Penguin History of the United States of America (95 page)

Long’s initial strength was as a spokesman for the bitter grievances of Southern white farmers. For the prosperity of the twenties – this was perhaps its crucial weakness – by no means encompassed all Americans, and those whom it excluded were hard put to it indeed. The wartime boom in cotton collapsed in 1920; next year the boll weevil wiped out 30 per cent of the crop; two bumper years in the mid-twenties simply destroyed the price of cotton again. Meanwhile, the New England textile industry collapsed under competition from mills in the South, where labour costs, because of the general poverty, were low: bankruptcies were commonplace, and in ten years (1923 – 33) the workforce employed in the industry shrank from 190,000 to less than 100,000.

Some industrial workers had their difficulties; but the farming population – still nearly one-third of the whole nation in 1920 – was the largest group of victims. Its produce came off the land in ever-increasing abundance; but the domestic market was saturated, and the high tariffs prevented foreigners from earning the dollars they needed for buying American crops. Besides, the United States was not the only country with a food surplus. Canada, Australia, even (in that pre-collectivist period) Russia were effective competitors. The Republican administrations did not believe in direct assistance to farmers, and when an aid bill was passed by Congress Coolidge vetoed it. Actually, the McNary-Haugen Bill (as it was called) offered only illusory help, butto the farmers this was 1896 all over again. Good weather continued; they could not agree among themselves to restrict the acreage they planted (or at least they could not abide by their agreements) so bumper harvests continued too, prices continued low and their desperation increased. For the first time in American history the farm population began to shrink. It was approximately 1,500,000 smaller in 1930 than it had been in 1920, and was now only a quarter of the total population. Hundreds of thousands of
farmers and their families had left the land for the cities for good. In so far as the land was over-populated (for the tractor was making agriculture less labour-intensive) this may have been, in the long run, a healthy development: but it was not a joyous migration.

Yet enough voters were doing well in 1928 to make Coolidge’s re-election a certainty if he wanted it. He did not. ‘I do not choose to run,’ he said, with characteristic precision, and when it became certain that he meant it the Republicans turned inevitably to the third giant of the Harding Cabinet. Herbert Hoover had bulked large in American imaginations ever since his heroic labours during and after the First World War. As Secretary of Commerce he had vastly extended the importance of his department, and accelerated the modernization of American industry, thereby further accelerating prosperity. He had recently refreshed his humanitarian reputation by once again organizing a successful relief programme when the Mississippi broke its banks in 1927, devastating an immense area. The Republican party regulars disliked him for his shyness, coldness and disdain for politicians, but they needed him. He was the most popular Republican, the only man certain to beat the most popular Democrat, Al Smith.

The race between these two men was in one sense the race between the past and the future: between a man born on a farm, who stood for the old, predominantly rural, Protestant America, which believed in self-help above all other social virtues, and a man born in the city, who stood for immigrants and Americans of immigrant stock, a Catholic, someone who understood the new, complex demands that politicians have to meet in modern society. Yet, in another perspective, both were moderns, for Hoover had proved himself a highly capable administrator and had enormous attractions, as ‘the Great Engineer’, for the professional middle class; and in another, both were primitive, for Smith, like Hoover, had risen from extreme poverty and believed in the old American values of hard work, thrift and personal honesty which had always guided him and, he thought, made his success possible. Tragically, both men were to show themselves unequal to the challenges ahead.

The election demonstrated that many parts of the country were still bitterly suspicious of city politicians, wets and Catholics. The Protestant clergy flung itself into the fray as never before. One Baptist preacher, the Reverend Mordecai F. Ham, told his congregation, ‘If you vote for Al Smith you’re voting against Christ and you’ll all be damned.’ When Smith toured the South-West, fiery crosses, the symbol of the Klan, blazed in the fields, and for the first time since Reconstruction a Republican Presidential candidate carried several ex-Confederate states (Texas, Virginia, North Carolina and Florida, and Tennessee, which had gone for Harding in 1920). But what above all defeated Smith was prosperity. Hoover spoke of the permanent elimination of poverty being at hand; he clearly meant it, he was energetic, able, full of plans; he talked of two cars in every garage. People believed
him and voted accordingly. It was worse than 1916, when they voted for the man who had kept them out of war.

