5

The Coolidge Prosperity

Calvin Coolidge’s personal austerity provided the basis for his popularity, and his dexterity in handling the press boosted it. But it was the robust economic productivity of the times that kept him in public favor throughout his tenure. When Coolidge entered the White House in 1923, the nation had left behind the brief depression that had followed the end of World War I. The uncontrolled stock market speculation of the late 1920s remained a ways off, but the economy was beginning several years of solid growth, with minor interruptions, that would last until he left the White House. Pundits dubbed the boom the “Coolidge Prosperity.”

Growth under Coolidge was uneven, to be sure. Recessions struck in 1924 and 1927, though they scarcely dampened the general optimism. Laborers in some sectors—textile workers, coal miners, and especially farmers—suffered badly. What was more, the maldistribution of wealth created instabilities in the economy that would have long-term consequences. But the prosperity was beginning to reach an enlarged middle class, and it appeared to bode well for increasingly widespread and long-lasting material comfort in the future. From 1923 to 1929, wages rose; inflation, unemployment, and interest rates fell. Coolidge kept the size of the overall federal budget more or less flat, at $3.3 billion, and cut the national debt by a quarter. Burgeoning tax receipts even allowed federal expenditures to show a net growth in the course of the decade. “This period,” observed George Soule, one of the most perceptive analysts of the era’s economy, “was mainly characterized by a flowering of what is commonly known as private enterprise, with a minimum of governmental interference and a maximum of governmental encouragement.”¹

Many observers, believing a fundamental shift had occurred, hailed a “New Era.” The turmoil of World War I and its aftermath had given way, they argued, to a new set of economic relations. Technology was raising wages and dispersing the ownership of capital, allowing a greater number of Americans to flourish economically. By mid-decade these gains were encouraging the conceit that relatively unfettered capitalism had created the favorable conditions and that even looser fetters would multiply the propitious outcomes. Even skeptics of this view—and critics of the Republican policies that blessed it—felt security in knowing that the United States had emerged from the tough times as the richest, most powerful country on earth. In what the poet Harry Crosby termed “the Aerial Age,” America seemed to be attaining unprecedented heights, with towering skyscrapers, soaring aviators, and the conquest of the ether by radio embodying the idea that America had reached a new level of civilization.²

The heady good times of the 1920s were rooted, ultimately, not in Coolidge’s policies but in the fortuitous economic state in which the United States found itself after World War I. Military expenditures, which had underwritten much of the investment and productivity that emerged in the 1920s, were now greatly diminished. Yet the seed money of wartime and the favorable amortization of war plants continued to benefit American industry well into the decade. Although the reduced military commitment created the impression of a new budget efficiency under the Harding and Coolidge administrations (thus helping to justify their tax cuts), it was actually the earlier investment that had left American industry poised for a boom.

One sector after another adopted the recipe of high wages, low prices, and standardized production that Henry Ford had pioneered in making his cars. Indeed, automobiles led the way to the new prosperity. The mass production of cars in the 1910s led to mass consumption in the 1920s, and the end of the war uncorked a buying frenzy. In 1919, fewer than 7 million automobiles dotted the nation’s roads; by 1929, there were 23 million. Automobility, moreover, not only represented a huge part of the economy, it enabled other businesses to thrive as well.

Other numbers told similar tales of growth. Electricity, limited to just 16 percent of households in 1912, had reached more than 60 percent by the mid-1920s. Its spread launched new industries, too. The radio—a fad in 1922, with sales of only $60 million—became a household necessity by the decade’s end; annual sales climbed to $842 million. A hot housing market created millions of new home owners; the greatest property boom of the decade, on the coasts of south Florida, made many Americans instantly rich—at least those who cashed in before the bubble burst in 1925 and 1926. (Even William Jennings Bryan moved to Florida and secured a small fortune with a series of well-timed investments and promotional activities. “Miami,” quipped Bryan, “is the only city in the world where you can tell a lie at breakfast that will come true by evening.”) A romance with credit—installment buying, layaway plans—stimulated consumption, while an army of clever young advertising men refined the craft of piquing new consumer desires instead of just sating existing ones. The result was an expanding middle class with more leisure time, more disposable income, and a greater appetite than ever before for fashionable clothing, iceboxes, sewing machines, phonographs, movie tickets, and more. “For nearly seven years,” Frederick Lewis Allen recorded—a septennium that neatly encompassed Coolidge’s presidency—“the prosperity bandwagon rolled down Main Street.”³

