by Robert Sobel
Just before New Year’s Day, 1928, Francis Jones, director general of the Employment Bureau of the Department of Labor, predicted that industry and business would reach “new high levels in 1928,” based on reports from the department’s field offices. “Contrary to precedents established in former presidential election years, when the business world stood by awaiting results before charting their programs, the opposite is true at this time,” said Jones. “The pessimists and doubting Thomases and the iconoclasts will be obliged to revise their opinions with respect to the nation’s industrial future.” He continued: All signs point to the biggest year in the history of the automobile industry. Iron and steel point to market increases over 1927. Indications are that building construction will compare favorably with the previous year. The position of agriculture shows improvement. Railroads will undoubtedly enjoy normal business. Owing to the increased introduction of labor-saving machinery, considerable labor will be displaced, but the volume of business is expected to register a new high level.
Congressman William Oldfield, an Arkansas Democrat, demurred. He noted that there had been more than 48,000 bankruptcies in 1927, and freight car loadings, an important economic indicator at the time, showed 1,000,000 fewer loadings than in 1926. During the Harding–Coolidge years there had been approximately 3,000 bank failures, with more than $1 billion in liabilities, and more than 125,000 commercial failures, with liabilities of $3 billion. “It is very much to be hoped that Secretary of the Treasury Mellon’s prediction that business will be better during 1928, than it has been during 1927, will come true. Certainly there is room for improvement.” But, as Jones predicted, the country would have another good year in 1928.
In early January 1928, the NYSE announced that brokers’ loans had increased sharply, standing at $4.4 billion, a billion dollar increase for 1927. The market, already skittish, now showed signs of correcting. Moody’s Investment Service said that it thought stock prices had “over-discounted anticipated progress,” but Professor Irving Fisher of Yale, one of the nation’s premier economists, was bullish. The market opinions in early 1928 were as they usually are except during periods of great optimism or deep pessimism—which is to say, divided.
Coolidge was asked at his January 7 press conference what he thought about the level of brokers’ loans, and again he was cautious. On balance, he seemed untroubled:I am not familiar enough with the exact workings and practice of the Federal Reserve System so that comments that I might make relative to the amount of brokers’ loans would not be of very much value. I do know in a general way that the amount of securities in this country has increased very largely in recent years. The number of different securities that are dealt in on the stock exchange are very much larger than they were previously. The deposits in the banks also are larger. And those two things together would necessarily be a reason for doing more business of the kind that is transacted by brokers and would naturally result in a larger sum of money being used for that purpose. Now, whether the amount at the present time is disproportionate to the resources of the country I am in no position to judge accurately, but so far as indicated by an inquiry that I have made of the Treasury Department and so on. I haven’t had any indications that the amount was large enough to cause particularly unfavorable comment.
Industrialist and stock market figure William C. Durant seconded the thought. “Why all this hue and cry about the bank loans to brokers?” he wanted to know, and added:The function of a bank is to receive and loan money. The banks, due to the wonderful prosperity of the country, have accumulated enormous deposits, and will continue to do so. These deposits must be loaned. Where or to whom could the banks loan $3,000,000,000 to better advantage or more safety than to brokers or individuals, secured by choice collateral of their own selection? In the ordinary course of business, I am of the opinion that brokers’ loans, or “Street loans,” so called, will within the next twelve months exceed $5,000,000,000.
The New York Times’s headline the next day, Saturday, was: “Coolidge’s Optimism Gives Stocks a Lift.” Volume that half-day session was 1.7 million shares, the second heaviest for a Saturday in history. The Dow, which had slid from its 1927 closing of 202.40 to 199.61 on the day before the press conference, now rose above 200 again, but before the session was over, had given up much of its gain on profit taking.
Coolidge’s statement surprised the Times, who added, “Old-timers in Wall Street tried without much success yesterday to recall any precedent for Mr. Coolidge’s remark on brokers’ loans, quoted in the morning newspaper dispatches. None of them could remember an instance in which the country’s chief executive had made a public declaration on a controversy of just that character.”
According to William Allen White’s Coolidge biography, H. Parker Willis, Coolidge’s cousin and the editor of the New York Journal of Commerce, doubted that the president truly believed that the level of brokers’ loans was reasonable. A few days after that statement the two men had discussed the financial situation at some length. Willis told White later on that Coolidge said, “If I were to give my own personal opinion about it, I should say that any loan made for gambling in stocks was an ‘excessive loan.’” Willis replied that he wished Coolidge had said that, and Coolidge wanted to know why. “Simply because I think it would have had a tremendous effect in repressing an unwholesome speculation, with which, I now see, you have no sympathy.” Coolidge thought this over and said:Well, I regard myself as representative of the government and not as an individual. When technical matters come up I feel called upon to refer them to the proper department of the government which has some information about them and then, unless there is some good reason, I use this information about them as a basis for whatever I have to say; but that does not prevent me from thinking what I please as an individual.
The market then dropped below 200, and remained there with brief interludes until mid-March, whereupon prices resumed their upward move.
