The new economy that emerged after 1921 seemed to relegate to the past such painful depressions as the one that troubled the United States during the immediate postwar years.  As the 1920s drew to a close, however, the movement toward a new economy was about to encounter impediments that made a mockery of efforts to establish a people’s capitalism.

Editor’s Note: This is part two of two essays in this series. The first essay, “The Business of America: Economy and Society During the 1920s,” may be found here


Advertising raised desires and expectations. It prompted many Americans to believe that it was their birthright and their destiny to enjoy a historically unprecedented level of affluence. Until 1929, the Republican Party and the business community reaped the benefits of this optimism. But no advertising campaign could disguise the deep structural weaknesses that troubled the American economy. The prosperity of the 1920s did not reach most Americans. The Bureau of Labor Statistics calculated that it required an annual income of $2,500 to maintain an acceptable standard of living for family of four. Yet, 12 million of the 27 million families that filed tax returns in 1929 declared an income of only $1,500; another 6 million families claimed to have earned less than $1,000. If those figures are accurate, then approximately 67 percent of American taxpayers, or 18 million families, lived in or near poverty, while the wealthiest ten percent of the population received 40 percent of the national income before taxes. The poorest ten percent made due with a meager 1.8 percent.

Although the census of 1920 reported that for the first time in its history the United States had become an urban nation, with the majority of Americans living in cities of at least 2,500 persons, agriculture still generated almost $10 billion of the gross national product and the value of farm property in the United States approached $80 billion. Farmers no longer dominated the American economy as they had during the eighteenth and nineteenth centuries (by 1920, 75 percent of the workforce was employed in what the census classified as “nonfarm labor”), but their contributions were still significant. Any depression in the agricultural sector was sure to exercise a detrimental effect on the rest of the economy.

Farmers had prospered during the First World War. Between 1913 and 1917, the price of agricultural commodities rose nearly 82 percent. Once the United States entered the war in 1917, prices increased another 25 percent. During the war years, net farm income in the United States more than doubled from $4 million to $10 million, and the number of farmers who reported an annual income of at least $2,000 rose from 140,000 in 1913 to more than 1.8 million by 1917. Patriotic slogans, such as “Food Will Win the War,” along with the government purchase of agricultural commodities, induced farmers to go into debt to finance the purchase of additional land and machinery with which to expand production. Their actions suggest that many considered the agricultural boom to be permanent. Regrettably for them, it was not. The profits, although considerable, were also temporary. The boom ended in 1921.

Once the wartime demand for foodstuffs ebbed and agriculture in Europe began to recover, agricultural prices declined. Wheat fell from a high of $2.50 per bushel to less than one dollar. Wool fell from 60 to 19 cents a pound. The price of corn dropped 75 percent. To make a bad situation worse, or at least to make it more complicated, American consumers ate fewer grains after 1920, while prohibition disallowed farmers to use the excess to manufacture alcohol, though many did so in violation of the law. The advent of synthetic fibers constricted the markets for wool and cotton. At the same time that farmers confronted decreased consumption, they initiated a crisis of overproduction as the result of such technological and scientific innovations as improved fertilizers, pesticides, seeds, and breeding techniques. Although farmers withdrew thirteen million acres from production during the 1920s, agricultural output increased by nine percent. Mechanization blighted the countryside. The tractor proved to be as revolutionary as the Model T. Not only did the tractor dramatically reduce the time it took to sow and harvest a crop, it also reduced the number of acres by approximately twenty-five percent that farmers needed to devote to growing animal feed. They could now use that land to cultivate even more crops for market. The consequences were predictable. During the 1920s, the market for agricultural produce became glutted; farm income fell by 25 percent; the value of agricultural commodities declined by half. [1]

To the recent volatility of the market and the enduring hardships of the crop lien system and debt peonage, nature during the 1920s added the afflictions of the boll weevil, the Mexican bean beetle, the European corn borer, and drought. These misfortunes did reduce harvests, but only at the cost of ravaging the crops of individual farmers. Many now blamed the national government for their plight. During the war years, the government had urged farmers to expand production. The agricultural depression of the 1920s prompted increasing numbers to look to that same government for relief. Although farmers protested the inequities of the economic system that they thought put them at a disadvantage, the agrarian radicalism of the 1880s and 1890s did not resurface during the 1920s. But even a more moderate approach to the plight of farmers was unsuccessful, further aggravating their distress.

