2010 JFK Symposium

Silenced Cal and His Economy

by Amity Shlaes

Good morning.  I think Andy just coined a new phrase, a new acronym: “FOC,” for “friend of Coolidge.”  It’s nice to see everyone.  Before I begin this speech though, I’d like to mention something that everyone in this room is thinking about in addition to our thirtieth president.  That other thing is the economy, the economics.  We’re wondering if the economy can ever grow fast again, maybe in the four percent range.  We’re wondering whether wages in America can go up, whether unemployment can be low again in the United States, and when that will happen.  We’re thinking whether our entitlement problem can ever be fixed.  If it’s possible to get back after a setback like the one the United States has recently suffered. 

So maybe we can imagine something.  It’s an economy that does all that.   That, after a terrible setback, a war, and a recession, turns around to grow by four percent a year, with real wages going up significantly.  Where unemployment drops from a super-high twenty percent for a few moments in the cities down to below five for the nation.  Where the stock market rises.  Where the average man can buy a new car.  Where everything is so good that the recession seems like it never happened. 

That economy was the Coolidge economy.  Calvin Coolidge alone is not responsible for the economy of the 1920s.  He alone did not make that prosperity.  Harding before him contributed, the Treasury Secretary Andrew Mellon contributed.  Nonetheless, it would be wrong not to emphasize Coolidge.  Some presidents are foreign policy presidents, some presidents are law and regulation presidents.   Calvin Coolidge was an economic president.  He was the strategic administrator of the prosperity, as in the title of this talk.  So I’d like to go through, first, Coolidge’s economic policies, what he did and didn’t do to make the 1920s economy strong, and to try to share with you some of his thinking on those policies.

Next, I’ll talk a little bit about why we haven’t heard about Coolidge’s economics in the twenties.  “Silent Cal” was far from silent on economics.  And even when he was silent, those silences were productive silences.  But he did speak a different economic language than we speak today so it is easy to drown out, ignore, or misunderstand him.  Our brains, our very ears, can’t always hear what Calvin Coolidge is saying.

Finally, the speech will take up the relevance of Coolidge economics for today.  It’s an elaborate story, but it’s important, which is why I’m very grateful to the Calvin Coolidge Memorial Foundation, Ms. Harville, who is here, the Coolidge’s, who are here, Robert Kirby, Andy Kostanecki, and Mimi Baird, for this time.

First we’ll start with what Coolidge believed and what that caused him to do.  The primary belief was that the private sector was what mattered in the economy and in the business cycle, that the private sector determines the quality of the recovery.  This accords with the cliché, that famous line of Coolidge’s that we’ve often heard: “the chief business of the American people is business.” Business would end recessions and bring recovery, Coolidge believed, but what was this business in the Coolidge concept?  Here he was subtle in ways that might surprise and confuse us in our modern sensibility.

The Grand Old Party, his party, the Republican Party, was a big business party, but my research and writings for this biography suggest that Coolidge was by temperament a small business man, more the entrepreneur’s attorney and advisor.  To him business wasn’t just corporate or Wall Street.  It was commerce between man and man, starting very small, involving handshakes, contracts, looking someone in the eye.  Deals had to be fair.  You had to rely on your partner.  You had to be both civilized and civil to do business with one another.  You had to live up to your word and your old promise.

Coolidge believed that for America to move forward, commerce way down there at the most basic level had to proceed smoothly and be respected.  Only if commerce, the kind of that bilateral transaction, was smooth would enterprise generally, big and small, cheer up.  So the corollary to that Coolidge rule is government probably had to be kept out of the way of that commerce. 

You see this attitude showing up very early, in the first hours, in fact, of the Coolidge presidency.  The news of President Harding’s death came at night and while Vice President Coolidge was on vacation at home, in Vermont.  His father, a Vermont notary, swore him in.  This was partly expedience.  But, the humble choice of a notary as authority also suited Coolidge well because he believed the highest level of government couldn’t proceed if the lowest didn’t have its place.  Notary, after all, is about words, deals, handshakes and contracts.