How much any president should receive credit or blame for the course of the economy on his watch is impossible to determine. For Coolidge, the question is especially tricky. After the crash of 1929 and the Great Depression, the brand of economics to which he subscribed would be widely discredited, faulted for the disasters that followed. In retrospect, its many errors are evident. But to most people living in the 1920s—with some important exceptions—such policies appeared responsible for the glorious bounty. In any case, Coolidge Prosperity became the central issue in determining how people viewed the president and experienced the mood of public life under his leadership.

 

 

Coolidge’s views on political economy originated in the values he learned in rural Vermont. Disinclined to reflection or ideological dogmatism, Coolidge simply translated his boyhood lessons into a quest for low taxes, low spending, balanced budgets, and light regulation. “His demand for economy,” said Bascom Slemp, was “based on the stern judgment of the moralist as well as the sound reasoning of the economist.”⁴

Coolidge’s deputy in implementing these policies was Andrew Mellon, touted by conservatives as the greatest Treasury secretary since Alexander Hamilton. Sixty-eight years old, Mellon was a Pittsburgh banker and industrialist—Alcoa, the aluminum monopoly, was first among his many holdings—and the third-richest man in America, behind John D. Rockefeller and Henry Ford. Having survived the age of the robber barons without suffering its ravages, Mellon entered the 1920s with his faith in the capitalist gospel undimmed. His 1924 book, Taxation: The People’s Business, presented a plan for fiscal reform that would eliminate the prevailing wartime tax system, which he blamed for “lawful evasion” of tax payments and the “withdrawal of capital from productive business.”⁵

With his fastidious grooming and air of refinement, Mellon scarcely resembled Coolidge in manner or background. But on economics the two men saw eye to eye. Under Coolidge, Mellon continued, as he had under Harding, to champion the goals of cutting spending, taxes, and regulations. More than anything else, it was Mellon’s role that made liberal critics such as Walter Lippmann see the Harding and Coolidge years as a restoration of the Gilded Age plutocracy. Mellon’s name would be affixed to the various tax cuts that both presidents signed into law, and in time Coolidge became so reliant on his Treasury secretary that he installed a direct line between their offices—even though, partial to old habits, he normally disdained the telephone as a newfangled gadget unbefitting a president. Mellon, who had never much admired Harding, reciprocated the new president’s esteem.

In shaping the nation’s fiscal policy, Mellon and Coolidge benefited from the 1921 Budget and Accounting Act. A product of the Progressive Era’s enthusiasm for efficient, rationalized administration, the act created the Bureau of the Budget, which made it a presidential duty to set forth an annual schedule of income and outgo. (Previously the various executive departments had prepared their own budgets for Congress to reconcile.) Harding’s first budget director, Charles Dawes, zealously advocated for economy in government, setting a tone of budget-mindedness for the entire period.

The core of the Mellon tax plan was what critics would soon call “trickle down” economics: the idea that cutting taxes on the rich (or providing them with subsidies) would lead them to invest their windfall and spur productive advances that would benefit workers and consumers alike. Coolidge made the case in terms that Ronald Reagan would later echo. “If we had a tax whereby on the first working day the government took 5 percent of your wages, on the second day 10 percent,” and so on throughout the week, he asked a Republican audience in February 1924, amid his first legislative fight for tax cuts, “how many of you would continue to work on the last two days of the week?” By removing disincentives to work, the government would encourage business to invest.⁶