Among farmers’ perennial grievances were exorbitant interest rates and the inaccessibility of credit. The representatives of agricultural interests in Congress addressed these problems by increasing the capital available to farmers through the Federal Farm Loan Bank, an agency established during the administration of Woodrow Wilson. The change enabled farmers to refinance their mortgages at lower interest rates and thereby, in theory at least, to reduce the burden of debt that they carried. In addition, the Agriculture Credits Act of 1923 instituted twelve Intermediate Credit Banks designed to make low-interest loans to farm cooperatives for up to three years. Finally, the Capper-Volstead Act, also passed in 1923, granted these cooperatives immunity from prosecution for price fixing under anti-trust laws. But only large and prosperous farmers were eligible to apply for the low-interest loans, and even cooperatives rarely accommodated farmers who grew perishable crops. Moreover, expanding credit, in the end, only made it harder for some farmers to get out of debt, while it did nothing to curtail overproduction or to raise prices.

Higher tariffs seemed to be the answer. Forsaking their traditional commitment to free markets and free trade, the farm bloc in Congress became uncompromising advocates of protectionism. The Emergency Agricultural Tariff Act of 1921 and the Fordney-McCumber Tariff of 1922 elevated the duties on twenty-eight imported agricultural commodities, including such staples as wheat, corn, beef, wool, and sugar. The rates were prohibitive, all but eliminating these and other foreign products from the American market. Consumers paid the price. Save for those who cultivated such specialized crops as almonds, dates, and olives, the Emergency Agricultural Tariff and especially the Fordney-McCumber Tariff offered no benefits to American farmers. The measures, in fact, lessened the demand for American goods abroad, either because foreign governments imposed punitive tariffs of their own or because foreign merchants no longer had the means to purchase American goods, even were they inclined to do so. And, as had been the case with credit legislation, the new tariffs did nothing to reverse overproduction.

The most forthright solution to the problem of an agricultural surplus was to reduce crop yields. But American farmers, large and small, affirmed their God-given right to plant as much as they wanted and to sell it at a profit anywhere and everywhere in the world. Voluntary restrictions were unpopular and ineffective, and both farmers and their political spokesmen equated compulsory regulation with socialism. As an alternative, George N. Peek and Hugh Johnson, both executives at the Moline Plow Company, proposed abandoning efforts to limit production and instead suggested that the government artificially raise the domestic price of agricultural produce while disposing of the surplus on the world market at whatever price it could command. Veterans of Barnard Baruch’s War Industries Board, Peek and Johnson insisted that economic justice for American farmers required the government to elevate and sustain farm prices at the level they had reached before the First World War. They persuaded enough members of Congress to support their idea of “parity” that it became the basis for McNary-Haugen Bill, introduced in 1924.

Senator Charles McNary of Oregon and Congressman Gilbert Haugen of Iowa proposed that the government authorize the Agricultural Export Corporation to purchase at pre-war prices eight staple farm commodities: wheat, corn, flour, cotton, wool, cattle, sheep, and hogs. The AEC could then sell the surplus abroad at whatever price foreign markets would bear. The government intended to charge farmers who participated in the program an “equalization fee” to cover the difference between the parity and the market price, and thereby to make up the deficits that the AEC incurred.[2] Since the equalization fee was less than the income farmers earned from the sale of their crops at the parity price, advocates of the bill expected that most eligible farmers, and certainly the large commercial producers, would be eager to take part.

It was not to be. Congress twice passed and President Calvin Coolidge twice vetoed the McNary-Haugen Bill. The legislation was popular among the members of the farm bloc in Congress and their constituents, but it divided the Coolidge administration. President Coolidge, along with the Secretary of the Treasury Andrew Mellon and the Secretary of Commerce Herbert Hoover, opposed the legislation. The vice president, Charles Dawes, supported it. Coolidge reasoned that the McNary-Haugen bill, by artificially raising prices, would encourage farmers to bring even more acres under cultivation, thus exacerbating instead of relieving the crisis of overproduction. Such incentives, Coolidge feared, would initiate a vicious cycle that would require endless government subsidies.[3]

In his veto message of 1928, Coolidge went further. He declared the bill to be unconstitutional, arguing that it required price-fixing in order to operate and that, as a result of its passage, “a bureaucratic tyranny of unprecedented proportions would be let down upon the backs of the farm industry and its distributors throughout the nation.” Although the bill would deprive Congress of its taxing power, at the same time, Coolidge feared, the “autocratic dominion” that government came to exercise over agriculture “would undermine individual initiative, place a premium upon evasion and dishonesty, and poison the very well-springs of our national spirit of providing abundant rewards for thrift and for open competitive effort.” He left no doubt that he found the bill “cruelly deceptive in its disguise as gov­ernmental price-fixing legislation,” aspiring “to impose upon the farmer and upon the consumers of farm produce a regime of futile, delusive experiments with price fixing, with indirect governmental buying and selling, and with a nationwide system of regulatory policing, intolerable espionage, and tax collection on a vast scale.”

