July 2014

What Happens When the Constitution is Applied to Economic Policies?

By John Hendrickson

In a speech honoring the veterans who fought and fell at the Battle of Gettysburg, President Calvin Coolidge not only addressed the need for national security and protecting veterans, but he also stated that a strong economy was just as necessary as national defense in securing the nation. Coolidge stated that “the strength of this nation, however, is not expressed merely in terms of an Army and Navy.”[1]  As Coolidge stated:

But to the contentment and patriotism of the people there must be added the resources that are derived from prosperous industry, agriculture, and commerce. Good credit, which is derived from sound financial conditions, is the principal foundation of national defense. That country which has so ordered its finances as to be in a position to furnish the largest amount of money will always be in the best position to protect itself. Reduction of our national debt, permitting a reduction of taxes which stimulates private enterprise and increases our credit, is an important addition to our national strength. The industrial advance, the agricultural development, the financial resources, strengthened by wise policies in time of peace are of inestimable value in time of war.[2]

Spending reduction, tax reduction, paying down the national debt were all major aspects of President Coolidge’s economic policy. These policies had their origins under President Warren G. Harding, who in the aftermath of the 1920 election, was faced with a severe economic depression with significant business decline and high unemployment. This economic depression is described by some economists as “by far the most important business cycle development of the first three decades of the twentieth century…”[3]

In reference to the depression of 1920-1922 economists Richard Vedder and Lowell Gallaway wrote:

While the magnitude of the 1920-22 downturn was severe (and indeed exceeded that for the Great Depression of the following decade for several quarters), its duration was not. By 1922 recovery was already underway, and in the following year unemployment was actually less than its normal long-run rate.[4]

The reason why the depression of 1920-1922 was so short was the economic policies initiated by President Warren G. Harding and President Coolidge. As Coolidge stated in his address at the Gettysburg battlefield, reductions in debt, taxes, and spending were essential for economic recovery. Both Vedder and Gallaway argue that “the seven years from the autumn of 1922 to the autumn of 1929 were arguably the brightest period in economic history of the United States.”[5] Overall the nation’s economy entered into a period of significant economic growth:

From 1920 to 1929, total manufacturing output rose a bit over 50 percent, an aggregate figure that masked even more rapid rates of growth in major sectors of the economy. Primary manufacturing grew at a rate of 2.5 percent per year; end product manufacturing increased 4 percent per year throughout the decade. By 1929, the economy of the United States produced four-tenths of the world’s coal, seven-tenths of the world’s petroleum, a third of the world’s hydro-electric power, half the world’s steel, and virtually all of the world’s natural gas.[6]

Entrepreneurship also expanded and “new sectors were included that had never before been listed in previous censuses, such as automobiles, telephones and telegraph, and chemicals.”[7] The automobile and the radio became symbols of the economic progress of the Roaring Twenties. Vedder and Gallaway note that during the Coolidge Prosperity wages increased.[8]

President Coolidge’s policies of spending, tax, and debt reduction also saw budget surpluses return and an end to the double-digit unemployment from the depression of 1920-1922. Jim Powell, a Senior Fellow at the Cato Institute, described the success of the Harding-Coolidge economic program when he wrote:

Altogether, spending and taxes were cut 50 percent during the 1920s, and about 30 percent of the national debt was paid off. There were budget surpluses throughout the 1920s. Unemployment fell to 1.8 percent, the lowest U.S. peacetime level in more than 100 years.[9]

While Governor of Massachusetts, Calvin Coolidge honored Labor Day by providing some goals he had for the economy and his words were prophetic:

I want to see our institutions more and more humane. But I do not want to see any of the people cringing suppliants for the favor of the Government, when they should all be independent masters of their own destiny. I want to encourage business, that it may provide profitable employment. I want to see jobs hunting for men, rather than men hunting for jobs. I want the factory able to consume at a fair price the products of the farm. I want every individual, no matter how humble, to know that over him is the protection of public law. I want to raise the economic condition and increase the moral and spiritual well being of our country.[10]

By the end of his presidential administration Coolidge had met these goals, and although some problems persisted in the economy, overall the Harding and Coolidge policies led to a period of tremendous economic growth. It was the economic miracle that was built upon a philosophy of constitutional limited-government.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Calvin Coolidge, “Address at Gettysburg Battlefield, May 30, 1928,” Calvin Coolidge Memorial Foundation, <http://www.calvin-coolidge.org/address-at-gettysburg-battle-field.html> accessed on June 19, 2014.

[2] Ibid.

[3] Richard Vedder and Lowell Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America, New York, Holmes & Meier, 1993, p. 61.

[4] Ibid.

[5] Ibid., p. 68.

[6] Michael A. Bernstein, The American Economy of the Interwar Era: Growth Transformation from the Great War to the Great Depression, in Calvin Coolidge and the Coolidge Era: Essays on the History of the 1920s, edited by John Earl Haynes, Washington, D.C., Library of Congress, 1998, p. 192.

[7] Ibid., p. 193.

[8] Out of Work, p. 68.

[9] Jim Powell, “Jump starting the economy,” Cato Institute, September 10, 2010, <http://www.cato.org/publications/commentary/jumpstarting-economy> accessed on June 19, 2014.

[10] Calvin Coolidge, “Labor Day, Plymouth, Massachusetts, September 1, 1919,” Calvin Coolidge Memorial Foundation, <http://www.calvin-coolidge.org/labor-day-plymouth-massachusetts.html> accessed on June 19, 2014.