Uphill All the Way: The Fortunes of Progressivism, 1919-1929
By Kevin C. Murphy, Copyright 2013. All Rights Reserved.

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Chapter Nine:
The Business of America

Progressives and the Business Culture

III. Hoover and Mellon

I. Two Brooms, Two Presidents.
II. A Puritan in Babylon.
III. Hoover and Mellon.
IV. Business Triumphant.

When Herbert Hoover took the job of Harding's Commerce Secretary in March 1921, he soon found that the previous occupants of the position -- even those who held the job before 1913, when the Departments of Commerce and Labor had split into two -- had often worked Coolidge hours. "Oscar Straus, one of my predecessors [under Teddy Roosevelt]," Hoover recalled in his memoirs, "told me that my job would not require more than two hours a day. Indeed, that was all the time that the former Secretaries devoted to it. Putting the fish to bed at night and turning on the lights around the coast were possibly the major concepts of the office."1

But Hoover, always the ambitious sort, had a grander vision. Having secured from the president the condition that he could range farther afield in the administration than had previous Commerce Secretaries, the Great Engineer immediately began to fashion himself an empire. In his first week on the job, Hoover -- a firm believer in the value of educating public opinion -- built his own independent publicity department that could get word out about the feats to come. (Within six months, according to one of Hoover's top lieutenants, it had put out "more than enough [press releases] to put 18 columns of type up and down the Washington Monument.") After two weeks, he had created an advisory committee of top businessmen and labor officials to help set the course for the expanding department, and to help it "more nearly meet the needs of the American business public than it does at present." While the solution to the "great economic difficulties that we inherit from the war" must depend "on the initiative of our own people," Hoover declared, "the rate of recovery can be expedited by greater co-operation in the community, and with the community by the government."2

To further enable this cooperation, Hoover began co-opting unused departments and functions from around the administration -- for example, the Bureau of Custom Statistics from the Treasury Department, the Weather Bureau from Agriculture, and the Bureau of Mines and Patent Office from Interior. This annexing behavior helped to further Hoover's reputation in Washington, in the words of banker and Mellon aide S. Parker Gilbert, as "Secretary of Commerce and Under-Secretary of all other Departments." It also occasionally incurred the wrath of his fellow Cabinet members, most notably Secretary of Agriculture Henry C. Wallace, who conspired with the otherwise obsequious Labor Secretary, John W. Davis, to prevent the poaching of the Bureau of Markets and Bureau of Labor Statistics. What Hoover couldn't have, he replicated. Soon Commerce was putting out its own economic data, the Survey of Current Business, which was published in 160 newspapers across the country and became a well-used staple of the weekly business section. (One businessman at Goodyear deemed the Survey "the most important step in our industrial life since the inauguration of the Federal Reserve System.") Similarly, Hoover tried to wrest control of the child welfare issue from Grace Abbott and the Children's Bureau by forming and leading the American Child Health Association throughout the decade, which conducted surveys of public health resources in various cities and pushed for reforms and upgrades where they were lacking.3

In the midst of assembling his organization, and while Charles Dawes was penning his diary about his year as Budget Director, Hoover published his own manifesto about his vision of and designs for American government. Entitled American Individualism, this well-received (and in fact rather trite) 1922 book was mostly a paean to the American republican tradition, as opposed to the other "great social philosophies …at struggle in the world for ascendancy," from Autocracy to "Communism, Socialism, and Syndicalism." ("I have taken great pleasure from reading it," a convalescing Franklin Roosevelt noted of Hoover's book.) From his experience overseas during the war, Hoover claimed to have come in contact with all of these conflicting traditions, and from these experiences "emerge[d] an individualist -- an unashamed individualist. But let me say also that I am an American individualist. For America has been steadily developing the ideals that constitute progressive individualism."4

Only in America, Hoover contended, was individualism more than just the laissez-faire of classical liberalism. In the United States, he argued "while we build our society upon the attainment of the individual, we shall safeguard to every individual an equality of opportunity to take that position in the community to which his intelligence, character, ability, and ambition entitle him." Here, "we keep the social solution free from frozen strata of classes…we shall stimulate effort of each individual to achievement…[and] through an enlarging sense of responsibility and understanding we shall assist him to this attainment; while he in turn must stand up to the emery wheel of competition." In short, so long as equality of opportunity and the virtues of service and responsibility were upheld, Hoover argued, America's specific blend of merit-based individualism would lead the world forward, even as other forms of radicalism and reaction would inevitably falter. "The one source of human progress," the Great Engineer pronounced, was "that each individual shall be given the chance and stimulation for development of the best with which he has been endowed in heart and mind." As he put it in a different forum, "I have great respect for human invention and its ability, on one hand, to solve almost anything after a little experience with it, and, on the other, to evade most regulation."5