Convinced that the results of the bill “would disappoint the farmer by naively implying that the law of supply and demand can thus be legis­latively distorted in his favor,” Coolidge added that “economic history is filled with the evidences of the ghastly futility of such attempts.” Another reason that Coolidge opposed the McNary-Haugen Bill was that its implementation depended on the good will of foreign governments, which was at the very least inconsistent with the nationalist policies of his administration and unrealistic given the skepticism and mistrust that dominated international politics following the Great War. “To stake the future prosperity of American agri­culture upon the course of action to be taken by foreign governments acting un­der such hostile impulses,” he declared, “is altogether too hazardous.”[4] At worst, the bill would enable foreign nations to prosper at the expense of the United States through the purchase of American farm produce dumped on the world market at steeply discounted prices.

Proponents of the McNary-Haugen Bill rebuked the president for his apparent indifference to the plight of the farmers. But Coolidge’s assessment had merit. Whether McNary-Haugen violated constitutional norms, it certainly enforced no restraints on production and, in fact, in its very purpose subsidized overproduction, virtually ensuring that the agricultural surplus would grow. Since the AEC would then be compelled by law to buy that surplus at the parity price, the bill looked to Coolidge and other critics like an attack on American taxpayers and a raid on the United States Treasury to serve the demands of a special interest. The bill also promised to enrich the big commercial farmers who produced the surplus, while ignoring the needs of poorer subsistence farmers. By refusing to compromise their economic interests, or to surrender what they took to be their absolute right to do as they pleased, the agricultural elite invited the wrath of the president and assured his veto.

Coolidge, in the meantime, offered little of substance to farmers. New legislation, he made clear, would never solve their problems, and they should thus not appeal to government for help or relief. Instead, farmers would do better to form their own “marketing agencies and facilities . . . under their own management. The marketing of their prod­ucts under such conditions,” Coolidge explained, “. . . will enable them to bring about greater stability in prices and less waste in marketing, but en­tirely within unalterable economic laws.” Endorsing a protective tariff to aid farmers in their efforts to command the domestic market, Coolidge was adamant that a permanent resolution of their dilemma must adhere to “the American tradition and the American ideal of re­liance on and maintenance of private ini­tiative and individual responsibility,” and that the “duty of the Government is discharged when it has provided conditions under which the individual can achieve success.”[5] Coolidge’s adherence to the principles of limited government meant that farmers were on their own. The government had no obligation to rescue, or even to assist, them. This political failure guaranteed that agricultural overproduction would continue and grow worse, contributing to the onset of the Great Depression.


Industrial workers profited from the adversity that farmers endured. Falling commodity prices, combined with low inflation and a boost in real income, enabled workers to spend less on food and other essentials. Yet, their standard of living did not appreciably improve. The incomes of most workers did not correspond with their escalating productivity. As a consequence, their collective buying power actually declined. The techniques of scientific management that Frederick Winslow Taylor had pioneered before the First World War enhanced the disparity between income and productivity. Contemptuous of unskilled workers, and regarding skilled craftsmen as an impediment to economic progress and efficiency, Taylor had sought to reorder the work process by eliminating the unnecessary and the redundant. Greater proficiency, he reasoned, translated into greater productivity, higher profits, and better wages. The adherents of scientific management during the 1920s (Taylor had died in 1915) concluded that the elimination of labor unions was the best means to realize the first two objectives without having to acquiesce in the third. Taylor’s philosophy became in time little more than a means to justify unrestricted managerial power.

Many government officials and businessmen thus regarded organized labor as the most serious threat to continued economic growth and development. They acknowledged that a recalcitrant work force could disrupt, and perhaps destroy, economic prosperity. It was imperative to restrain or, if possible, eliminate potentially volatile labor organizations. Yet, contented and secure workers, labor relations experts had come to believe, were vital to the successful operation of a modern industrial economy. The authorities who staffed corporate personnel departments set out to engineer a new kind of worker. They organized programs to fashion a motivated and disciplined labor force by instilling in workers a sense of participation in, as well as a feeling of responsibility for, the welfare and success of the company. Corporate administrators, of course, targeted labor unions for destruction. They failed to do away with unions entirely but, throughout the 1920s, union membership declined from approximately 5 million at the beginning of the decade to fewer than 3.5 million by the end.

