II. A Strong and Detailed Platform

These days voters tend to focus on the qualities of candidates, debating the personal qualities of candidates rather than party plans for policy. In 1920, both parties put considerable effort into their platforms, including plans to curtail war-scale national spending and slash wartime debts. Both parties promised budget reform. Democrats in 1920 promised voters that they would reform the budget process: “we favor the creation of an effective budget system” the Democratic Platform read. The Republican Party also pledged to reform the budget process. The Grand Old Party committed to “a return to normalcy.” This meant getting that new budget law, getting spending under control, paying down the record-high federal debt, and lightening what it termed the “staggering” tax burden on the greatest supplier of jobs in the country: business. The Republicans also argued that “normalcy” meant returning certain government assets, such as oil reserves, to the private sector, which would manage them better. They argued the government could not afford big pensions for veterans and promised instead an economy that would help veterans get back to “normal” in their own lives. For voters, the 1920 choice boiled down to which party would try harder to restore America. The voters chose the Republicans. Come November 1920, the Republicans, Senator Warren Gamaliel Harding of Ohio and Governor Calvin Coolidge of Massachusetts, carried 37 of 48 states. Republicans carried both Houses of Congress, too. Both Harding and Coolidge, and the country, recognized that any new leadership must make good on its promises.

IV. Taxes and the Business of America

Federal budgeting alone can’t engender prosperity. The business environment had to be certain enough for businesses to want to create jobs. Businesses have to have the certainty to know they can keep a good share of what they make. But in the early 1920s, businesses could not be sure. The top rate on the individual income tax in 1920 was 73%. Yet worse, from the point of view of many, was the tax on capital gains, the tax levied when you buy or sell a stock. Statute at the time was so murky that no one could even establish what the rate on capital gains was. In 1921, President Harding sought to reestablish certainty by making clear taxes were only going in one direction: down. He led Congress in passage of a new tax law that made business life easier by clearly setting the capital gains tax at 12.5%. The 1921 Tax Act also dropped the top income tax rate to 58%–still high, but a start. The Harding Administration and Congress planned yet further rate cuts, but when the Republican majority diminished in the 1922 midterms, the prospects for dramatic cuts dimmed. And in August, 1923, a sudden tragedy threatened to abort the program for “normalcy.” While traveling in the West, President Harding passed away.

V. Spotlight on a New President

The challenges for the new man in the White House were numerous. For one, scandals involving the late president’s appointees were emerging. The record of Harding’s allies and Harding’s failure to oversee those allies were besmirching the very principles upon which Harding, Coolidge, and their party had won election in 1920.

The Republicans, for example, had advocated handing government oil reserves to private hands. But by 1923 it was becoming clear that in the case of some energy reserves, friends and acquaintances of Harding Cabinet members had received sweetheart deals for government oil contracts. The scandal, known as “Teapot Dome,” after the location of the oil reserves, was a serious one. The Republicans had opposed the creation of large permanent pensions for veterans, on the principle that it would set a dangerous trend of prohibitive long-term obligations the nation couldn’t afford. Now Harding’s compromise plan for veterans–not payments, but hospitals to care for them–also looked bad. It turned out that those who built the hospitals received kickbacks. Such scandals hurt not only the memory of Harding but also Coolidge’s prospects for free market reform. If privatizing energy was corrupt, then the case for government-controlled energy looked better. If veteran hospitals were corrupt, then veterans had a better case for direct payments, what we today would call “entitlements.”

Another challenge to Coolidge was that he took office in the second half of the presidential term. By the time Coolidge set up shop in the White House–autumn, 1923–only a year remained before the next presidential election. Perhaps, the press speculated, this accidental president, as some labeled him, would be just a Lame Duck. But Coolidge determined to fulfill the 1920 platform: “[Harding] is gone. We remain. It is our duty, under the inspiration of his example, to take up the burdens which he was permitted to lay down, and to develop and support the wise principles of government which he represented.” Coolidge would do more than emulate Harding’s policies, he would pursue the aims to “perfection.” Though America did not yet know Coolidge well, the country realized Coolidge had some key qualifications for his new job: a career of budgeting and lawmaking in a prominent state, Massachusetts. Soon America saw that Coolidge was serious.