While the bulk of the text was spent delineating the specific strengths of American individualism, Hoover's hopes for the future were rather more grounded on the idea of cooperation, or as it later became known, associationalism. "Today business organization is moving strongly toward cooperation," Hoover argued. "There are in the cooperative great hopes that we can even gain in individuality, equality of opportunity, and an enlarged field for initiative, and at the same time reduce many of the great wastes of over reckless competition in production and distribution." This was distinct from Socialism, Hoover added, because "Cooperation in its current economic sense represents the initiative of self-interest blended with a sense of service, for nobody belongs to a cooperative who is not striving to sell his products or services for more or striving to buy from others for less or striving to make his income more secure." And while cooperation was flourishing in the private sector, government had not yet caught on to its full promise. "We have already granted relief to labor organizations and to agriculture from some forms of regulation," argued Hoover. "There is, however, a large field of cooperative possibilities far outside agriculture that are needlessly hampered." Promoting this cooperation where possible would become the mission of Hoover's revitalized Commerce department.6

One of Hoover's first attempts to test the benefits of cooperation came in August 1921, when, in the face of a worsening recession, he asked the President to call together a Conference on Unemployment. Harding obliged, and nine days later "three hundred leaders from production, distribution, banking, construction, labor, and agriculture," as Hoover remembered them in his memoirs, were invited to come together in Washington in September to grapple with the both the immediate unemployment crisis and the long-term issue of reconstructing the post-war economy. (These leaders were handpicked by Hoover, although Harding rejected his first list of attendees until the Secretary of Commerce included more women.) "The remedies for these matters must, in the largest degree, lie outside of legislation," Hoover told the gathered in his opening remarks. "It is not consonant with the spirit of institutions of the American people that a demand should be made upon the public treasury for the solution of every difficulty." Instead, "a large degree of solution" to unemployment "could be expected through the mobilization of the fine, cooperative action of our manufacturers and employers, of our public bodies and local authorities." In so doing, the congregated leaders would not just help the unemployed. They would have "again demonstrated that independence and ability of action amongst our own people that saves government from that ultimate paternalism which would undermine our whole political system."7

In his relief work during the war, Hoover had seen time and again the power of organized and concerted voluntary activity to help feed hungry people. This, in effect, was the same principle he wanted to bring to bear on American unemployment. But, while Hoover did manage to convince some companies to initiate "workshare"-type programs to spread work-hours among multiple employees, most of the fruits of the September conference came from the gardens of government. Under Hoover's "personal direction," a Bureau of Unemployment -- a "vigorous organization with headquarters in the Department" -- was established to help coordinate efforts and raise and disperse private funds to help the jobless. And, as Hoover remembered, "[w]e developed cooperation between the Federal, state, and municipal governments to increase public works," which is not quite the same thing as bringing the public and private sectors together in common solution. When unemployment did recede, it had little to do with any result of Hoover's Conference, and more to do with the rising tide that accompanied Coolidge prosperity. Writing in 1928, Oswald Villard observed that Hoover's preference for "conferences and cooperation to legislative compulsion" worked better on paper than in fact -- "in the matter of the unemployment problem, for which [Hoover] called a conference in the fall of 1921, there has been no following up of the matter, and no results beyond the acquiring of useful data."8

Just as in the foreign policy arena, where, as earlier noted, Hoover found it impossible to encourage American companies to invest in places where the needs of national, global, or public interest outweighed the likelihood of low-risk, secure profits, the Secretary of Commerce often found it was harder than it looked to get companies to move in a direction that didn't necessarily reflect their economic self-interest, and that arguments based on such ideals as service and public responsibility often fell on deaf ears. When Hoover suggested to a gathering of insurers in January 1923 that they potentially consider creating some sort of system of unemployment insurance, he found that "the companies did not with even to experiment with it." When he tried to implore railway executives to come to a deal that would end the 1922 railroad strike, he received a "freezing reception" from them. When, working hand-in-glove with John L. Lewis, Hoover fashioned the three-year "Jacksonville agreement" in 1924 to maintain labor peace in the coal industry, he could do nothing when operators in Pennsylvania and elsewhere began blatantly ignoring the agreement in 1927.9

The same dynamic came into play when Harding and Hoover lobbied for the eight-hour-day in the steel industry in 1922. In May of that year, Hoover addressed a White House dinner of forty-one prominent steel manufacturers, telling them that a study of the facts by his department had concluded that the twelve-hour day and eighty-four hour week were both "barbaric" and "uneconomic," and that paying the workers the same amount for an eight-hour day would prove just as efficient. This address by the Great Engineer received yet another frigid reception. "[A] number of the manufacturers, such as Charles M. Schwab and Judge Elbert H. Gary, resented my statement," Hoover recalled, "asserting that it was 'unsocial and uneconomic.' We had some bitter discussion…The President, to bring the acrid debate to an end, finally persuaded the group to set up a committee to 'investigate,' under the chairmanship of Judge Gary. I left the dinner much disheartened, in less than a good humor." In fact, Harding had warned him this would happen. "I would infinitely prefer to announce a thing accomplished," the president told Hoover before the dinner, "than to make public the intention to seek the accomplishment."10