Also very early, in the first weeks of Coolidge’s presidency, you see that commitment to civility.  Coolidge came to the presidency at a rough time.  The country had just emerged from that recession, unemployment was high, and the Progressive movement was feisty and critical.  Progressives thought they might do pretty well in the presidential election of 1924.  We talk about venom in politics today, but they were just as bad then.  Opponents wanted to cast Coolidge as a relic of a tainted presidency, a lame duck, his president had died.  He was just a transient figure, that’s how they wanted to depict him.  So they, of course, questioned his ability.

Maybe you don’t believe me, but I want to read you what Oswald Villard, the editor of The
magazine, wrote about Coolidge to welcome him into office in the summer of 1923:

And now the presidency sinks low, indeed.  We doubt if ever before it has fallen into the hands of a man so cold, so narrow, so reactionary, so uninspiring, so unenlightened, or one who has done less to earn it than Calvin Coolidge.

I don’t really see Coolidge hitting back.  His addresses generally don’t retort with nasty ad hominems.  He doesn’t go down to their level.  That’s because he believed in civility.  It helped the country, it helped business, it helped policy-making.  His civility reduced the number of his enemies in Congress.  That, in turn, enabled him to pass his legislation, including his economic legislation.  However strong any politician’s economic agenda, it is no use if he can’t find the votes for it.  

Now to get to our corollary, keeping the government out of the way of commerce, or making the government a complement to commerce rather than a competitor, this Coolidge did in the most direct way, by cutting government back and cutting it some more.  Harding and even Wilson before him, of course, started this, but Coolidge was a talent with the knife.  He used presidential power to impound, to stop, wherever he could.  He was concerned about spending.  He would put his nose in.  I’m just researching this right now for the book, but it is astounding the extent to which Coolidge killed or pared down projects when he could.  And the proof of his success is in the numbers.  When Coolidge left the presidential office in 1929, the federal budget was 3.13 billion dollars lower than it had been when he came to the presidency in 1923.

Related to this budget slashing was an aggressive tax policy.  The top marginal rate on the income tax was important to Coolidge and others of his era because, confronting too high a top rate, business loses heart, enterprise loses heart, the individual loses heart.  That top rate was seventy-seven percent when World War I ended.  Wilson and Harding brought that rate down.  Working with the Treasury Secretary Andrew Mellon, Coolidge pushed the top rate down again, first to forty-six, then to twenty-five percent in 1925.  That is a level we haven’t really seen since.  There’s one exceptional period for a moment when it’s twenty-four, but, basically that twenty-five stands as a marker for us.

A little bit more about the way this achievement happened.  Teamwork.  There was an important relationship at work here, and I know Joseph Thorndike will speak more in detail about this with research from his new book this afternoon.  This important relationship was that between Coolidge and Mellon.  The two were said to be close because they were taciturn, the stereotype.  Someone once said that Coolidge and Mellon conversed in pauses.  But their other commonality was their determination to get these laws through.  Those productive silences I spoke of before.  Mellon published a whole book making his case for tax cuts, Taxation: the People’s Business.

Selling the tax cuts proved hard.  ‘Silent Cal’ had to go on the stump.  Here’s from one of Silent Cal’s speeches: 

If we had a tax whereby on the first working day the government took five percent, the second day ten percent, the third day thirty, the fourth day forty, the fifth day, fifty, and the sixth day sixty, how many of you would continue to work on the last days of the week?  It is the same with capital.

Coolidge and Mellon didn’t only pay attention to top earners, however.  They also adjusted to help the bottom at the tax schedule.  Their tax reforms were across the board, as we say.  To Coolidge, the lower earners were individuals, as well, real people, so the bottom rates on the schedule came down from six, to four, to two percent. 

People always emphasize that the Republican Party of this period may have done damage with tariffs, and it did, but those tax cuts more than offset the tariff disadvantage.  At the end of the twenties, all through the twenties, the country was in surplus.  Lower rates on the taxes—and this is interesting for today—led to higher revenue.  Lower rates, higher revenue.  The money sloshed in.  And that’s because of all the activity that the friendly low rates generated. 

You might say this makes Coolidge a Reaganite, but that is not precise.  For Coolidge believed that tax cuts have to go with budget cuts.  You can’t have tax cuts alone. Without each other they don’t work.  He would not have approved of tax cuts so easily if he did not get the budget cuts.  This was the gold standard era; it was a different economic system.  I think there’s no doubt about it: Coolidge and Mellon would have raised taxes now if they could not get a commitment to cut the budget more significantly than we are doing, or even talking about. 