After the Great Depression was a reality, some charged that Coolidge and Mellon, realizing in 1928 that the economy would enter into a major slump, put out optimistic broadsides throughout the last years of the Coolidge administration, hoping to delay the falloff until after he left office. “The process was simple,” wrote an anonymous author in 1931. “It was prosperity by political proclamation. If the stock ticker showed a slump at Monday closing or Tuesday opening, Mr. Coolidge invariably devoted his Tuesday noon press conference to bullish statements. ‘Don’t sell America short,’ was their tenor. If the market’s fluctuations necessitated it, he did it again on Friday afternoon.”
The records of the press conferences indicated no such pattern, and this scenario doesn’t explain why Mellon remained in the cabinet after Coolidge left, but by then this conclusion had become standard lore. White, who was critical of Coolidge during this period, wrote in his biography, “Bullish statements by Coolidge and Mellon in 1928 were infrequent. Their previous remarks, in conjunction with other favorable factors, had given rise to an upward move on the stock market which, with few setbacks, rolled on and on, gathering momentum and increasing in size to the end, which was still a year away.”
There were several market corrections in 1928 and 1929, during which respected analysts and commentators said the bull market was ending, only to be contradicted by the rising market. When the Dow fell below 200 on January 28, 1928, and remained there during February and into March, some analysts once again concluded that the bull market was finished. “The public is not likely to change its bearish state of mind until about the time when money becomes so plethoric as to lead the banks to encourage credit expansion,” wrote Moody’s. Some brokerages started running ads like, “Will You Overstay the Bull Market?” and “Is the Process of Deflation Under Way?” But, by the end of March, the Dow was at 213.35, and the mood was optimistic once again.
At his April 24, 1928, press conference, Coolidge commented on the rise in the rediscount rate to 4½ percent, a signal the central bank thought requir
ed some dampening of Wall Street’s exuberance: “No information has come to me concerning the increase in rediscount rates except that which I have seen in the press. That is a matter entirely for the Federal Reserve Board, a matter that I wouldn’t happen to know anything about.” If Coolidge was being completely honest here, the statement is bothersome. Of course, Coolidge believed strongly in the separation of state and federal governments and the executive and legislative branches. But to say he had no knowledge of what was going on at the Fed, and to imply he had no interest, was one of the most serious errors of judgment he made while president.
By the time the Republican convention opened in Kansas City on June 12, the Dow had fallen from a mid-May high of 220 to 202.01. That day, volume was more than five million, and the ticker was two hours late at times. Certainly this seemed an end to the market rise and the beginning of bad times for Wall Street. Was this finally the beginning of the bear market?
In short, no one could tell. It was a period in which, for every William Ripley, there were a dozen experts who foresaw a vista of uninterrupted economic growth. The unprecedented market developments led commentators to change their minds continually; after the crash, analyst Roger Babson was lauded for having “predicted” the market collapse in September 1929, but just a year earlier he had predicted “continued prosperity for 1929.”
Meanwhile, pressures on Coolidge to make a run for the presidency, or at the very least agree to accept a draft, intensified.
Hoover was far and away favored for the nomination. Several senators opposed him, frustrated first with Coolidge and now with Hoover, since they wanted neither man. Yet Coolidge was mentioned in many orations in the days that followed. Ralph Cole, a delegate from Ohio, said that his first choice had been his state’s Senator Frank Willis, who had died in March. His second choice was Lowden, who had withdrawn. “I wish now to choose my third candidate…. My really first choice and the first choice of America in the beginning of this campaign.”
With this there were cries of “Coolidge! Coolidge!” Cole then continued:Some delegates in this convention have the power of reading the human mind. My candidate is a Republican. This is a Republican convention. We have adopted today a Republican platform. We must nominate a Republican for president of the United States. My candidate cast his first vote in 1896 for Ohio’s illustrious son, William McKinley, the great champion of protection. He did not fail to vote in that campaign.9 He next followed the leadership of that great American of his day and generation, Theodore Roosevelt. But he did not forget to vote. He did not forget his name when he came to vote. My candidate voted the ticket in 1916…. My candidate was chosen vice president in 1920, elected president in 1924—an exalted specimen of American manhood, better than wealth, better than all power, better than all position, to have the courage, character, and conscience of Calvin Coolidge, my candidate.
For an instant it appeared that Cole might have reprised the McCamant role of 1920, and that the convention might stampede to Coolidge. But Senator George Moses, chairman of the convention, went ahead and called the role of the states followed by seconding speeches and the balloting. Hoover was nominated on the first ballot. Then the Republicans went home to await the acceptance speech and, after Labor Day, the beginning of the campaign.
Coolidge did not say much during this time, but Hoover came for a visit and the traditional laying on of hands. When posing for a picture together, a photographer asked Coolidge to say something to Hoover, to which Coolidge replied, “Let him talk. He’s going to be president.” In September he told reporters, “This time the only thing I was a candidate for was retirement and apparently I am going to be successful in that.”
The Democrats gathered in Houston on June 26, and in a relatively quiet convention nominated Al Smith. He represented just about everything southern Democrats, an important segment of the party, opposed, while Hoover had been a national figure, and largely admired, for more than a decade. In image, he combined the old-fashioned virtues of Coolidge with the new technology of the 1920s, embodied by men like Lindbergh.