Now in charge of a proposed commission to look into something he had no intention of ever doing, Judge Elbert Gary proceeded to slow-walk it into oblivion. In the meantime, Hoover worked to keep "the pot boiling in the press" by encouraging the Federated American Engineering Societies, of which he was president, to compile a report on the inefficiency of the twelve-hour-day. When this report was released in November 1922, Hoover applauded the "unanimity of the whole engineering profession in their demonstration that from a technical point of view there is no difficulty with what was obviously necessary from a social point of view." He also ghostwrote a foreword to the report, on behalf of President Harding, further condemning the twelve-hour day. Hoover and his lieutenants also pushed the eight-hour day in the newspapers, and with key stakeholders like newly-elected Governor of Pennsylvania Gifford Pinchot and powerful financiers Owen Young and Dwight Morrow.11

If the steel operators felt threatened by these public relations gambits, they didn't show it. In May 1923, Gary and Schwab finally brought forth a report from their committee, which declared that getting rid of the twelve-hour day was unfeasible, uneconomic, and unpopular with steelworkers, who apparently relished working the extra four hours. Moving to the eight-hour-day, it contended, would mean that steel prices would go up by 15 percent. And, besides, the steel industry couldn't possibly shorten hours on account of the government-created labor shortage - only by ending immigration restriction would such a thing even be attainable. "The steel industry has no intention of reforming itself," summed up TNR of this particular report. "That's the way it always is," added The Nation. "We cannot abandon the twelve-hour day in bad times because the industry cannot afford it and we must not in good times because prosperity must not be checked."12

In response to this industry proclamation, the Secretary of Commerce ghostwrote another letter from the president "expressing great disappointment" at the committee's conclusions, and then "gave it to the press." "The public reaction was so severe against the industry," Hoover proclaimed in his memoirs, "that Judge Gary called another meeting of the committee and backed down entirely." By early July, as Hoover and Harding were aboard the Voyage of Understanding on the way to Alaska, Harding announced the capitulation in a speech in Tacoma. Washington. By the end of the year, steel had forsaken the twelve-hour day. This, Hoover wrote, was a triumph of the associational idea. It "was accomplished by the influence of public opinion and the efforts of the workers in a free democracy, without the aid of a single law."13

Well, not exactly. By any reckoning, the steel industry did not voluntarily give up the twelve-hour-day because it was moved by either the spirit of service or by a clear-cut demonstration of the facts. It had been pressed into it. In fact, Hoover's memoirs leave out one key part of the story and obfuscate another. While denouncing the committee's report, Harding and Hoover's letter also expressed the hope "that these questions of social importance should be solved by action inside the industries themselves" -- in other words, the president and Secretary of Commerce had made a not-very-implicit threat of a government intercession on the issue if steel did not move decisively to end the twelve-hour day on its own.14

In addition, the Harding-Hoover letter was released to the public after Judge Gary had backed down, not before. In fact, if anything it seemed Judge Gary was trying to bide for time in his concession, if not asking for a quid pro quo on immigration restriction. He wrote the president that his industry would end the twelve hour day "at the earliest time practicable," which would be "when, as you stated, 'there is a surplus of labor available.'" But, following the advice he had given Hoover before the May 1922 dinner, Harding jammed the steel men up. He immediately announced the abolition of the twelve-hour day as if it were a fait accompli, forcing steel -- particularly after the president had become a martyr -- to hold to the promise.15

While Hoover perhaps overstated the ability to push businessmen to do much of anything when it didn't seem in their economic self-interest, he nonetheless brought the cooperative ideal to full flower during his tenure at Commerce. "We are passing from a period of extreme individualistic action into a period of associational activities," he noted in 1924. If these associations "cooperate together for voluntary enforcement of high standards, we shall have proceeded far along the road of the elimination of government from business." That same year, arguing against cases brought forth by the Justice Department against business associations, Hoover encouraged the Supreme Court to open "the door to reasonable cooperation in matters of public interest," which the Court did the following year in two cases involving the maple flooring and cement industries. He then encouraged these trade associations to set up voluntary "codes of business practice and ethics that would eliminate abuses and make for higher standards," and to begin policing themselves for violation of these codes. In part as a result, the number of associations in America nearly tripled over the course of the decade, from around 700 in 1919 to over 2000 in 1929.16

In his eight years at Commerce, Hoover also held over 1200 conferences urging the adoption of industry-wide standards and common practices to eliminate waste and inefficiencies. For example, he encouraged automobile manufacturers to agree on a standard bolt, nut, pipe, and wheel size, and, at the 1924 National Conference on Highway Safety, to promote safe practices and develop common rules of the road -- red means stop, green means go -- for traffic control. He also set up as many as 229 committees during this time -- covering, by Hoover's reckoning, three thousand items ranging from building materials and bedsprings to plumbing fixtures and electrical sockets -- to help industries simplify their standards and specifications. Hoover thought the "man who has a standard automobile, a standard telephone, a standard bathtub, a standard electric light, a standard radio, and one and one-half hours less average daily labor is more of a man and has a fuller life and more individuality than he has without them." As part of this work, the Bureau of Standards under Hoover became, in his words, "one of the largest physics laboratories in the world."17