In 1921, under Harding, Mellon had passed his first set of tax cuts. The main target was not the basic income tax rate, which had remained low throughout the 1920s—when Coolidge took office the brackets were set at 4 and 8 percent of a taxpayer’s income—but the so-called surtaxes that had been imposed during World War I on citizens with incomes of more than $6,000 ($68,000 in 2006 dollars). Factoring in these surtaxes, the topmost tax bracket effectively reached 70 percent. Mellon’s 1921 bill lowered this top rate to 50 percent—he wanted it even lower—and during Coolidge’s tenure he would push through three more reductions. At the same time, he allowed corporate taxes to rise slightly—they inched up from 10 percent to 131/2 percent, then back down to 12 percent—but that small increase was more than offset by the outright abolition of other wartime levies on business.⁷

Trickle-down economics enjoyed popular support for several reasons. First, the Coolidge-Mellon plan included not just rate cuts for the rich but other discounts that benefited the middle class, such as an across-the-board income tax cut in 1924 and an increased exemption for married couples in 1926. As a result, by the end of Coolidge’s second term most Americans paid no federal income taxes at all. “Exemptions have been increased,” Coolidge boasted in December 1927, “until 115 million people make out but 2.5 million individual taxable returns.” State and local taxes, to be sure, were rising: during the 1920s many states imposed their first sales and gasoline taxes, and by mid-decade local property taxes consumed more than a quarter of the average farmer’s income. Nonetheless, most Americans—with their federal tax bills eliminated and their standards of living rising—had no reason to protest Mellon’s cuts. And while the bounty that the rich enjoyed sapped the U.S. Treasury of funds it might have used for other ends, the rising productivity masked the dangers of this public investment deficit. Mellon, in fact, continued to claim that broadening the tax burden across society was a positive good.⁸

Prosperity also restored to business a cachet it had lost in the Progressive Era. “The dollar is our Almighty,” wrote the journalist Silas Bent. “Prosperity is considered a kind of morality, and no one has preached the doctrine more devoutly than Messrs. Coolidge, Hoover, and Mellon.” It became common to justify in spiritual terms the materialist consumer culture that was supplanting the older ethic of hard work and pride in one’s craft. Clergymen and Rotary Club members spoke of profit making as the Lord’s work. Bruce Barton crystallized the alliance in his 1925 book The Man Nobody Knows. A bestseller, the book depicted Jesus as “the founder of modern business,” his parables as “the most powerful advertisements of all time,” the apostles as “twelve men from the bottom ranks of business … forged … into an organization that conquered the world.” As Mencken noted, “The successful businessman … enjoys the public respect and adulation that elsewhere bathe only bishops and generals.”⁹

A regard for business interests also shaped Coolidge’s tariff policies. Where pure laissez-faire doctrine would have dictated an opposition to trade barriers, Coolidge believed government had a positive duty to promote productivity. Under Harding, the Fordney-McCumber Tariff Act had raised duties on imports, to the satisfaction of many American manufacturers, and Coolidge kept the rates high. Fordney-McCumber let the president raise or lower individual tariffs, and when Coolidge used this power he almost always raised them. Coolidge also inherited (and declined to change) a Tariff Commission populated with representatives of the industries it controlled—an unholy arrangement that lasted until eventually Congress cried foul.

On regulatory policy, too, Coolidge generally aligned himself with large corporations—here, typically, by keeping government intrusion to a minimum. Again, the tenor was set by the relative laxity with which Coolidge’s appointees enforced the laws. At the Federal Trade Commission, Coolidge installed William Humphrey, who called his own agency “an instrument of oppression and disturbance and injury” to industry and curtailed its monitoring of unfair practices. The Food and Drug Administration was denied inspectors. The Interstate Commerce Commission, once an essential counterweight to the railroads, lapsed into fecklessness. Later in his term, Coolidge would allow radio, among other new industries, to emerge under regulatory regimes beneficial to a few leading firms—creating a near-monopoly that the networks would enjoy for decades. And although Coolidge’s administration brought a record seventy antitrust suits, it settled almost a third of them on terms favorable to the company under scrutiny. (National Cash Register, for example, was convicted of price fixing, but its fine was lowered from $2,000 to $50.) The urgency with which the progressive presidents had put government to work supervising or curtailing corporate power was dissipating fast.¹⁰