Table 7: Total Union Membership, 1920-1929

Year          Membership

       x 1000

1920           5,048

1921           4,781

1922           4,027

1923           3,622

1924           3,536

1925           3,519

1926           3,502

1927           3,546

1928           3,480

1929           3,461

Table 8: Membership in the American Federation of Labor, 1920-1929


Year          Membership

       x 1000

1920            4,079

1921            3,907

1922            3,196

1923            2,926

1924            2,866

1925            2,877

1926            2,804

1927            2,813

1928            2,896

1929            2,934

Source: Historical Statistics of the United States, Part 1, p. 177.

Unions, such as the American Federation of Labor (AFL) under the leadership, first, of Samuel Gompers and then of William Green, were themselves partly to blame. They rejected unskilled workers, women, and blacks, or else relegated them to segregated affiliates. As a consequence, the AFL did next to nothing to organize workers in the steel, rubber, textile, automobile, and chemical industries. During the First World War, the government had sanctioned union membership. Once the government withdrew its protections, employers reverted to what they euphemistically called the “American Plan.” They attacked organized labor with legal injunctions against the restraint of trade, dismantled unions, broke up strikes, and threatened with violence anyone who proposed to organize. So recently the ally of organized labor, the national government now joined with employers to eradicate it.

Meanwhile, company executives replaced independent labor unions with a variety of so-called employee representation plans. By 1929 more than 500 “company unions” were operating at such firms as Standard Oil, International Harvester, American Telephone and Telegraph, and Goodyear Tire and Rubber. Under the standard of “welfare capitalism,” E.K. Hall, the president of AT&T, and Charles Schwab at Bethlehem Steel, to cite but two examples, proposed the establishment of grievance committees, the availability of group life insurance plans and retirement pensions, and even the issuance of stock options to dissuade workers from joining independent unions.[6] Most workers, nonetheless, enjoyed little job security. Estimates suggest that at least thirty-three percent faced the prospect of recurring unemployment, to say nothing of the periodic abridgement of their civil rights, especially in moments of labor strife.

Of equal importance in the management of labor was the innovative work of Elton Mayo in industrial psychology. Dean of the Harvard Business School, Mayo carried out a series of influential experiments at the Western Electric Company in Hawthorne, Illinois during the early 1920s. Finding that expressions of displeasure about working conditions were vague and abstract, Mayo concluded that to increase workers’ happiness and productivity, companies had first to improve communication between labor and management. To dissipate the tension, anxiety, and resentment that often characterized industrial relations, Mayo believed that workers must have an opportunity to express their grievances and to feel that company executives were sympathetic to them. They would then come to realize that their interests were not in conflict with those of management. This process of identification would occur, Mayo reassured company officials, even should the problems that workers identified go unresolved. Permitting workers to complain was enough; management had to do nothing more.

Mayo sought to create a social environment in the factory that cultivated workers’ sense of loyalty and enhanced their output. He advised that workers participate in, or at least consent to, every aspect of company operations in order to associate themselves more fully with the product that they were making. In his book Human Problems of Industrial Civilization, Mayo made it clear that he idolized the communal relations of pre-industrial America.[7] The age of industry and bureaucracy, and the zest for material acquisition that accompanied it, had destroyed the pre-industrial community and produced a fragmented world of isolated, atomized individuals. Through industrial psychology, Mayo hoped to restore the equivalent of this cooperative, communal ethos in a modern, industrial, corporate setting. He argued that companies would be wise to nurture this renewed emphasis on community by enlisting workers in the endeavor, as long as management also controlled the outcomes. At Western Electric, the application of Mayo’s theories proved a resounding success. They diminished worker protests, increased productivity, and thwarted the formation of a militant labor union. The only substantive change that the company made was to install brighter lights throughout the factory and in the workers’ lunch room.


The new economy that emerged after 1921 seemed to relegate to the past such painful depressions as the one that troubled the United States during the immediate postwar years. At the same time, economists, businessmen, and politicians sought ways to prevent the occurrence of similar disruptions in the future. One proposal, which never came entirely to fruition, was the establishment of a national economic advisory council to enable the leaders of business and government to coordinate their activities, identify developing problems before they became acute, and organize remedial action much as they had done during the war.