Concerned that lack of "adequate housing for people of lesser incomes" was "thriving food for bolshevism," and that the American ideal of home ownership was falling by the wayside, Hoover also initiated a Building and Housing Division in his department to publicize, standardize and simplify best practices in the housing industry. After calling "a national conference of public officials and technical experts" and appointing a "committee to formulate a standard building code," the Commerce Department urged the implementation of this standard code, as well as zoning laws to keep industrial, commercial, and residential areas separate, in towns and cities all across America. Hoover also set up an American Construction Council, led by Franklin Roosevelt, to further encourage the promulgation of industry standards, although the two men soon differed over tactics: Roosevelt wanted Hoover to use his power to force recalcitrant companies to toe the line, while Hoover desired to keep everything voluntary and cooperative -- and thus not particularly productive.18

Cars were not the only mode of transport to receive the Hoover treatment. Beginning in 1922 -- with, naturally, a conference of all the affected parties - the Great Engineer began to advocate for the promotion of commercial aviation in America -- mainly through subcontracting mail delivery to private firms and encouraging the construction of airports around the country. (In these efforts, he was aided by General William "Billy" Mitchell, who, in the years after being disallowed from dropping mustard gas on West Virginia miners, continued to proselytize for expanded air power.) After a committee headed by Dwight Morrow promoted Hoover's conclusions, and Congress passed a civil aviation law in 1926, Hoover formed an Aviation Bureau and mandated lights, radio, and weather services at all newly constructing landing pads. "Within a year after the establishment of the Aviation Division," Hoover later boasted, "we had 4,000 miles of fully equipped airways; 10,000 miles more in preparatory stages; 864 airports in operation, and 144 more cities stirred up to the point of letting contracts for such facilities."19

As in aviation, so too in radio. When Hoover took office, only KDKA in Pittsburgh and WGY in Schenectady were broadcasting. Six months later, 318 more stations had sprung up alongside them. By 1926, the airwaves were divided amongst 536 broadcasting stations, 553 land stations and 1902 ship stations for naval purposes, and over 15,000 amateur broadcasters. Here again, Hoover's original voluntarist efforts to divide bandwidth sanely and equitably broke down, turning the radio into a "Tower of Babel." When Aimee Semple McPherson, the popular Los Angeles-based radio evangelist, refused to stay on one wavelength, Hoover invoked federal authority and shut her down. ("Please order your minions of Satan to leave my station alone," McPherson telegrammed Hoover. "You cannot expect the Almighty to abide by your wavelength nonsense. When I offer my prayers to Him I must fit into His wave reception.") Even Coolidge, no friend of federal interference, conceded that "[t]his important public function has drifted into such chaos, as seems likely, if not remedied to destroy its great value."20

Meanwhile, Members of Congress approached the burgeoning technology of radio with the same trepidation that would mark a later generation of politicians' attempts to make sense of the Internet. "I do not think, sir," complained Key Pittman of Nevada, "that in the fourteen years I have been here there has ever been a question before the Senate that in the very nature of the thing Senators can know so little about as this subject." (The Supreme Court was scarcely less dumbfounded. "Interpreting the law on this subject is something like trying to interpret the law of the occult," complained Chief Justice William Howard Taft. "It seems like dealing with something supernatural. I want to put it off as long as possible.")21

That being said, in 1927, Congress passed a Radio Act penned by progressive Senator C.C. Dill of Washington and, on the House side, Rep. William White of Maine. On the urging of William Borah, who worried about the ramifications of executive branch oversight over the airwaves, this Act transferred the power of licensing radio stations out of Commerce and into a newly created Federal Radio Commission (later the Federal Communications Commission.) While George Norris had fought and lost to see full public ownership of the airwaves, the Act did demand that the FRC ensure that licenses were doled out with the virtues of "public interest, convenience, and necessity" in mind. In theory, this was to ensure that corporations could not obtain a stranglehold over the airwaves. In practice, it was usually invoked to keep Socialists, Communists, and other potential ne'er-do-wells from receiving licenses. "To the man in the street," said the Washington Post, this was "the most important legislation of the session." "With all its faults," Hoover concluded of the system he had pushed for and successfully acquired by 1927, "the private ownership [of radio] has proved far superior in its enterprise, its entertainment, and its use in public debate and in public service to the government-owned systems of Europe."22