VI. A Key Ally

Coolidge could have switched out some members of the old Harding cabinet, and Attorney General Harry Daugherty did eventually resign in the cleanup of the Teapot Dome Scandal. But Coolidge knew that if he was to deliver on the agenda he and Harding had promised, he must keep a key ally, Harding’s Treasury Secretary, Andrew Mellon. Mellon was one of the greatest businessmen of the era, something like a combination of Warren Buffett and Fred Smith of FedEx in one. Through building his own companies, Mellon had learned a crucial skill: managing debt. Mellon offered to resign. Coolidge responded by insisting Mellon stay and lead both the drive to reduce the debt and the drive to rationalize taxes. Effective presidents know how to delegate. Coolidge delegated to Mellon the development of plans to cut both the nation’s debt and tax burdens.

XI. Coolidge and Defense

Today lawmakers must confront a budget replete with entitlements: Medicare, Medicaid, forms of welfare, and standard benefits to veterans. Budgets today differ from those of Coolidge’s era. To compare current and 1920s budgets, click here.

In Coolidge’s era, the biggest item in the budget pie was defense. How many warships should the Navy maintain? President Harding had successfully pushed Congress to move such spending towards peacetime levels. Coolidge could not cut much further without confronting the risk that America would not be ready when war came again.

Coolidge held the line. Under President Coolidge, defense spending stayed at more or less the same level from 1923 to 1927, rising slightly towards the end. Budget spending rose as a share of total outlays, but that was not a sign of weakness: rather, the defense share of the budget rose because Coolidge and Congress restrained other spending. It was not that Coolidge wanted a feeble America. He believed it was important that America’s armed forces be prepared. In an October, 1927, press conference, Coolidge stated that defense expenditures would increase “by quite a considerable sum” in 1928 and 1929 because of additions to the Navy and “the development of our air forces.” Still, though, Coolidge believed that the nation’s ultimate strength lay in its industrial might, its wealth, and its productive agriculture. The best thing a President could do for the cause of national defense was to pay down debt, giving the country borrowing power it would need if war should come.

XII. Using That Budget Law

American presidents sometimes ignore a law that is on the books. This was not the case with President Coolidge and the 1921 Budget and Accounting Act. “I regard a good budget as among the noblest monuments of virtue,” as he once said. Twice a year, Coolidge assembled government departments in a hall. There, Coolidge and his budget director exhorted their captive audience–in something like the manner of a high school pep rally–to save and monitor spending, right down to the amount of pencils they used. Crucial here were two figures to whom Coolidge also delegated: General Charles Dawes, who later became Coolidge’s vice president, and General Herbert Mayhew Lord.

Coolidge abhorred overtaxation, which he defined as “legalized larceny.” It was also immoral for the government to waste taxpayer money. So Coolidge and Mellon made it clear that a federal government that lowered tax rates must also keep spending down. In 1926, Coolidge and Mellon pushed through yet another tax cut, the Tax Act of 1926. This historic Act, which has long been studied by tax scholars and lawmakers, dropped the top tax rate to 25%, lower than even Ronald Reagan’s tax rate of 28%. But the moral point is important: only a consistent government can keep the public’s faith. Coolidge, therefore, only permitted himself to support tax cuts when he showed equivalent rigor in budgeting.

The White House made a point of this dual mandate when Coolidge received a pair of lion cubs as a gift from a mayor in South Africa. The White House named the cubs “Budget Bureau” and “Tax Reduction” as a symbol for the public.

Throughout the 1920s, as the Great War moved into the distance, many lawmakers continued to devise new ways to widen the federal government’s role in the economy. One such plan was led by an eminent senator from Coolidge’s own party, George Norris of Nebraska. During World War I, the government had built a dam at Alabama’s Muscle Shoals on the Tennessee River to generate power for war purposes. Norris and others wanted the government to keep the dam in peacetime and generate power for the people. Coolidge opposed such legislation, arguing the dam should be put in private hands–a deal for a takeover by Henry Ford was in the offing. The precedent of government in the power business was a poor one, Coolidge held. But the Ford deal never became law. And Norris and the idea of government power came back over and over again in Coolidge’s presidency. This was one contest that Coolidge lost, though after his death. In 1933 President Franklin Roosevelt used the dam as the basis for the government’s permanent move into the hydropower business by joining Congress to create the Tennessee Valley Authority.