A final component of the Coolidge attitude was the moral impulse in his rate cutting.  Today when we talk about raising rates or cutting rates, we talk like social scientists, “that will change the behavior of the person.”  Coolidge thought that taxes that were too high were also morally wrong, that there was no particular reason to trust the government with the revenue from such taxes.  He’s not just a technician, he’s also a moralist.  While taxes should sustain government, the tax system should not disturb the spirit of enterprise or the maximization of productivity gains.  In other words, they shouldn’t burden the individual too much.  Coolidge knew well that too much taxation stifled people.  His father had been a tax collector for a little bit of time.  President Coolidge called taxation “only a species of legalized larceny.” 

Like this tax philosophy or not, it worked.  One thing that I want to mention in addition to the extra revenues that it brought in is that this tax system of lower rates paradoxically made the rich pay a greater share of the taxes.  For those of us who are concerned about tax distribution, this is an important footnote.  At the end of the twenties the top earners paid ten percent of the income tax, where they had only paid less than a half a percent at the beginning.

So we come now to the second half of Coolidge economics, his refraining.  Because what Coolidge didn’t do was as important as what he did.  And this is the area where Coolidge, our friend, is misrepresented.  The critics depict him as lazy for doing nothing, but sometimes doing nothing is harder than doing something.  Coolidge worked hard to do nothing and to make others do nothing at times, to prevent. 

He did this first of all by trying to keep the political and economic environment smooth, predictable, without abrupt changes.  It’s evident also in the first hours of his presidency, in that Vermont summer night, when he learned he was president.  Harding had made his motto normalcy, by which he meant making things smooth, as well.  Coolidge also believed in normalcy.  When a president dies suddenly, that’s not a normal moment.  It’s an uncertain moment.  Coolidge wanted to reduce, insofar as he could, the disruption of the transition, so he kept on members of Harding’s Cabinet even when he didn’t particularly like them or there were still remaining issues about their involvement in the various scandals of the Harding presidency. He just thought it wasn’t his place to dump the Cabinet.  The country needed continuity.

Another kind of fealty to continuity: Coolidge believed he was elected to continue policies of the Grand Old Party.  If they were the same policies as those of a tainted predecessor, no matter.  If they were policies that his own colleagues in the party now disapproved of, that didn’t matter either.  He said,

It is the business of the president as party leader to do the best he can to see that the declared party platform’s purposes are translated into legislative and administrative action.  Oftentimes I secured support from those without my party, [that is, outside my party] and had opposition from those within…in attempting to keep my platform pledges.

There you see it, the promise, the contract.  He had a contract with the voter, which was to adhere to the platform the voter voted for, regardless of what happened in Washington. 

Other refrainings, stoppings, and preventings that helped recovery.  Congress by its nature likes to enact measures.  They have to get reelected, and in a very short time frame in the United States.  Coolidge tended to assume change led by government might be problematic, so his first impulse was to block.  In short, Coolidge saw his day job as president as squelching.  Squelching proposals to expand government.  He did this directly.  Governments tend to chase after promising industries.  The government wants to claim credit for the new industry. We see that a lot.  The internet would be that industry today.  I wouldn’t be surprised if the federal government announced it had a search engine, for example.  But the internet of the 1920s was electricity, the utilities.  Everyone wanted to get into it.  From World War I the U.S. had a hydropower dam, Wilson dam.  It could be used as the first step toward a government power business.  There was a large effort to make that a permanent federal business.  Coolidge vetoed it.  He also reined regulators in.   He stopped legislation that would add more regulation to the new industry, the young industry, utilities, and this left the utilities industry free to grow.  It developed new forms of governance, which enabled it to raise capital. 

Was there corruption?  You bet.  There’s always corruption, but net, this freedom for the new promising economic sector was a benefit to the average American.  As a result of being free to raise capital, utilities were able to lower prices so a housewife could get electricity, she could use an electric iron, her drudgery was reduced.  That was an economic event of the 1920s, so was the vacuum cleaner and eventually the telephone.