Surveying Hoover's domain in September, 1925, The New Republic's TRB noted with admiration "how extraordinarily extensive is [Hoover's] impress upon the government outside of his own Department":
There is reason to doubt whether in the whole history of the American government a Cabinet officer has engaged in such wide diversity of activities or covered quite so much ground. The plain fact is that no vital problem, whether in the foreign or the domestic field, arises in this administration in the handling of which Mr. Hoover does not have a real - and very often a leading - part. There is more Hoover in the administration than anyone else…[T]here is more Hoover in the administration than there is Coolidge.23
William Hard was another progressive who was impressed by the Secretary's performance. "Mr. Hoover has evolved the public-private department," he wrote in 1928. "He has evoked the public-private citizen." In fact, it's an open question at which point Hoover's power in the administration reached its zenith. On one hand, the Coolidge years saw Hoover's most potent nemesis in the Cabinet, Henry C. Wallace, replaced with the more pliable William Jardine. (Wallace died in office in October 1924, ten days before the election.) On the other, Coolidge's ascent meant Hoover generally lost the sympathetic ear of the president. While Warren Harding had been awed and even cowed by his Commerce Secretary's intellect, Coolidge instead thought of Hoover derisively as "Wonder Boy," and was much more inclined to turn to another pro-business voice in his administration instead -- That would be the "greatest Secretary of the Treasury since Alexander Hamilton," as he was so often called: Andrew W. Mellon.24

As one of the world's richest men, "in every instinct a country banker" in Hoover's words, and someone who came into public life after a long and successful career as a banker and investor, the austere, forbidding Andrew Mellon was removed from the rest of the Harding and Coolidge administrations by age, income, and general disposition. Mellon thought Harding, as a former small-town newspaper editor, was a small man beneath the stature of his position. He felt Attorney General Daugherty was a political hack who kept trying to staff up the Treasury Department with crooked appointees. (As a Pennsylvanian in the Knox and Penrose era, however, Mellon himself was no stranger to the arts of patronage.) And he liked least the grasping Hoover, with his annexing raids and publicity bureau, whom he thought "too much of an engineer." (Mellon got on better with General Dawes during his year as Budget Director, as well as the unobtrusive, business-minded Coolidge.)25

Nonetheless, Mellon agreed with the general thrust of both the Harding and Coolidge administrations. "The government is just a business," Mellon wrote in 1924, "and can and should be run on business principles." One of Mellon's first acts in 1921 was to encourage the Federal Reserve to lower interest rates, raised after the war, from 7% to 5%. This would encourage investment and consumption - not to mention speculation in the stock market - over savings, thereby working to get capital flowing in the economy. It also allowed Secretary Mellon to renegotiate the federal government's outstanding loans with lower rates and longer repayment plans, thus saving the country close to $200 million a year.26

These savings aside, Treasury's main part to play in establishing business principles, Mellon thought, was to secure lower taxes on incomes. "There is no reason," the Secretary declared in his own quickie administration book, 1924's Taxation: The People's Business, "why the question of taxes should not be approached from a non-partisan and business viewpoint." To Mellon, that means organizing the tax rates more efficiently than they had been in the past. "It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates…Experience has shown that the present high rates of surtax are bringing in each year progressively less revenue of government." While the most efficient rate was still unknown, Mellon contended that "by cutting the surtaxes in half, the Government, when the full effect of the reduction is felt, will receive more revenue from the owners of large incomes at the lower rates of tax than it would have been received at the higher rates." This, he argued, was the "same business principle" that allowed Henry Ford to make "more money out of pricing his cars at $380 than at $3000."27

Along with it being good for government revenues, Mellon also thought high tax rates sapped the virtues that kept the economy and the nation moving forward. "Any man of energy and initiative in this country can get what he wants out of life," Mellon argued. "But when that initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself, and the country will be deprived of the energy on which its continued greatness depends." Among progressives, this line of thinking was shared in the Senate by William Borah, who despised taxes with a Jeffersonian vituperation. "So long as the government grabs all the surplus that a man makes," the Idaho Senator wrote one constituent, "there is not very much incentive to make."28

And so, beginning in 1921, Mellon began working to scale back the tax rates left over from the Wilson years. The original plan the Secretary put forward lowered the surtax rate on America's highest incomes from 65% to 25%, after a one-year holdover at 32%. Mellon's 1921 plan also ended the excess profits tax on corporations, which had been passed as a war measure and was hugely unpopular with business groups, and suggesting replacing it with a slightly higher corporate tax rate instead (from 10% to 12.5%).29

"The design," as Hiram Johnson explained Mellon's plan to Harold Ickes in August 1921, "is to relieve the big fellows of the taxes they have had to pay, and it is done upon the theory that it is only in this fashion money will be invested in business." And although it took several bites at the apple over the course of the decade, with tax revisions passing in 1921, 1924, and 1926, Mellon eventually got very close to what he asked for. Opposition from the Farm Bloc tempered the original Revenue Act of 1921 to include higher exemptions for lower incomes -- from $1000 to $1500 for a single person and $2000 to $2500 for a couple -- and a smaller decrease to the highest surtax, from 65% to 50%. In 1924, the highest surtax rate came down to 40%, but House progressives, working with Democrats led by John Nance Garner of Texas, were able to use rules changes to add a higher estate tax (from 25% to 40%) on estates over $10 million and a gift tax (to keep the estate provisions enforceable.) The third time proved the charm for Mellon, for in 1926, the demoralized progressives and Democrats finally capitulated in full. The Revenue Act of that year brought the highest surtax and the estate tax down to 20% (meaning a tax rate of 25% on the highest earners), and ended the gift tax that had gone in effect in 1924. "I have never seen from a political standpoint," vented Harold Ickes to a friend after the dust had settled, "any more absurd exhibition than the eagerness of the Democrats in Congress, supposed to contain the leadership and brains of the party, trying to out-mellon Mellon in reducing the tax rate on the very large incomes. After such an exhibition I really don't see how the Democrats can consider it worthwhile to pretend that they are a separate party."30