XV. The Gift of Saturday

Today we often think of the 1920s in terms of The Great Gatsby, the book by F. Scott Fitzgerald: a decadent flash in the pan. But the Gatsby impression notwithstanding, the roar of the 1920s was real. Normalcy worked for regular Americans. The strong economy gave working Americans many freedoms they had not seen before: Model T cars, and then, Model As. Radios became commonplace. Household appliances such as washing machines, hair dryers, and toasters revolutionized home life and liberated homemakers, then nearly all women. In 1923, around 35 percent of homes had electricity. By 1929, more than two-thirds of Americans had electricity. Jobs, including those for veterans, proliferated. There was scant inflation and workers felt they had moved into a golden age with coins in their pockets and strong prospects for their careers. One way to understand the benefit of the 1920s growth is to think about the work week. Until the 1920s, the six-day work week was a rule. But new routines and machines made firms so productive that they could pay workers the same wages–or more–for fewer hours. That meant workers could take Saturday off, a new trend. Though Henry Ford only made the five-day week official in 1926, years before workers began to understand that productivity gains were making Saturday off a possibility. The prospect of that free Saturday, along with other improvements they were already enjoying, inspired voters to elect the nay-saying Coolidge in his own right–and in a landslide–in 1924.

If the federal government wasn’t to supply daily needs of millions of citizens, then states, towns, and families must. And who would take care of the ill or the aged? In the nineteenth century and well into the twentieth century, town and state governments, and–this is key–community groups and private charities were the answer. Coolidge had grown up in, and saw value in preserving, the America of Alexis de Tocqueville, one led from the ground up.

Today we dismiss charity, especially, as a minor player. But to Coolidge, charity was central. A review of Coolidge’s calendar shows the effort this president put into praising and encouraging charity–and churches. In an era when progressivism was on the rise, when many policymakers were giving governments responsibilities that private communities had long handled, the President underscored that private groups, churches, should not easily cede their role. To the Holy Name Society, Coolidge stated that “the people of our country have secured the greatest success that was ever before experienced in human history.” That success was due to the local nature of American society and evidenced in “our wealth, our educational facilities, our charities, our religious institutions, and in the moral influence which we exert on the world.”

That however did not mean that charity could not rationalize or aggregate its activity. Coolidge detailed the reasons charity must work to function well, and how much he appreciated that work. In one of the nation’s first conference calls–telephones were still new in those days–the president reminded another such group that rational centralization and budgets were and should be everyone’s concern: “I dream of balance sheets,” the president confessed to the charity. But, moving beyond the goal of efficiency to the moral imperative of their cause. Coolidge praised the community for their devotion “to the ideal of taking care of their own.” He also praised the group for recognizing the responsibility of individuals and individual charities. “I want you to know I feel you are making good citizens.” This particular conference call was to Jewish philanthropists, but Coolidge exhorted other religious groups and local communities in the same way.

XVII. Living by Example

When a president gets into trouble in his personal life, he tends to lose voter faith, and the faith of lawmakers on Capitol Hill. Coolidge determined that his would be a pristine White House, so that there would be no distractions from his legislative goals. He was asking America to save money, so the White House must as well. The rigor was even applied to the White House dinner table. When the White House housekeeper, Elizabeth Jaffray, spent at specialty shops, Coolidge bridled. “Too many hams,” Coolidge commented, looking at one spread. Soon enough, the White House replaced Mrs. Jaffray with a new housekeeper, the more modest Ellen Riley. In 1927, for example, Miss Riley submitted documents that showed she had reduced the entertainment outlays to $9,116.39 from $11,667.10. That earned a rare note of praise from the laconic president: “very fine improvement.”

Coolidge himself saw that his successors would have more trouble holding the line. Thanks in good measure to him, prosperity had been the rule in the 1920s. But the stock market had risen so high that he himself knew it would crash one day. Markets periodically do. Then, tax revenues would disappoint.

Another challenge was emerging. By the end of the 1920s, voters had grown tired of being told that a deficit was a threat to the United States. Americans had enjoyed so many years of surplus that they no longer feared for their country.

By the late 1920s, new economists began to argue that deficits were acceptable and that more spending was, therefore, acceptable as well. This was an early version of the economic philosophy of Keynesianism. The Chamber of Commerce gave this notion a stage in 1927, calling a deficit “no great cause for alarm”–doubtless a provocation to the rigorous Coolidge.

In his last full year in office, 1928, President Coolidge also worried that the man emerging as his successor, Commerce Secretary Herbert Hoover, would not, if he became President, emphasize budgets as Coolidge had. Coolidge had always presented himself as a minimalist and a naysayer, in part because that made him harder to approach for spending. Hoover, by contrast, presented himself as a master of emergencies. That persona created a vulnerability in Hoover: politicians would more legitimately be able to demand that he act–and inevitably spend–in emergencies. Confiding to Secret Service man Edmund Starling, Coolidge said of Hoover: “well they are going to elect that superman Hoover, and he’s going to have some trouble. He’s going to have to spend money.” Coolidge’s prophecies came true: budgets grew after his presidency, especially after the historic stock market crash, and deficits became the rule.