Coolidge repeated this vetoing blocking tactic for a number of big spending or progressive bills.  He was especially good at a move called the “pocket veto” that we’ll talk about later today.  That is killing a bill indirectly by allowing it to go into recess unsigned.  “It is more important to kill bad bills than to pass good ones,” Coolidge wrote at one time, and he followed his own rule. 

But Coolidge also had other, less direct, methods of doing his squelching, of protecting the private sector, of killing laws he thought might hurt the economy, and here his knowledge of politics from the years in Northampton, in the Massachusetts state legislature, as governor of Massachusetts, and as vice president, of course, helped him tactically.  He was that rare thing: a skilled politician who uses his skill to contain and curtail government rather than expand it. 

The writer Walter Lippmann captured this best, I think.  Here’s what he said—not totally admiringly but still wonderfully—about the Coolidge White House and the way it handled legislation:

The White House is extremely sensitive to the first symptoms of any desire on the part of Congress or of the executive departments to do something.  The skill with which Mr. Coolidge applies a wet blanket is technically marvelous….  There has never been Mr. Coolidge’s equal in the art of deflating interest.  The naïve statesman…imagines that it is desirable to interest the people in their government…that indignation at evil is useful….  Mr. Coolidge is more sophisticated.  He has discovered the value of diverting attention from the government and with an exquisite subtlety that amounts to genius, he has used dullness and boredom as political devices….

Another Coolidge rule for keeping government quiet, or consistent, or out of the way: in a crisis, follow the same policy you followed in a non-crisis. This comes especially clear in the case of the Katrina that they had, the Katrina of their day, the flood of the Mississippi in 1927.  That was a dramatic flood, walls of water twenty, even fifty, feet high.  Hundreds of thousands displaced.  Coolidge thought there was a role for the executive branch.  Maybe to help the Red Cross in its work.  Maybe to coordinate.  Maybe to supplement funds, following the private sector.  He sent Herbert Hoover, his commerce secretary, down to do that coordinating.  Hoover was the Flood Czar.  But Coolidge didn’t go down himself.  The president did not go down to the flood.  He took time to make the reasoning for that explicit.  In April 1927 he issued a proclamation.  He even put it on Red Cross stationery: 

The Government is giving such aid as lies within its powers…. But the burden of caring for the homeless rests upon the agency designated by Government charter to provide relief in disaster – the American National Red Cross.

The nonprofit sector.

Finally, in terms of economics, and it doesn’t sound economic but it is because it sustains certainty, Coolidge understood that one ought to respect the offices of government themselves.  You see that in his delegation of authority.  He did not create offices easily.  He didn’t impose new layers of advisors between him and his Cabinet.  He honored the structure, more or less, as he found it.  As he wrote:

The Secretary of State is the agency through which the president exercises his constitutional authority to deal in foreign relations.  All foreign approaches to the president are through this department.

Now we know many Secretaries of State who would be very glad to hear their president say that because today, of course, approaches to the president come through the National Security Advisor, the biggest campaign donor, you name it. Coolidge, however, tried to honor his offices, which was special.

The most dramatic expression of this Coolidge respect for office and law, and therefore economic continuity in the twenties, was not to seek reelection.  Often that decision is presented as puzzling due to his popularity.  We can’t imagine a pollster saying to a president incumbent today, “oh, by our numbers you’re a shoe-in for a second term but you shouldn’t run because it would hurt the presidency if you had a second term.”  We don’t say that.  But Coolidge did decline with an explanation that could have been written by Lord Acton or George Washington:

It is difficult for men in high office to avoid the malady of self-delusion.  They are always surrounded by worshippers.  They are constantly…assured of their own greatness. 

So, he concluded:

The chances of having wise and faithful public service are increased by a change in the presidential office after a moderate length of time.

What’s behind all this, the philosophy behind the philosophy?  Natural humility.  An innate respect for freedom.  Some observers have typed Coolidge as a classical liberal.  A perfect classical liberal abhors tariffs and immigration restrictions.  Coolidge, through his party, endorsed both.  Therefore, he was not a perfect classical liberal.  But he was a pretty good liberal practitioner in the classical sense.  What he did yielded more liberty. 