Already the forces which were to destroy Coolidge prosperity were at work. Indeed, the first signs of trouble came as early as 1926, when the sale of new housing began to slacken. This had various causes, among them the collapse of a land-boom in Florida, where thousands of sun-hungry Northerners had been hoaxed into buying pieces of swamp, miles from the sea, in the belief that they were getting valuable properties near the beach in a paradise of sand, sunlight and gentle sea-breezes. The exposure of some spectacular frauds, the collapse of the Florida railroad system and a couple of hurricanes opened their eyes and set back the development of Miami by twenty-five years. ‘The world’s greatest poker game’, as some cynic had dubbed the boom, was over. A more serious cause of the housing slowdown was the fact that the market was becoming saturated, like the market for farm products. Of course there were still tens of millions of Americans who needed better housing than they were ever likely to get, but they had no money. By 1926 those who had money had usually already obtained their houses or mortgages; and though new buyers came on to the market every year, they were not numerous enough to sustain the boom. This mattered, because the building trade is labour and materials-intensive. To put up a house requires many pairs of hands at every stage, from manufacturing the bricks or cutting the limber to putting in the plumbing; and every house that is built is a small stimulus to half a dozen industries – not to mention that the occupants will add to the band of prosperous consumers, since wants increase with house-ownership. A faltering, then, in the building industry was a bad signal. Others followed. By the late summer of 1929 demand had slackened so much that all the major indices of industrial production were turning down – warnings of impending layoffs and reduced dividends, if of nothing worse.

Such ebbs in commerce are wholly natural and indeed predictable. In other circumstances their impact and duration can be minimal. Unfortunately, in the late twenties, two other factors made the impact of this particular turndown catastrophic. The first has already been touched on. The Mellon-Coolidge-Hoover philosophy of government and economics forbade the federal government to take any preventive action, and indeed had largely deprived it of any instruments of action, even had it wanted to do something. A modern government can usually stimulate demand by reducing taxation; but Mellon had already reduced taxation so much that there was little further to be done in that line. He could have pressed Congress to lower the tariff, which might have stimulated demand by lowering prices, since cheap European goods could then have entered the American market and forced their American competitors to cut their rates (though that in turn would probably have entailed lower wages and dividends); with the dollars thus obtained the Europeans would have bought American goods, or paid their American debts, and so assisted the American
economy. But it is in the highest degree unlikely that Congress, still dominated by protectionists, as events were soon to prove, would have agreed to such a policy, and anyway Mellon never dreamed of proposing it. Finally, the federal government could have acted as governments have done so often since, and by an extensive programme of public expenditure maintained employment and stimulated demand. Unfortunately such a policy was as yet unthinkable. The long Jeffersonian tradition forbade the American government to use its power in that way. Government revenues, it was believed, ought properly to be devoted to extinguishing the national debt, and Mellon was a very proper man. Under his management the debt shrank from $24 billion or thereabouts in 1920 to some $16 billion in 1930.

So if a damaging recession was to be avoided the private sector would have to act. Unfortunately it was wholly inadequate for such a role. It acted, indeed, but everything it did turned a minor fluctuation into a catastrophe. The worst crisis of American capitalism was at hand.