From the start, Ickes had thought the "Mellonaire" plan was designed to help the rich at the expense of everyone else. "[T]hose who enjoy incomes of less than $66,000 might also like an opportunity to make investments which they cannot make in view of the income taxes they are called upon to pay," Ickes replied to his friend. Writing in 1921, Ickes also thought the Mellon tax plan was political suicide. "It will make a fine campaign argument for the Democrats to point to the fact that the Republican Congress was so careful to reduce the taxes of the Rockefellers and the Morgans. I take it that Mr. Mellon and other members of the President's cabinet will be greatly benefited by the proposed radical reductions…and I don't suppose the Democrats will fail to emphasize the fact."31

Especially given that Andrew Mellon was the third highest taxpayer in the country (after John D. Rockefeller and Henry Ford), Ickes was not the only one to intimate that the Treasury Secretary was operating on behalf of his class rather than his country. "I am not going to have my people who work in the shoe factories of Lynn and in the mills of Lawrence and the leather industry of Peabody," railed Congressman William Connery of Massachusetts in 1923, "in these days of so-called Republican prosperity when they are working but three days in the week think that I am in accord with the provisions of this bill…When I see a provision in this Mellon tax bill which is going to save Mr. Mellon himself $800,000 on his income tax and his brother $600,000 on his, I cannot give it my support." "Mr. Mellon himself," George Norris argued of the 1925 iteration of the plan, "gets a larger personal reduction than the aggregate of practically all the taxpayers in the state of Nebraska." That same year, Fiorello La Guardia suggested that Mellon was trying to follow the biblical injunction of Mark 4:25: "For he that hath, to him shall be given; and he that hath not, from him shall be taken even that which he hath." Higher taxes on the highest incomes, La Guardia argued, citing Teapot Dome, are "consistent with the progress of the Republic. Let us be frank about this…The danger of the concentration of enormous fortunes in a few hands is quite obvious -- We are now witnesses to a national scandal, the result of enormous fortunes."32

These sorts of arguments, Secretary Mellon argued in response, were tantamount to class war. "I have never viewed taxation as a means of rewarding one class of taxpayers or punishing another," he wrote in Taxation: The People's Business. "If such a point of view ever controls our public policy, the traditions of freedom, justice, and equality of opportunity, which are the distinguishing characteristics of our American civilization, will have disappeared and in their place we shall have class legislation with all its attendant evils." Nonetheless, Mellon did agree that "[t]he fairness of taxing more lightly income from wages [and] salaries or from investments is beyond question":
In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man's life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earnings capacity is at an end.33
In the meantime, the Treasury Secretary worked to lower his own investment-laden tax bill as much as possible, receiving a ten-point memo from the IRS Commissioner - "[p]ursuant to your request" - "setting forth the various ways by which an individual may legally avoid tax." Mellon himself partook of five of the commissioner's suggestions, and then hired the tax expert sent along by the IRS to handle his own personal returns.34

This was hardly the only seeming conflict of interest Mellon was involved in. The Secretary later claimed that, when he joined the administration, he separated himself completely from his business investments. "I have not concerned myself with their affairs," he intoned, "and I have not endeavored to control or dictate their operations in any way." In fact, Mellon often pitched the companies he was investing in for federal contracts - He specifically asked Secretary of State Hughes to choose a Mellon-affiliated construction company to build a bridge in China, and encouraged House committee members to maintain appropriations for projects involving the Mellon-affiliated Gulf Oil. When everyone in Washington was haggling and bartering for favorable rates in the Fordney-McCumber tariff deliberations, the Secretary did not stay aloof from the process -- He worked to throw up protectionist walls buttressing his aluminum company, Alcoa, while keeping raw materials from Canada needed for another industrial abrasives company, Carborundum, on the free list. In short, "More Business in Government" was taken quite literally by the Treasury Secretary.35

In any case, the lower Mellon tax cuts did not really result in additional tax revenues coming in until 1928. That year, coinciding with the unprecedented wave of prosperity that saw GNP increase by an average of 4.7% a year between 1922 and 1929, tax receipts brought in 1.16 billion into the federal coffers, as compared to 1.08 billion in 1920. During the decade, the portion of income taxes paid by the poorest Americans - those making less than $5000 a year - decreased from 15.4% of the total tax burden in 1920 to 1.4% in 1928. Over the same period, the share of the burden paid by the wealthiest Americans - those making over $100,000 a year - rose from 29.9% to 61.1%. (It helped that there were four times as many Americans in this bracket by the end of the 1920's.)36