A less formal advisory system did come into being during the 1920s with the principal intention of steadying the business cycle. In 1923, the Business Cycle Committee, chaired by Owen D. Young of General Electric, recommended a variety of measures designed to minimize or avoid economic fluctuations. A voluminous report entitled Recent Economic Changes in the United States, published in 1927 under the direction of the economist Wesley Clare Mitchell, codified many of these proposals. Chief among them were, first, the adoption of a cooperative system of unemployment insurance to prevent unpredictable swings in consumer spending when large numbers of workers lost their jobs; second, a regular, uniform, and constant supply of currency to avert both an irrational speculative enthusiasm and an equally irrational retrenchment hysteria; third, the careful management of exports to avoid glutting the international market with American products and thereby driving down the price; fourth, the accumulation of reserve investment capital to sustain construction through brief periods of economic adversity. Few companies implemented these suggestions. Most corporate managers did not think them necessary. American businessmen felt certain that economic system they were devising was less susceptible to recession and depression, more sensitive to the danger signals of approaching economic crisis, and more amendable, should the occasion arise, to corrective adjustment. They could not have been more wrong.

Beneath the superficial indications of stability, the American economy was already showing signs of trouble by 1928. Markets for automobiles, appliances, radios, and other durable consumer goods were becoming saturated. Meanwhile, capital investment in these industries and their ancillaries, such as steel, petroleum, glass, and rubber, was slackening. Individual and corporate investors did not develop new growth industries because worsening levels of consumer debt contracted potential markets even further. Exports declined because European merchants had little disposable income with which to buy American goods. Nor could financiers and bankers offer much help. The banking system could not protect weak or overextended banks from collapse, and could not prevent the ruin of these feeble banks from spreading to their more solvent counterparts and causing a general contraction of money and credit.

As the 1920s drew to a close, the movement toward a new economy was about to encounter impediments that made a mockery of efforts to establish a people’s capitalism. The approaching economic crisis idled at least twenty-five percent of the workforce and temporarily arrested the productive capacity and development of American industry. In October 1929, Americans left behind the era of seemingly quiet economic efficiency and prosperity and entered a new, clamorous, and impoverished age that few anticipated and still fewer understood.

The is the second essay in Mark Malvasi’s “The Business of America” series. The first can be read here.

The Imaginative Conservative applies the principle of appreciation to the discussion of culture and politics—we approach dialogue with magnanimity rather than with mere civility. Will you help us remain a refreshing oasis in the increasingly contentious arena of modern discourse? Please consider donating now.


[1] I have found especially useful two now-classic studies of the agricultural depression and the agrarian crisis of the 1920s. See Clarence A. Wiley, Agriculture and the Business Cycle Since 1920 (Madison, WS, 1930) and Grant McConnell, The Decline of Agrarian Democracy (Berkeley, CA, 1953).

[2] In the final version of the bill, Congress shifted the equalization fee from farmers to transportation and food processing companies. On McNary-Haugen, see Robert Sobel, Calvin Coolidge: An American Enigma (Washington, D.C., 1998), 275-76; Paul D. Moreno, The American State from the Civil War to the New Deal: The Twilight of Constitutionalism and the Triumph of Progressivism (New York, 2013), 183; Peter Zavodnyik, The Rise of the Federal Colossus: The Growth of Federal Power from Lincoln to F.D.R. (Santa Barbara, CA, 2011), 398; Darwin N. Kelley, “The McNary-Haugen Bills, 1924-1928: An Attempt to Make the Tariff Effective for Farm Products,” Agricultural History 14/4 (October 1940), 170-180.

[3] See Sobel, 276.

[4]  Calvin Coolidge, “Veto Message Relating to the Agriculture Surplus Control Act,” 70th Congress/1st Session, Document No. 141, May 23, 1928, 1-10, especially 2-7. See also Congressional Record: Proceedings and Debates of the First Session of the Seventieth Congress, Vol. LXIX, Part 9, (Washington, D.C., May 19-May 26, 1928), 9525 and Vol. LXIX, Part 10, (Washington, D.C., May 26-May 29, 1928), 10782.

[5] Coolidge, “Veto Message,” 10.

[6] Such efforts produced minimal results. By 1928, corporate life insurance plans covered fewer than six million workers and fewer than one million had received stock options. See Michael E. Parrish, Anxious Decades: America in Prosperity and Depression, 1920-1941 (New York, 1992), 91.

[7] Elton Mayo, Human Problems of Industrial Relations (New York, 1933).

The featured image is “Workers Returning Home” (1920) by Edvard Munich (1863-1944), courtesy of Wikimedia Commons.

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