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America’s Greatest Depression Fighter

(No, it wasn’t Franklin Delano Roosevelt)

by Jim Powell

by Jim Powell

A depression not only harms millions of people. It leads to intense political pressure for more government spending, higher taxes and other assaults on economic liberty. So it’s important to get through a depression as quickly as possible. Which U.S. president ranks as the best depression fighter?

Not the fabled Franklin Delano Roosevelt, who came to power in 1933, since the Great Depression persisted until the federal government conscripted some 12 million men into the armed forces. Biographers and political historians hail FDR’s charismatic personality, his "Fireside Chats" and his political genius, but his tripling of taxes, his laws making it more expensive for employers to hire people, his anti-discounting laws, his large-scale destruction of food, the 700 industrial cartels he enforced, the monopolies he established, the frivolous antitrust lawsuits he authorized against big employers – these and other measures throttled recovery and prolonged unemployment averaging 17%.

America’s greatest depression fighter was Warren Gamaliel Harding. An Ohio senator when he was elected president in 1920, he followed Woodrow Wilson who got America into World War I, contributed to the deaths of 116,708 Americans, built up huge federal bureaucracies, imprisoned dissenters and incurred $25 billion of debt, for which he has been much praised by historians.

Harding inherited the mess, in particular the post-World War I depression – almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933, that FDR inherited and prolonged. Richard K. Vedder and Lowell E. Gallaway, in their book Out of Work (1993), noted that the magnitude of the 1920 depression "exceeded that for the Great Depression of the following decade for several quarters." The estimated gross national product plunged 24% from $91.5 billion in 1920 to $69.6 billion in 1921. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921.

In Only Yesterday (1931), historian Frederick Lewis Allen described Harding as "superbly handsome. His face and carriage had a Washington nobility and dignity, his eyes were benign; he photographed well and the pictures of him in the rotogravure sections won him affection and respect. And he was the friendliest man who ever had entered the White House."

Harding was much more open than his predecessor. Biographer Francis Russell wrote in Warren G. Harding and His Times (1968), "One of Harding’s early friendly gestures had been to restore the twice-a-week White House meetings with the press that Wilson had given up. Wilson had detested subjecting himself to the overt criticism of such meetings. Harding, the old newspaperman, liked the reporters, and they liked him. Press conferences in the Oval Room had the happy atmosphere of reunions. Harding was open with reporters, answering all questions."

Compared to FDR, Harding had a much better understanding of how an economy works. Harding, wrote historian Robert K. Murray, in The Harding Era (1969), "always decried high taxes, government waste, and excessive governmental interference in the private sector of the economy. In February 1920, shortly after announcing his candidacy, he advocated a cut in government expenditures and stated that government ought to ‘strike the shackles from industry.’ ‘We need vastly more freedom than we do regulation,’ he said. Surprisingly, big business took very little notice of him at the time."

Murray added, "To Harding, a profession, a newspaper, a grocery store, even a farm, was as much a ‘business’ as was a steel corporation. In a typical small-town manner Harding used the term ‘business’ to indicate a state of independence rather than to delimit a specific enterprise. This is quite different from saying that Harding was oriented toward big business and Wall Street as was sometimes charged."

One of Harding’s campaign slogans was "less government in business," and it served him well. Harding embraced the advice of Treasury Secretary Andrew Mellon and called for tax cuts in his first message to Congress, April 12, 1921. The highest taxes, on corporate revenues and "excess" profits, were to be cut. Personal income taxes were to be left as is, with a top rate of 8% of incomes above $4,000. Harding recognized the crucial importance of encouraging investment essential for growth and jobs, something that FDR never did.

Powerful senators, however, favored giving bonuses to veterans, as 38 states had done. But such spending increases would have put upward pressure on taxes. On July 12, Harding went to the Senate and urged tax and spending cuts. He noted that a half-billion dollars in compensation and insurance claims were already being paid to 813,442 veterans, and 107,824 veterans were enrolled in government-sponsored vocational training programs, the total cost of which was estimated to involve another half-billion dollars.