Finally, Coolidge mostly opposed new federal programs. With large corporations starting to offer some benefits to their workers under the philosophy of “welfare capitalism,” the demand for government to provide such aid was far from universal, and Coolidge considered such demands narrow and self-serving. He vigorously fought the effort to grant bonuses to World War I veterans and twice vetoed the McNary-Haugen bill, a deeply flawed scheme intended to help ailing farmers. He tried to minimize federal expenditures in response to the catastrophic 1927 Mississippi flood. And he acquiesced in a brief extension of the 1922 Sheppard-Towner Maternity and Infancy Act that gave funds to the states to create prenatal and child health care programs, on the condition that it begin “the gradual withdrawal of the federal government from this field.” “The president recommended it in one paragraph of his budget message,” one of its advocates complained, “and took it back in the next.”¹¹

Coolidge’s commitment to a hands-off government should not be overdrawn. Like other officials who have favored pruning costs, he could shelve his principles when politics or mere gut preference inclined him to back a program—or, in the day-to-day way that people approach problems, he could simply fail to realize that grand principles ought to apply in a given case. In any event, forces more profound than a liberal fondness for the emerging welfare state or the desire of legislators to please constituents with pork-barrel spending were exerting pressure on the federal budget. Even as the fires of progressivism cooled, the public retained an appetite for social benefits and relief, and Coolidge was in no position to reverse these expectations. He acquiesced, for instance, by starting the construction of federal buildings in downtown Washington to house federal agencies, after Mellon convinced him it would be cheaper than renting the space in perpetuity. He doled out matching grants to states and cities for building roads—a far cry from the massive initiatives Dwight Eisenhower would authorize in the 1950s but still an admission of the need for some federal role in such projects. After the failure of the arms control talks he pursued, he green-lighted fifteen new cruisers for the navy, and he supported spending on the Boulder Dam in Colorado. But these policies represented the exceptions of his presidency, not the rule.

Economists and citizens alike still debate the merits of the economic philosophy that underpinned Coolidge’s policies—the modified laissez-faire system that allowed for government support of businesses that appeared to serve the general good. Until their recent revival, these ideas had stood discredited for decades; in the middle of the twentieth century, even many Republican leaders accepted the inevitability of a mixed economy. In the 1920s, however, before the spread of John Maynard Keynes’s revolutionary economics—with its stress on income distribution, full employment, and stimulative spending—the alliance of government and business that Coolidge and Mellon supported enjoyed widespread legitimacy. Some observers even contrasted Coolidge’s approach with an older, rawer laissez-faire and deemed it modern and enlightened.

 

 

Coolidge planned to introduce his economic agenda in his first State of the Union message of December 6, 1923. Newspaper editorials brimmed with anticipation. “It will be a short document,” the New York Times disclosed, after hearing from the mysterious “White House spokesman.” “There are indications also that there would be considerable ‘snap’ to it.” As always, skeptics grumbled. “This country has been sitting around now holding its breath for weeks waiting for the wonderful message that is to emanate from the presidential brain,” wrote Harold Ickes. “But having read, with splitting sides, Have Faith in Massachusetts back in 1920, I am not particularly interested in anything that may come from the Coolidge pen … message or no message.” Still, because Coolidge had ostentatiously subordinated his own goals to Harding’s unfinished agenda back in August, the December 6 speech would mark the unveiling of his own plans, and the president’s upcoming statement assumed the proportions of an inaugural—a presidential debut.¹²

Much speculation focused on whether Coolidge would deliver a written or oral message to Congress. Though presidents had traditionally done the former, Coolidge opted to follow Woodrow Wilson’s example and appear in person; breaking new ground, moreover, he had the speech broadcast over the radio, the better to reach the public directly. Bascom Slemp assembled a network of stations that reached as far as Dallas and Kansas City to carry the speech. The effort was a success: when the speech aired, listeners in St. Louis marveled that they could hear the president turning his pages.