As we have seen, some of the great industrialists understood the importance of a comparatively high wage-level and a comparatively low price level to keep the economy healthy. Inconsistently, they also believed in the prohibitively high tariff; nor did they object to the golden tide of virtually untaxed dividends which Mellon’s policies poured into their coffers and those of their shareholders. Their profits were huge: they ploughed back the bulk of them into new factories, new production techniques, new jobs – which last did something to mitigate the effect of their bigoted anti-unionism. They would not see that the doubling of the average annual earnings of the workforce between 1914 and 1923, a gain of 19 per cent in real terms, and the gain of 13 per cent in real terms between 1923 and 1928, was the true source of their new wealth; they did all they could to prevent organized labour from pushing up wages still more. Membership of the AFL declined from just over four million in 1920 to less than three million in 1929. But the crisis cannot really be laid at the door of the manufacturers. Even a stronger union movement or a somewhat more enlightened wages policy could hardly have beaten back the storm. It is to the financial wing of the system that we must turn in order to understand what happened.

‘The business of America is business,’ said Calvin Coolidge in one of those aphorisms which ensured that the words of Silent Cal would be remembered far longer than those of more talkative politicians. Unfortunately Americans did not understand their business very well – certainly not in the 1920s. The generation of the first J. P. Morgan, as we have seen, knew enough of their weakness to set up the Federal Reserve System; but this measure was not in itself sufficient, it was no more than a first step; and so little did post-war American financiers understand this that they actually did all they could to weaken the FRS – rather like an otherwise unarmed soldier throwing away his rifle before a battle. This was characteristic. At every stage the story displays the devastating consequences
of a bland unawareness of economic and political essentials. But perhaps nothing is more shocking than the complacent acceptance of a national financial structure which its manipulators should have known was fundamentally unsound. Thus, the banking system, in spite of the FRS, was still pretty much the ramshackle affair that Andrew Jackson’s depredations had made it. The vast wealth of cash and credit which the American industrial machine, the greatest in the world, generated so abundantly was dissipated into thousands upon thousands of small, amateurishly managed, largely unsupervised banks and brokerage houses, instead of being used to strengthen the central banks so that they could, in time of trouble, come to the rescue of their weaker partners. Every state had a separate family of banks, and the members of each family were essentially isolated, living from hand to mouth, unable to help each other or, too often, themselves. Even in the palmy days of Coolidge prosperity there were over 600 bank failures a year: in other words, every year an appreciable portion of America’s earnings and savings went down the drain. Nor were there effective means for ensuring that bankers or stockbrokers were honest. All too many of them were not; and all too many were idiots.

The high financiers were not much better. If a single moment may be selected as the beginning of the downward journey, it is that of the Dawes Agreement. In itself this was an admirable measure, and it rightly earned its architect nomination as Coolidge’s Vice-President in 1924. It rescued Germany from the abyss into which the reparations controversy, the great inflation of 1923 and the French occupation of the Rhineland had plunged her. It was an act of the highest statesmanship in the best American tradition. But it was not, it could not be, a signal that the German economy was now entirely re-established: at best the patient was beginning a slow and painful convalescence. The financiers of New York saw things differently. They were of the stock which had formerly looked for bonanzas in Eastern canals, in Western ranches, and from goldmines in the Rockies. Part of the Dawes Plan was an international loan to Germany. Wall Street subscribed heavily, and did not stop there. It invested some $3,900,000,000 in loans to Germany – to states, municipalities and private borrowers – in the next five years, with absurdly little consideration (in spite of warnings) of whether it would ever get a decent return on its money. For one thing, the money was in large part not its own, but that of Americans looking for somewhere to put their savings: Wall Street got its profit out of fees for services rendered. It brought borrowers and lenders together, and encouraged them. In this spirit it discovered a Bavarian village which needed $125,000 to build a swimming-pool. By the time the financiers had finished, it had borrowed three million. In the short run this sort of thing seemed justified. A hectic flush of prosperity spread over Germany; an entente was negotiated between France, Britain and their late enemy; reparations, and the war-debts payments which depended on them, flowed smoothly at last. Meanwhile American industry was largely left to look for its financing to its own
resources; fortunately its profits were so huge that this was no problem.