The Magazine

Time for Another Harding?

How a much-derided Republican president actually succeeded in cutting the budget and fixing the economy.

Oct 24, 2011, Vol. 17, No. 06 • By ALLIS RADOSH and RONALD RADOSH
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On June 24 a meeting was held in the auditorium of the Interior Department attended by the president, Vice President Calvin Coolidge, the cabinet, and 1,200 bureau and division chiefs. Harding began by telling his audience, “There is not a menace in the world today like that of growing public indebtedness and mounting public expenditure.” It was imperative that this trend be reversed. Dawes then explained that the purpose of the new bureau was to help all present get rid of the “fat” in their budget requests, and to reduce unnecessary expenditures. The bureau was to be nonpartisan and existed only to gather information and inform the president. He then asked those in the audience on whom he could count to please stand up. Everyone stood. 

Dawes was not in a good mood at the next meeting. While he was receiving cooperation in his campaign for economy from many quarters, it was being sabotaged in others. To make his point he held up two brooms: one an Army broom made to Army specifications, the other a Navy broom made to Navy specifications. The Army had 350,000 surplus brooms, and the Navy needed 18,000. But the Navy rejected the suggestion that they take the Army’s excess brooms because those were wrapped with twine instead of wire. In the end, the Army sold their surplus brooms at low prices to speculators who turned around and sold them at a hefty profit, and the Navy went out and bought new brooms at top prices. If such a thing had occurred in a private business, Dawes said, the person responsible would have been immediately fired. 

By the time Dawes’s year was up in June 1922, the federal budget had been balanced, revenues exceeded expenditures, and the public debt had been reduced. Dawes had exceeded his promise to help the president save a billion dollars: Federal spending had dropped from $6.3 billion in 1920 to
$5 billion in 1921 and then $3.3 billion in 1922. When Dawes left, he took two brooms home with him as mementoes. 

While Harding had presented Congress with the nation’s first coordinated federal budget, he had also approved passage of the Revenue Act of 1921, which eliminated the World War I excess-profits tax, settled on a corporate tax rate of 12.5 percent, brought the top marginal income tax rate down from 73 percent to 58 percent, decreased surtaxes on incomes above $5,000, and provided increased exemptions for families. 

Harding was consistent in his dedication to fiscal responsibility, even when he knew it would be unpopular and go against his own instincts. Such was the case with the bonus voted by Congress for World War I veterans. Harding’s pledge to cut taxes conflicted with the desire of Congress and the public to grant the veterans a generous bonus, paid for with deficit spending. Harding felt so strongly about the issue he appeared before a special joint session of Congress to make his case. While he sympathized with the impulse to grant the bonus, the country needed tax relief to get back on its feet and could not afford to do both. If Congress wanted the bonus, it would have to find the revenues to pay for it. 

Congress was shocked that the president would oppose the bonus, and many Republicans were furious with him, since they would shortly face an election. But Harding vetoed the bill, as he had said he would, writing that while the nation owed much gratitude to those who had served, the burden of high taxes affected every American citizen. “To add one-sixth of the total sum of our public debt for a distribution among less than 5,000,000 out of 110,000,000, whether inspired by grateful sentiment or political expediency, would undermine the confidence on which our credit is [built] and establish the precedent of distributing public funds whenever the proposal and numbers affected make it seem politically appealing to do so.” 

Harding died of a heart attack on August 2, 1923, having fulfilled his goal of restoring prosperity. The night of his death, his wife Florence had been reading an article to him from the Saturday Evening Post entitled “A Calm Review of a Calm Man” by Samuel G. Blythe. “There is nothing so political as the Presidency,” Blythe observed, “and the better a politician a President is the better President he will be.” Blythe reminded his readers that things had been in a bad way when Harding came into office, but now America was “the only legitimately prosperous country in the world.” Prosperity, he continued, “extends from coast to coast, from the Canadian border to Mexico. Labor is universally employed at high wages. Money is plentiful. All lines of business are flourishing. And there is no other country in the world of which this can be said.” 

Blythe’s account was accurate. Harding’s policies, put into practice by men like Charles G. Dawes, succeeded in turning the country around. This was not easy with a fractious Republican party at odds over regional and economic issues. Nevertheless, Harding cut income tax rates for Americans at every income level. According to economist Benjamin Anderson, employment and businesses rallied as a result of “a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise.” 

It had been Harding’s hope that inequality of income would decrease as foreign markets expanded, creating more economic opportunities; he worked hard with Herbert Hoover and Charles Evans Hughes to achieve this. Harding also modified his position on the tariff, coming to favor a degree of flexibility. He entered the White House having won an overwhelming mandate. He succeeded in healing a divided country by combining fiscal conservatism with some socially progressive attitudes. His efforts to end lynching and his belief in racial equality showed him to be more enlightened than many of his countrymen. They entitle him to be regarded as one of the first modern civil-rights presidents.

The policies of Harding and his successor Calvin Coolidge were undone in the 1930s, when President Hoover adopted the statist measures that laid the foundations for what would become the New Deal. With the election of Franklin D. Roosevelt, a new kind of welfare state was created, and progressivism began once again to flourish. Surveying the situation in 1940 after the economy’s downturn and what people were beginning to call a new Roosevelt depression, Dawes penned a warning:

Some day, a President, if he is to save the country from bankruptcy and its people from ruin, must make the old fight over again, and this time the battle will be waged against desperate disadvantages. Against him will be arrayed the largest, strongest, and most formidably entrenched army of interested government spenders, wasters, and patronage-dispensing politicians the world has yet known.

Dawes was prescient. As the old fight is once again being waged, we can only hope that the president Americans elect in 2012 will be as much of a “reactionary” as Warren G. Harding—and as much of a success.

Ronald Radosh is an adjunct fellow at the Hudson Institute and a writer for Pajamas Media. Allis Radosh is a historian. They are coauthors of A Safe Haven: Harry S. Truman and the Founding of Israel and are writing a book on the presidency of Warren G. Harding.

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