The senators were determined to push through this spending bill, and Senator Pat Harrison of Mississippi accused Harding of having "attacked the soldiers of America who fought and won the recent war." Meanwhile, a tax cut bill emerged from the Senate Finance Committee and was passed, while debate on the veterans’ bonus bill continued.

Harding’s Budget and Accounting Act of 1921 provided a unified federal budget for the first time in American history. The act established (1) the Bureau of the Budget with a budget director responsible to the president, and (2) the General Accounting Office to help cut wasteful spending.

In the fall of 1921, Harding’s Secretary of Commerce Herbert Hoover prompted him to call a Conference on Unemployment. Hoover wanted government intervention in the economy, which as president he was to pursue when he faced the Great Depression a decade later, but Harding would have none of it. Good thing, since Hoover’s policies were to prolong the Great Depression. Harding said, "There will be depression after inflation, just as surely as the tides ebb and flow." Harding insisted that relief measures were a local responsibility.

In 1922, the House passed a veterans’ bonus bill 333–70, without saying how the bonuses would be funded. Harding let senators know that if they passed the bill, he would veto it. The senate passed it 35–17. Despite intense lobbying from the American Legion, Harding vetoed the bill on September 19 – just six weeks before congressional elections, when presidents generally throw goodies at voters. Harding said it was unfair to add to the burdens of 110 million taxpayers.

Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes were cut from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922. Harding’s policies started a trend. The low point for federal taxes was reached in 1924. For federal spending, in 1925. The federal government paid off debt, which had been $24.2 billion in 1920, and it continued to decline until 1930.

Conspicuously absent was business-bashing that became a hallmark of FDR’s speeches. Absent, too, were New Deal–type big government programs to make it more expensive for employers to hire people, to force prices above market levels, to promote cartels and monopolies. Frederick Lewis Allen wrote, "Business itself was regarded with a new veneration. Once it had been considered less dignified and distinguished than the learned professions, but now people thought they praised a clergyman highly when they called him a good business man."

With Harding’s tax cuts, spending cuts and relatively non-interventionist economic policy, the gross national product rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million – a reported 6.7% of the labor force – in 1922. So, just a year and a half after Harding became president, the Roaring 20s were underway! The unemployment rate continued to decline, reaching a low of 1.8% in 1926 – an extraordinary feat. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.

"The seven years from the autumn of 1922 to the autumn of 1929," wrote Vedder and Gallaway, "were arguably the brightest period in the economic history of the United States. Virtually all the measures of economic well-being suggested that the economy had reached new heights in terms of prosperity and the achievement of improvements in human welfare. Real gross national product increased every year, consumer prices were stable (as measured by the consumer price index), real wages rose as a consequence of productivity advance, stock prices tripled. Automobile production in 1929 was almost precisely double the level of 1922. It was in the twenties that Americans bought their first car, their first radio, made their first long-distance telephone call, took their first out-of-state vacation. This was the decade when America entered ‘the age of mass consumption.’"

Warren Harding made additional contributions to liberty. In 1922, he nominated George Sutherland to the Supreme Court – and Sutherland went on to become one of the greatest champions of liberty who ever served there. The next year, Harding nominated Pierce Butler. These were to be two of the "Four Horsemen of Reaction" who, during the 1930s, courageously struck down FDR’s early New Deal legislation that had been suppressing recovery.

Harding denounced lynching and liberated the socialist Eugene Debs who had been imprisoned by Woodrow Wilson during the war. With Debs, Harding defied opposition from the American Legion and the New York Times that editorialized, "He is where he belongs. He should stay there." Harding was supported by socialists like George Bernard Shaw, H.G. Wells, Clarence Darrow and Upton Sinclair, who certainly didn’t vote for him. Harding insisted that Debs be free by Christmas, and Harding graciously invited him to the White House.

