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The Days Of Boom And Bust
As the twenties roared on, a market crash became inevitable. Why? And who should have stopped it?
August 1958 | Volume 9, Issue 5
At various times during his years in office, men called on Coolidge to warn him of the impending trouble. And in 1927, at the instigation of a former White House aide, he sent for William Z. Ripley of Harvard, the most articulate critic of the corporate machinations of the period. The President became so interested that he invited him to stay for lunch, and listened carefully while his guest outlined (as Ripley later related) the “prestidigitation, double-shuffling, honey-fugling, hornswoggling, and skulduggery” that characterized the current Wall Street scene. But Ripley made the mistake of telling Coolidge that regulation was the responsibility of the states (as was then the case). At this intelligence Coolidge’s face lit up and he dismissed the entire matter from his mind. Others who warned of the impending disaster got even less far.
And on some occasions Coolidge added fuel to the fire. If the market seemed to be faltering, a timely statement from the White House—or possibly from Secretary Mellon—would often brace it up. William Allen White, by no means an unfriendly observer, noted that after one such comment the market staged a 26-point rise. He went on to say that a careful search “during these halcyon years…discloses this fact: Whenever the stock market showed signs of weakness, the President or the Secretary of the Treasury or some important dignitary of the administration…issued a statement. The statement invariably declared that business was ‘fundamentally sound,’ that continued prosperity had arrived, and that the slump of the moment was ‘seasonal.’”
Such was the Coolidge role. Coolidge was fond of observing that “if you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you and you have to battle with only one of them.” A critic noted that “the trouble with this philosophy was that when the tenth trouble reached him he was wholly unprepared.…The outstanding instance was the rising boom and orgy of mad speculation which began in 1927.” The critic was Herbert Hoover.
Plainly, in these years, leadership failed. Events whose tragic culmination could be foreseen—and was foreseen—were allowed to work themselves out to the final disaster. The country and the world paid. For a time, indeed, the very reputation of capitalism itself was in the balance. It survived in the years following perhaps less because of its own power or the esteem in which it was held, than because of the absence of an organized and plausible alternative. Yet one important question remains. Would it have been possible even for a strong President to arrest the plunge? Were not the opposing forces too strong? Isn’t one asking the impossible?
No one can say for sure. But the answer depends at least partly on the political context in which the Presidency was cast. That of Coolidge and Hoover may well have made decisive leadership impossible. These were conservative Administrations in which, in addition, the influence of the businessman was strong. At the core of the business faith was an intuitive belief in laissez faire —the benign tendency of things that are left alone. The man who wanted to intervene was a meddler. Perhaps, indeed, he was a planner. In any case, he was to be regarded with mistrust. And, on the businessman’s side, it must be borne in mind that high government office often nurtures a spurious sense of urgency. There us no more important public function than the suppression of proposals for unneeded action. But these should have been distinguished from action necessary to economic survival.
A bitterly criticized figure of the Harding-Coolidge Hoover era was Secretary of the Treasury Andrew W. Mellon. He opposed all action to curb the boom, although once in 1929 he was persuaded to say that bonds (as distinct from stocks) were a good buy. And when the depression came, he was against doing anything about that. Even Mr. Hoover was shocked by his insistence that the only remedy was (as Mr. Hoover characterized it) to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” Yet Mellon reflected only in extreme form the conviction that things would work out, that the real enemies were those who interfered.