In 1928 both parties nominated candidates who truly were new political types. Many seemed to have sensed this, because the Democrats clearly were divided on Smith, just as few Republicans at the Kansas City GOP Convention seemed enthusiastic for Hoover. For all his singularity, Coolidge belonged to the era of Harding, Wilson, and Taft. Hoover, who had been an engineer and businessman before entering government service, became the only major party candidate, excluding military men, to be elected president in his first political campaign. For his part, Smith’s record as New York’s governor was one of concern with urban America, and not a restatement of Wilsonian Progressivism. Still, both Hoover and Smith were in some ways heirs of the progressives, since both men’s policies had their roots in turn-of-the-century reform.
It was a lively campaign. Hoover ran on the Coolidge record. “We in America today are nearer the final triumph over poverty than ever before in the history of any land,” he told one audience that August, and he often repeated the thought. Smith spoke of the need for reform and indicated that, if he were elected, the government would play a more active role in the economy than it had under Harding and Coolidge.
Coolidge remained in seclusion during the campaign, but he did deliver some speeches supporting Hoover. In September he spoke to a crowd in Bennington, Vermont, from the back of a train. It was a short talk, seemingly extemporaneous. The next day’s newspapers reprinted the talk, and remarked on the beauty of one section:Vermont is a state I love. I could not look upon the peaks of Ascutney, Killington, Mansfield, and Equinox, without being moved in a way that no other scene could move me. It was here that I first saw the light of day; here I received my bride, here my dead lie, pillowed on the loving breast of our everlasting hills. I love Vermont because of her hills and valleys, her scenery and invigorating climate, but most of all because of her indomitable people. They are a race of pioneers who have almost beggared themselves to serve others. If the spirit of liberty should vanish in other parts of the union and support of our institutions should languish, it could all be replenished from the generous store held by the people of this brave little state of Vermont.
This did not seem to be typical Coolidge, but after his death it came out that he wrote poetry, which few had known. This segment of the speech had been carefully prepared, but delivered so as to make it appear a sudden inspiration. It was all part of that image-making.
After the election was over, conventional wisdom claimed that Smith demonstrated that a Catholic could not hope to become president. Smith might have believed this. He later remarked, “I guess it isn’t time yet when a man can say his beads in the White House.” More recent scholarship demonstrates that the religious issue was not that great. Although he lost, Smith received fifteen million popular votes, more than Davis and La Follette’s combined votes in 1924, and almost as much as Coolidge’s total that year.
No Democrat could have hoped to win in 1928. The reason was not religion, but “Coolidge Prosperity.” Undeniably, some Americans voted against Smith who might have voted for a Protestant candidate, but then again, many Catholics voted for him who would not have voted for a Protestant, indicated by the sharp jump in voter participation that year. In 1924, 48.9 percent of qualified voters went to the polls, a modern low; in 1928, 56.9 percent voted, the highest level since 1916. Many have attributed this jump in voting to Catholic women, who had not voted in large numbers in 1920 and 1924 but turned out for Smith in 1928.
Had Coolidge run he probably would have won the 1928 election handily—by an even larger margin than Hoover’s.
In June, a week after the Hoover nomination, the Dow went below 200 before recovering for a small gain. Activity was intense, with over four million shares trading on some sessions with the ticker running late. But then, as before, the market recovered, and by Labor Day, the Dow was over 240. The demand for brokers’ loans increased, with the interest rate at times coming c
lose to 20 percent. Even so, speculators plunged into the market, figuring that if a stock doubled in a year, that kind of interest was perfectly acceptable. Corporations, realizing that such returns were more than they could make in their own businesses, started to go into brokers’ loans with their surpluses. For instance, Electric Bond & Share placed $156 million, and Bethlehem Steel about the same. William Durant’s January prediction that by year’s end there would be $5 billion in brokers’ loans had been too timid—the figure was more than $6.4 billion. Also, large pools headed by one or another speculator had formed. So, when RCA, Chrysler, General Motors, National City Bank, or some other favorite rose or fell 20 to 40 points in a session, one or another pool manager was quite often responsible.
On December 4 Coolidge sent his final annual message to the Capitol. He went over the by-then-familiar litany—the reduction of the debt, the surpluses, the situation in agriculture, and Muscle Shoals. Coolidge noted that since 1922 wages had risen by 12.9 percent, and that in some industries, they had increased by as much as 38 percent. “As the rise in living costs in this period is negligible, these figures represent real wage increases.” In his conclusion, Coolidge struck themes that reflected his general view of the nation and that had marked his public statements since he had been a Massachusetts legislator:The country is in the midst of an era of prosperity more extensive and of peace more permanent than it has ever before experienced. But, having reached this position, we should not fail to comprehend that it can easily be lost. It needs more effort for its support than the less exalted places of the world. We shall not be permitted to take our ease, but shall continue to be required to spend our days in unremitting toil. The actions of the government must command the confidence of the country. Without this, our prosperity would be lost. We must extend to other countries the largest measure of generosity, moderation, and patience. In addition to dealing justly, we can well afford to walk humbly.