Roaring Twenties: 1916–1929

U.S. Business and Economy of the 1920s

Republican Decade

A laissez-faire attitude toward business and the economy dominated the prosperous 1920s under Republican Presidents Harding and Coolidge. Hoover wasn't a laissez-faire advocate; he supported some regulation of business. Economic expansion, based on credit, showed signs of failing even before the stock market crash began the Great Depression.

After World War I ended, the public closely associated President Woodrow Wilson, a Democrat, with the conflict. Consequently, a period of Republican control began and lasted throughout the 1920s.

Republican political values centered around the concept of laissez-faire, an economic policy that allows businesses to operate with minimal intervention by the government. Laissez-faire had been out of favor under President Wilson but was reintroduced by President Warren Harding, who believed it was good for the country's industries.

President Harding's presidency was marked by corruption in an affair called the Teapot Dome scandal. This event involved secret leasing of federal oil reserve lands to private companies. In 1922 Harding's secretary of the interior, Albert Fall, granted an oil lease for Wyoming's Teapot Dome to Harry Sinclair of the Mammoth Oil Company (Sinclair Oil) without going through the usual process of competitive bidding. When this deal was reported in the Wall Street Journal, Wyoming senator John Kendrick asked the Senate to investigate. A second secret lease was discovered, this time giving Edward Doheny of Pan American Petroleum Company rights to California's Elk Hills and Buena Vista Hills reserves. Both companies had paid large bribes to Albert Fall.

President Harding canceled the leases and was not incriminated in the affair, but the scandal gravely affected his health and he died of a heart attack in 1923 in the midst of the congressional investigation. In 1929 Albert Fall was convicted of taking bribes and sentenced to a year in prison.

President Calvin Coolidge, who took over the presidency in August 1923 when President Harding died, used the term thrift to encourage people to spend, but spend wisely. People had more money to spend because wages rose across most income brackets except for the very poor. Coolidge's approach to the nation's debts was to pay them off. Hoping to encourage investors, he also lowered taxes, especially on businesses. Under Coolidge advertising flourished, which further encouraged consumers to buy goods—even if they could not afford them. Buying on credit was referred to as a good investment. This tactic failed in farming communities, where farmers who had prospered when World War I generated high prices for their crops were hit hard at war's end. Postwar agricultural production in Europe recovered faster than anticipated, and American farmers found their products either were no longer needed or were worth far less. Many people lost their farms when they could not pay their debts.

Stock Market Crash and the Great Depression

After the stock market crash of 1929 ushered in the Great Depression, President Hoover's response was cautious. He ultimately received the blame for the country's tribulations.

As the country prospered during the Coolidge administration, the public began to regard the stock market as a good place to invest money, and more people began purchasing stocks than ever before. Individuals bought stocks "on margin," meaning they purchased stocks with borrowed money. Investors ignored the fact that instead of rising, stock prices could fall. When the U.S. market crashed in October 1929, investors and the banks were devastated by the loss. This event was a major factor in the Great Depression of the 1930s.

Herbert Hoover, a humanitarian and a Republican who did not always stick to the party line, had served in both the Harding and Coolidge administrations. Hoover encouraged labor unions and supported regulation of certain industries. By the time Hoover became president, he inherited an economy that was beginning to falter. The stock market crash occurred when Hoover had been in office just eight months, and for the remainder of his term the country struggled through the Great Depression. Hoover passed some programs to aid people who needed help, but he did not want to establish a welfare system because he opposed putting the country into debt again. He also was advised by his secretary of the Treasury that the economic downturn was a normal part of the business cycle and that the economy would automatically correct itself if they simply waited. Hoover took the blame for the subsequent economic downfall, and the term Hooverville entered the national vocabulary to describe shantytowns erected by the homeless.
Campaign slogans can be turned against candidates. "A chicken for every pot" would be used to taunt President Herbert Hoover in the early years of the Great Depression.
Credit: Courtesy National Archives, photo no. 187095 (Herbert Hoover Papers, 1913 - 1964)

Promoting Prosperity and Peace Abroad

To promote peace, the United States signed the Five-Power Naval Limitation Treaty and the Kellogg-Briand Pact. The nation became the world's chief creditor, investing billions of dollars into the postwar recovery of Europe.

Under President Coolidge's administration the United States was experiencing a period of prosperity and did not want to risk war again. The nation generally kept out of the affairs of other countries and adopted a laissez-faire economic policy. An exception to these policies concerned the political and military pressures the United States exerted in Latin America and the Caribbean. American intervention in these regions was chiefly to support the interests of U.S. companies. For decades the United States coerced the governments of countries such as Honduras and Haiti in order to maintain the dominance of corporations like the Honduran Standard Fruit Company and the Haitian American Sugar Company. Military presence was used to intimidate local workers.

At the end of World War I, President Woodrow Wilson and other statesmen proposed the formation of the League of Nations, which was to be an international peacekeeping organization. Americans, however, wanted no part of European or other foreign affairs. This desire for isolationism carried over into Coolidge's presidency, and he also declined joining the League of Nations. By the mid-1920s, public opinion on international involvement had begun to change. More people were now interested in finding ways to ban warfare. In 1928 Secretary of State Frank Kellogg, working from an idea proposed by the French Foreign Minister, Aristide Briand, helped create the Kellogg-Briand Pact. Briand's original idea was to create a defense alliance between just France and the United States. The pact developed into an agreement between nearly all countries worldwide to find peaceful solutions to international disputes. The Five-Power Naval Limitation Treaty had already been signed in 1922, reducing the number of warships in five nations, including the United States. But a reduction in arms did not necessarily mean a move to protect peace. The Kellogg-Briand Pact was supposed to confirm nations' intentions to stay peaceful, but the document contained so many exceptions that it did not have much effect. In addition the pact did not suggest a way to enforce the rules it laid out.

The United States loaned money to European countries torn apart by war in order to boost their recovery. However, the government was unwilling to boost American agriculture or to help the nation's own poor. Given those conditions and the public's reliance on credit, the United States' economic recovery after World War I ended up serving the rich more than anyone else. In the meantime, industries staffed by the working poor began to falter. By the end of the decade, fear of a nationwide financial collapse became reality.

The 1922 Five-Power Naval Limitation Treaty reduced numbers of warships held by the United States, Britain, Japan, France, and Italy and banned expansion of naval bases in the eastern Pacific.
Credit: U.S Army