"While the poor did not grow poorer" over this period, in the words of economist and historian George Soule, surveying the effect of the Mellon tax rates, "the rich grew richer more rapidly than the poor did," exacerbating income equality throughout the land. The top 1% of earners owned close to 15% of the nation's total income by 1929, and the top 5% of Americans owned over 26% -- increases of 19% and 14% respectively over their share in 1923. And while the poorest Americans only saw a one percent gain in their income after taxes as a result of the Mellon cuts, the nation's millionaires received 31% more thanks to the Mellon plan. Over the same time period, manufacturers only saw a 1.4% increase in real wages per year, while stockholders, until the bottom fell out in 1929, saw a 16.4% gain per year. By the end of the boom, the top one-tenth of one percent held the same amount of income as the 42 percent at the bottom, and the top 60,000 families has as much in savings as the bottom 25 million.37

Just as the effects of the Coolidge prosperity were more pronounced at the top of the economy, the boom times did not reach every American at the bottom. Farmers in particular had a rough go during the decade, seeing their share of the national income drop from 16% to 9% and crop acreage shrink for the first time in American history. ("Farmers have never made money," shrugged President Coolidge. "I don't believe we can do much about it.") With the labor movement at best stagnating and often losing by attrition, the average worker's salary remained under $1500 a year throughout the decade, and the average work week remained over fifty hours a week -- with many businesses aiming to keep it that way. ("Nothing breeds radicalism more quickly than unhappiness unless it is leisure," averred the National Association of Manufacturers in 1929.) Thanks in part to new technologies, standardization, and "scientific management" practices in the workplace, manufacturing output per man-hour increased by 32% over the Coolidge years -- but hourly wages only increased by eight percent. Instead, most of the money flowed into corporate profits, which rose 80% over the Coolidge boom -- over twice as fast as productivity. On Wall Street, where sales on the New York Stock Exchange nearly quintupled between 1923 to 1928 (from 236 million shares to 1125 million shares) and more than doubled in market value (from $27 billion in 1925 to $67 billion in 1929), profits of financial institutions rose by 150%. While great for those at the top, the fact that these profits did not translate into manifestly higher wages for ordinary citizens helped to augment the lack of purchasing power, and thus the imbalance between production and consumer demand, that would perpetuate hard times in the decade to come.38

Nonetheless, once the Coolidge prosperity took hold, it seemed for many, even on the lowest rungs of economic life, that -- with Hoover fostering public-private partnerships, Mellon lowering tax rates, and Coolidge encouraging continued parsimony in government -- the world was moving in the right direction. Notwithstanding those left out of the boom, GNP increased by 40% between 1922 and 1928, per capita income by nearly 30%, and industrial production by 70%. "Never before, here or anywhere else," proclaimed the Wall Street Journal near the end of the boom, "has a government been so completely fused with business.'"39

Perhaps, even some progressives began to wonder, the businessmen had been right all along.

Continue to Chapter 9, Pt. 4: Business Triumphant.

Return to the Table of Contents.