Appearing before Congress at 12:30 on a Thursday afternoon, Coolidge delivered a speech that was exceptional for its unexceptionality. He proposed no sweeping program, no Wilsonian crusade, only a farrago of proposals of a moderate nature, served up in a commonsensical tone that captured the public mood. “Our main problems are domestic problems,” the president declared. He urged Congress to make enacting the Mellon plan—reducing income tax rates across the board, chopping the surtaxes on the very rich, and abolishing wartime excise taxes—its “paramount” goal. From there, he moved into a laundry list of the sort that had become standard fodder for State of the Union messages. His litany included tighter immigration policies, an antilynching law, stricter enforcement of Prohibition, a constitutional amendment limiting child labor, and the regulation of new industries such as radio and aviation. He called for free medical assistance to disabled veterans but stood by his insistence that Congress not grant World War I veterans their much-demanded bonus.¹³

All but unanimously, newspapers (whose editorial boards were heavily Republican) endorsed the speech. “Among the most remarkable contributions to the philosophy of statecraft,” read a typical endorsement from the Los Angeles Express. Slemp, tasked with monitoring the public reaction, was delighted that praise overwhelmed any criticism. Coolidge noted proudly that the acclaim for his State of the Union outstripped that for any of his previous addresses. Most important, he had succeeded in identifying himself with the issues of cutting taxes and spending, on which his stands enjoyed majority support. Buoyed by the response, Coolidge took the occasion two days later of the Gridiron Dinner—an annual Washington ritual at which politicians joined in feting the press corps—to confirm his intent to run for president in 1924.¹⁴

 

 

If Coolidge entered 1924 flying high with the public, on Capitol Hill he found himself stymied at almost every turn. Much of the fault was the president’s own. Having spent his vice-presidential years mostly giving speeches, he was a novice at legislative relations. “No Republican President within memory had seemed to have so little contact with Congress and the rank and file,” noted Samuel Ratcliffe, a well-known London journalist and student of American politics. Coolidge tried to court congressional leaders, summoning them to the White House after reading about developments on the Hill in the morning paper, and he also hosted them at White House breakfasts. But his diffidence at those sessions often left the lawmakers more confused than engaged.¹⁵

The bottom line was that much of Congress was unfriendly to his goals. Nominal Republican majorities concealed losses to the Democrats in the 1922 midterm elections and a serious internal GOP rift between the pro-business Old Guard and the unpredictable Progressives; the latter bloc often allied with Democrats, whether to dredge up the muck of Teapot Dome or thwart the president’s legislative goals. Coolidge squared off against this bipartisan coalition in early 1924 on two pressing issues—taxes and the veterans’ bonus—that became inextricably linked in a larger battle of the budget.

In 1924, the federal budget remained almost $2 billion smaller than its historic peak size of $5.1 billion (in 1921). Tax receipts were poised to generate a budget surplus. Although this surplus actually undermined Mellon’s claim that wartime tax rates were stifling investment and depressing federal revenue—and thus the justification for his trickle-down cuts—public debate nonetheless revolved around how to spend the projected windfall. Most legislators wanted to reward World War I veterans with a bonus, arguing that the poor wages soldiers had earned, especially in contrast to the wartime prosperity others had enjoyed, had become a national embarrassment. But the measure on the table would cost the government an estimated $135 million in the first year and up to $2 billion over the long haul. Moreover, in the 1920s veterans were seen as a bloc that was both vaguely radical and narrowly self-interested, and in the days before Social Security and similar benefits their demand for the bonus struck many Americans as socialistic. For these reasons, Harding, reflecting the dominant Republican position, vetoed a bonus bill in 1922. When the American Legion renewed its agitation for the benefit in the fall of 1923, Coolidge resolved to do as his predecessor had.

