks had invested the money of

depositors in the stock market• Banks cut back on the number

of loans they made• This put the economy into a

recession• News of bank failures worried

Americans and they began to take their money out of banks, causing them to collapse

• Bank failures caused people to lose any savings they had

The Depression Trickles Down• Businesses couldn’t

borrow money to use to produce more goods

• Businesses lacked incentive to spend money to produce goods because people couldn’t afford them

• Businesses laid off workers because they cut back production

• As unemployment grew and incomes shrank, consumers spent less and less money and businesses produced fewer goods