Conservative policies prevail
Fostered by the general prosperity which prevailed at least in the urban areas of the country, the tone of American governmental policy during the Twenties was eminently conservative. It was based upon the belief that if government did what it could to foster the welfare of private business, prosperity would trickle down to all ranks of the population.
Accordingly, Republican policies were intended to create the most favorable conditions for American industry. The tariff acts of 1922 and 1930 brought tariff barriers to new heights, guaranteeing to American manufacturers in one field after another a monopoly of the domestic market. The second of these tariffs, the Smoot-Hawley Act of 1930, embodied rates so high that over a thousand American economists petitioned President Hoover to veto it, and subsequent events bore out their prediction that the act would provoke costly retaliation by other nations. The federal government also started a program of tax reduction. Secretary of the Treasury Andrew Mellon believed that high income taxes would prevent the rich from investing in new industrial enterprises, and Congress in a series of laws passed between 1921 and 1929 responded favorably to his proposals that wartime taxes on income, excess profit taxes, and corporation taxes be repealed outright or drastically reduced.
Private business was given substantial encouragement throughout the Twenties. The Transportation Acts of 1920 had already restored to private management the nation's railroad system which had been under strict governmental control during the war. The Merchant Marine, which had been owned and in a considerable measure operated by the government from 1917 to 1920, was sold to private operators. Construction loans, profitable mail-carrying contracts, and other indirect subsidies were also provided. Perhaps the most outstanding support of private business came in the field of electric power. Two great nitrate plants had been built by the government during the war at the foot of Muscle Shoals, a 37-mile stretch of rapids in the Tennessee River, and a series of dams had also been built along the river to generate power. A measure providing for public generation and sale of power passed both houses of Congress in 1928, but President Hoover returned it with a stinging veto. Later, during Franklin D. Roosevelt's presidency, the model TVA experiment was built out of the Muscle Shoals project.
Meanwhile, policies of the Republican administrations met with mounting criticism in the field of agriculture, for it was the farmers who shared least in the well-being of the Twenties. The period 1900 to 1920 had been one of general farm prosperity and rising farm prices. The unprecedented wartime demand for American farm products '-ad provided a great stimulus to production. Farmers had opened up poor lands never before cultivated or long allowed to remain idle. As the money value of American farms doubled and in some areas trebled, farmers began to buy goods and machinery they had never been able to afford. But at the end of 1920, with the abrupt cessation of wartime demand, the commercial agriculture of staple crops fell into a state of poverty. When the general depression came in the 1930's, it merely aggravated a condition already serious.