Finally, Harding championed peace through a non-interventionist foreign policy, as with these words from his Inaugural Address, March 4, 1921: "The recorded progress of our Republic, materially and spiritually, in itself proves the wisdom of the inherited policy of noninvolvement in Old World affairs. Confident of our ability to work out our own destiny, and jealously guarding our right to do so, we seek no part in directing the destinies of the Old World. We do not mean to be entangled…the America builded on the foundation laid by the inspired fathers, can be a party to no permanent military alliance. It can enter into no political commitments, nor assume any economic obligations which will subject our decisions to any other than our own authority."

Harding suffered a stroke and died in San Francisco on August 2, 1923. "At the time of his death, no president was more popular and admired," John W. Dean wrote in his biography of Harding. Harding’s body was returned to Washington on a funeral train. According to Dean, "This trip, reported in every newspaper in the land, resulted in a public outpouring of sentiment the likes of which had not been experienced by the nation since the death of Abraham Lincoln, and would not occur again until the death of Franklin Roosevelt. An estimated 9 million people from factories and farms, schools and shops, in the cities and in the fields, spontaneously appeared along the railroad tracks to silently – and often in tears – pay last respects to a president they admired, a friend they’d lost."

Unfortunately, Harding’s stunning success as a depression fighter was overshadowed by the Teapot Dome scandal that engulfed his administration after he died. This resulted from "progressive" era conservation policies in which the government owned land known to have petroleum reserves, at Teapot Dome, Wyoming and Elk Hills, California. Since the beginnings of recorded history, government involvement in the economy has always led to corruption, and Secretary of the Interior Albert Fall accepted bribes for leases enabling private companies to extract the oil. If the reserves had been privately owned, there wouldn’t have been a scandal.

"Progressives" were astonishingly blind to Harding’s achievements. Newspaperman William Allen White called Harding "almost unbelievably ill-informed." Historian Allen wrote that Harding’s "mind was vague and fuzzy. Its quality was revealed in the clogged style of his public addresses, in his choice of turgid and maladroit language (‘non-involvement’ in European affairs)." Ironically, Allen wrote this in 1931, when the Great Depression had been going for two years. Harding had the depression of 1920 licked in a year and a half, but under the "progressive" FDR, the Great Depression would persisted throughout the 1930s, until FDR began conscripting millions of young men for the armed forces.

Historian William E. Leuchtenburg, an ardent admirer of FDR, was just as superficial when assessing Harding. Leuchtenburg wrote The Perils of Prosperity (1958) – a bizarre title that makes one wonder why he didn’t do a sequel, The Perils of Health. Leuchtenburg remarked that Harding "was mentally slovenly." He paid not the slightest attention to Harding’s deeds and focused on Harding’s sometimes jumbled words. Leuchtenburg attacked Harding for not being a great speechmaker. Leuchtenburg went on to say that Harding had "an almost pathetic understanding of his own inability to measure up" to the presidency, as if it weren’t enough to get America out of a severe depression fast and launch a decade of phenomenal prosperity! Leuchtenburg dismissed Harding’s administration as "government by crony," as opposed to the cronies FDR brought to Washington, like Louis Howe, Harry Hopkins and Henry Morgenthau.

The most intriguing turn in the Harding saga is the new biography, Warren Harding, by Richard Nixon’s former counsel John W. Dean, in the American Presidents series edited by FDR chronicler Arthur M. Schlesinger, Jr. Dean, who comes from Harding’s hometown, Marion, Ohio, doesn’t focus on Harding’s success as a depression fighter, but he does acknowledge it and Harding’s other contributions to liberty.

Hopefully, greater awareness of Harding’s success might help give policymakers more confidence that the best thing they can do for an economy is to get out of the way.

December 23, 2003

Jim Powell [send him mail] is a senior fellow at the Cato Institute and editor of Laissez Faire Books. He is the author of The Triumph of Liberty and FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression.