biographer, Robert K. Murray, “he advocated allowing the nation to experience a period of tranquility in which it could restore itself and return to ‘normalcy.’ ” Against fellow Ohioan James M. Cox, Harding won in a landslide.
It was an untranquil country he was elected to govern. In the 1918-19 flu pandemic, 675,000 Americans died, more than 10 times the number of U.S. battle deaths in the Great War. In the months before Election Day, consumer prices were rising at year-over-year rates of more than 20 percent, a legacy of wartime spending and borrowing. Partisans picked sides in the Bolshevik Revolution, and capital and labor were at each other’s throats. On Sept. 16, 1920, a bomb exploded on Wall Street, killing or wounding more than 200 people. Normalcy was, indeed, just what the doctor ordered.
Candidate Harding had promised “less government in business and more business in government,” and he was as good as his word. In June 1921, he signed the bill that created the Bureau of the Budget, forerunner to today’s Office of Management and Budget. “There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures,” the new president said. “We want to reverse things.”
Harding uttered these words as prices were collapsing and the nation’s output was shrinking. From top to bottom, 1920-21, consumer prices fell by 8.3 percent, wholesale prices by 40.8 percent and the Dow Jones Industrial Average by 36 percent. The Federal Reserve, founded in 1913 and still new to the job, regarded these dislocations clinically. As prices had skyrocketed in the war, so they should come back down to earth, the central bank reasoned. Besides, the nation was on the gold standard; they couldn’t just print the money.
“[A]fter a year or two of discomfort, embarrassment, some losses, some disorders caused by unemployment,” Ben Strong, the Ben Bernanke of his time, predicted in 1919, “we will emerge with an almost invincible banking position, prices more nearly at competitive levels with other nations, and be able to exercise a wide and important influence in restoring the world to a normal and livable condition.” You can call it monetary malpractice — farmers called it worse — but tight money hastened the liquidation of misconceived wartime investments. And just as Strong predicted, the banking system weathered the storm. In 1920-23, the biggest institution to fail was little First National Bank of Cleburne, Tex.
Well, how did the nation ever climb out of the deflationary abyss? By the age-old magnetic power of high interest rates and low investment values. Foreigners sent their gold to America to seize the bargains before they vanished — and up went the prices that had fallen so frighteningly. As for Harding, he fostered recovery as much by what he didn’t do as by what he did. The Bureau of the Budget brought public spending to heel, but the president encouraged private spending by speaking up for business. The Harding administration’s “avowed purpose,” historian George Soule writes in “Prosperity Decade,” “was to withdraw as far as possible from exerting any influence on the economic life of the country except the encouragement that might be derived from a balanced budget and nonintervention with private enterprise.” The nation was duly encouraged.
Harding, the 882-day president, died on Aug 2. 1923. He lived to see the first fruits of his policies, though not their full flowering under his boom-time successor, Calvin Coolidge (nor, happily, the disgrace of some of his crooked friends and deputies in the Teapot Dome affair). Remarking on the depression that came and went, Murray observes that “the art of economic prognostication and statistical evaluation was still in its infancy.” A good thing, too, if one judges by the results.