Coolidge’s budget for 1924, the smallest since before the war, pared spending in almost every government department. (The Labor Department, incurring greater expenses for immigration control, and Justice, with increases for penitentiaries, were exceptions.) Coolidge adamantly opposed the bonus, preferring to retire some of the federal debt while continuing Mellon’s long-range program of lowering the income surtaxes. “If this business is showing a surplus of receipts,” he said, referring to the government, “the taxpayer should share therein.” To be sure, Harding and Mellon had already sliced the top tax rate to 50 percent in 1921, but the Treasury secretary now wanted to lower it to 25 percent. Such a reduction would cost hundreds of millions, and to pass both the bonus and the tax cuts was, for the budget-minded Coolidge, unthinkable.¹⁶

Coolidge expected to prevail. The president insisted that the bonus—along with the Bursum Bill, another measure gathering force in Congress, which would increase pensions for veterans of previous wars—would bust the budget. Repeating a line popular with bonus foes, Coolidge argued that such provisions would aid just a part of the populace, whereas his tax cuts would help the nation as a whole. But Congress had other ideas. In the late winter, sentiment for both the bonus and the Bursum Bill snowballed. Henry Cabot Lodge, increasingly rivalrous with the president, endorsed both measures. Republican Senate whip Charles Curtis, normally a loyal party man, introduced them on the Senate floor. Both passed, forcing a showdown with the president.

On May 3 Coolidge vetoed the Bursum Bill, declaring, “The advantage of a class cannot be greater than the welfare of a nation.” He managed to sustain the veto in Congress. But when he vetoed the far more expensive bonus bill twelve days later—pronouncing archly that “patriotism … bought and paid for is not patriotism”—Congress mutinied. Within days, both chambers overrode the second veto, to open rejoicing in the packed galleries, “the likes of which,” the New York Times reported, “has seldom been heard in the Senate.”¹⁷

Meanwhile, the president’s tax plan was faltering. Although across-the-board cuts on the meager basic rates spawned little protest, the plan to slash the all-important revenue-raising surtaxes was dead on arrival on the Hill. Despite Coolidge’s claims that he was “inflexibly opposed” to any compromise, by mid-February, the New York Times reported, the goal of a 25 percent top rate was “hopelessly lost.” Instead, Congress was debating whether to go down to 44 percent (as the Democrats preferred) or 35 percent (as most Republicans wished).¹⁸

At the same time, Republican senator James Couzens of Michigan, who was feuding with Mellon, demanded an investigation of the Bureau of Internal Revenue for having given special and costly tax rebates to large corporations. Couzens’s investigations eventually showed that Mellon had delivered, almost for the asking, dubious handouts to several large companies, including some in which he himself had an interest. Totaling some $3.5 billion over the course of Mellon’s tenure, these rebates were further augmented by the return of more than $80 million in inheritance taxes to the heirs of some of the nation’s largest estates. Although it would take time before all Couzens’s charges were borne out, and for all their sordidness they never managed to taint Coolidge’s reputation for integrity, they nonetheless kept the administration on the defensive throughout the tax bill fight and ensured that the Mellon plan wouldn’t pass Congress undiluted.

After much haggling—between Republicans and Democrats, the Senate and the House, the legislature and the executive—a deal was finally struck. The final bill cut the top surtax rate to 40 percent, raised the threshold for the surtax, accepted Mellon’s rate reductions on the basic brackets, and—to Mellon’s and Coolidge’s dismay—imposed new levies on gifts and inheritances. The president made a show of agonizing over whether to sign the bill, retreating to the presidential yacht to ruminate rather than taking Congress’s revisions lying down. But in the end he declared that for all its flaws the bill improved upon the existing tax code. On June 2, he signed it. Depicted in the press as another congressional rebuff to the president, in the longer arc of history the outcome represented another victory for Calvin Coolidge and his trickle-down creed.¹⁹