1. Hoover, 42.
2. Hoover, 41-42. Ronald K. Murray, "Herbert Hoover and the Harding Cabinet," in Hawley, ed. Herbert Hoover as Secretary of Commerce, 12, 21-23. Hawley, "Herbert Hoover," 124.
3. Michael Stoff, "Herbert Hoover," in Brinkley and Dyer, The American Presidency, 335. Schlesinger, Crisis of the Old Order, 84. Hawley, ed., 23. Hawley, "Herbert Hoover," 121, 128. Hoover, 97-100. Burner, 162.
4. Herbert Hoover, American Individualism (New York: Doubleday and Page, 1922). Reprinted by the Herbert Hoover Presidential Library Association (http://www.hooverassociation.org/hoover/american_individualism.php) Schlesinger, Crisis of the Old Order, 372.
5. Ibid. Burner, 169.
6. Ibid.
7. Hoover, 45-46. Hawley, ed., 25. Vincent Gaddis, Herbert Hoover, Unemployment, and the Public Sphere: A Conceptual History, 1919-1933 (Lanham: University Press of America, 2005), 12-19.
8. Hoover, 46. Oswald Villard, "Herbert C. Hoover," The Nation, February 29th, 1928 (Vol. 126, No. 3269), 234-237. Hoover's decision to put this new Unemployment Bureau in Commerce, rather than where it probably belonged in Labor, irritated the Secretary of Labor, John W. Davis, who had taken a backseat to Hoover throughout the proceedings. As one wag put it: "At the conference on unemployment…the best and only example of the unemployed present was the Secretary of Labor." Hawley, ed., 26.
9. Hoover, 102, 106. Zieger, 228-232.
10. Hoover, 102-103. Zieger, 100-102.
11. Hoover, 104. Zieger, 102-103.
12. Zieger, 104. "The Week," The New Republic, June 6th, 1923 (Vol. 35, No. 444), 30. "Editorial Paragraphs" The Nation, June 6th, 1923 (Vol. 116, No. 3022), 643.
13. Hoover, 104-105. Hawley, ed., 27-30. On account of it being Breaking News, Hoover had to quickly write in the paragraphs of the Tacoma speech involving steel, and when Harding got to them, Hoover recalled, the president "stumbled badly over my entirely different vocabulary and diction. During a period of applause which followed my segment, he turned to me and said: 'Why don't you learn to write the same English that I do?' That would have required a special vocabulary for embellishment purposes." Hoover, 104.
14. Zieger, 104-106. "Steel Chiefs Give Pledge to Harding to End 12-Hour Day,'" The New York Times, July 6th, 1923. "Gompers Calls It 'Bluff," The New York Times, July 7th, 1923.
15. Ibid.
16. Leuchtenburg, Herbert Hoover, 64. Hoover, 170-173. Hawley, "Herbert Hoover," 136, 139.
17. Leuchtenburg, Herbert Hoover, 55. Hoover, 66-67. Hawley, ed., 24. Hawley, "Herbert Hoover," 131. Burner, 162. To test the need for standardization in rules of the road, Hoover's department "sent an automobile from New York to San Francisco and another from San Francisco to New York. The drive of each car had orders to follow scrupulously the laws of his own state and municipality. One of them was arrested eighteen times, the other twenty-two times, for violations of laws which differed from their own. The two together met with sixteen actual accidents and avoided scores of potential ones only because of their driving skill (and quick breaks from home-state laws.)" Hoover, 72-73.
18. Hoover, 92-96. Leuchtenburg, Herbert Hoover, 54-55. To be fair, Roosevelt could talk out of both sides of his mouth on this. "Mr. Hoover has always shown a most disquieting desire to investigate everything on every conceivable subject under Heaven," he once commiserated with one Master of Industry. "He has also shown in his own Department a most alarming desire to issue regulations and to tell businessmen generally how to conduct their affairs." Leuchtenburg, Herbert Hoover, 74.
19. Hoover, 132-135. William Leuchtenburg, Herbert Hoover, 53-54.
20. Hoover, 139-143. Goodman, "The Radio Act of 1927 as a Product of Progressivism." Greenberg, 131.
21. Goodman. Catherine L. Covert. "We May Hear Too Much: American Sensibility and the Response to Radio, 1919-1924," in Covert and Stevens, ed., 199.
22. Goodman. Greenberg, 132. Hoover, 147.
23. Leuchtenburg, Herbert Hoover, 63-64. "Washington Notes," The New Republic, September 2, 1925 (Vol. 44, No. 561), 43.
24. Dumenil, 38. Hawley, "Herbert Hoover," 136. Hawley, ed., 37.
25. Hoover, 60. David Cannadine, Mellon: An American Life (New York: Alfred A. Knopf, 2006), 280.
26. Cannadine, 286-287. Schlesinger, Crisis of the Old Order, 62. Andrew Mellon, Taxation: The People's Business (New York: MacMillan Company, 1924), 17.
27. Mellon, 15-17.
28. Zinn, La Guardia in Congress, 149-150. Borah to O.L. Roberts, August 29, 1921. WJB, Box 98: Misc.
29. Cannadine, 287-289. Roy Gillespie Blakey and Gladys C. Blakey, The Federal Income Tax (Clarke: Lawbook Exchange, 2006), 191.
30. Johnson to Ickes, August 13, 1921. HLI Box 33: Hiram Johnson. Cannadine, 287-88, 315. Schlesinger, Crisis of the Old Order, 98. Leuchtenburg, Perils of Prosperity, 98. Ickes to Benjamin F. Proctor, February 15, 1926. HLI, Box 36: P Miscellany.
31. Ickes to Johnson, September 23, 1921. HLI Box 33: Hiram Johnson. Ickes to Johnson, August 11, 1921 Box 33: Hiram Johnson.
32. Schlesinger, Crisis of the Old Order, 62. Zinn, The Twentieth Century, 109. Zinn, La Guardia in Congress, 150, 161.
33. Cannadine, 354. Mellon, 11. Tax History Project: The Income Tax Arrives 1913-1932 (http://www.taxhistory.org/www/website.nsf/Web/THM1901?OpenDocument)
34. Schlesinger, Crisis of the Old Order, 62-63.
35. Cannadine, 297.
36. US Department of Treasury, "Statistics of Income," annual 1920-1928. Reprinted in Veronique de Rugy, "1920's Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues," Cato Institute, March 2003 (http://www.cato.org/publications/commentary/1920s-income-tax-cuts-sparked-economic-growth-raised-federal-revenues)
37. Soule, 317. Howard Zinn, The Twentieth Century (New York: Perennial, 2003), 107. Schlesinger, Crisis of the Old Order, 66-68.
38. Leuchtenburg, The Perils of Prosperity, 101. Schlesinger, Crisis of the Old Order, 66-68, 111-112.
39. Dumenil, 36. Brinkley and Dyer, The American Presidency, 325, 336. Greenberg, 73.

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