In Coolidge you also see an awareness that religion is a part of a man’s life and a part of commerce that may even be a countervailing force against government.  That’s not part of our modern way of talking about government.  Our usual modern interpretation is that religion can threaten government’s independence.  In that period they saw that it could also be backwards.  Sometimes government can be a threat to religion.  Sometimes government needs religious politicians because they are humble.  The president believed that there were some areas that were spiritual where government’s hand can’t reach, and sometimes the spiritual came before the government.  When people speak of that line, “the business of America is business,” or “the chief business of America is business,” so often quoted of Coolidge, they are giving an incomplete quote.  Coolidge didn’t just say the business of America is business, he said right after that, in the same speech, “the ideal of America is idealism.”

The attitude of the importance of religion I see as economic.  When he was naming, honoring, a statue in October 1924 Coolidge said,

The government of a country never gets ahead of the religion of a country.  There is no way by which we can substitute the authority of law for the virtue of man.

All of these policies and views of Coolidge contributed to making that astounding decade, the twenties.  How come we don’t know more about this?  What’s the reason for our amnesia? Partly this was because some of Coolidge’s peers played down his achievement and overlooked it, and we followed them, but there are two other factors to mention today.

One is the odd way we think about presidents.  Here we are in the Kennedy Library.  Americans are presidentialists.  We compare them, sort of like star athletes.  We pick our player, then we’re fiercely loyal and we do anything, including stretch logic, to defend our player’s reputation. 

The president many Americans pick as their player, their star, is Franklin Roosevelt.  A big part of Roosevelt’s record is his heroism during the economic depression in the 1930s.  But next to Coolidge’s economic record, Roosevelt’s economic record is not so good.  So to spare the New Deal this questionable comparison, we tend to conveniently forget the twenties, or we make the twenties look bad.  This diminishing of the twenties in order to make the thirties policy look better is evident in the Great Gatsby stereotype.  If the twenties were all fake and bubbles and champagne then the thirties were more real, or so goes the strange logic.

Why else don’t we know about Coolidge?  This is a subtle reason, but worth mention.  Our economic language is not his.  He did talk as a classical liberal.  When we talk about econ today we talk Keynesianism, or related dialects.  Keynesianism is a post-war doctrine, a command and control doctrine, in which the business cycle is managed, hour-by-hour, by someone very smart or a team up top.  Therefore, in turn, Keynesianism tends to like presidential activism, activism at the Fed, and so on.  Keynesianism also mandates stimuli in downturns, fiscal or monetary.  Keynesianism says you have to pick your poison, unemployment or inflation.  You always have to live with one of them.  Keynsianism says a recession becomes a depression without a stimulus.  Some Keynesians tend to like progressive taxes because they promote fairness, they say, and believe that overall more fairness leads to prosperity. 

But Keynesianism does not explain, can’t account for, the 1920s very well.  In the recession of the early twenties, before Coolidge was president, government shrank and the Fed tightened, raising the discount rate.  Yet we came out of the recession.  Some count two mild recessions after that before 1929. during those Coolidge didn’t supply a lot of government multiplier projects and yet his economy grew. There was neither unemployment nor inflation in the 1920s.  In that sense it is the inverse of the terrible Seventies, when we had both.

Our Keynesian models don’t really explain the Twenties very well, so we hop over those years.  Given a choice between Keynesianism and the twenties, most historians, most writers, opt for Keynesianism, and Coolidge gets left out.  And this is a shame because there are six Coolidge rules that might be useful to politicians of both parties now.

The first is that rule of civility.  Because Coolidge was always civil, he could gain cooperation from those with different political beliefs.  I know other speakers today will delve into that further.

The second take-away is that commerce on the small level, property rights, do matter.  When you change a contract it does matter.  It scares markets.  It scares the person who’s going to write the next contract if the first contract is abrogated.

Third, budget balancing, the federal budget, this is such an important one now, must be the priority.   The confidence Americans derived in the twenties was a confidence in the state of the government household.  This wasn’t just consumer confidence. Implicit is the idea that it’s ok to limit Washington.  If the government is smaller, more predictable, and more consistent, then the economy finds a kind of confidence that is, again, different from that plain old consumer confidence you hear about on news radio.


The fourth important lesson from Coolidge is that you can cut taxes while you balance the budget.  You can do that.  That’s relevant now, too.

The fifth is that there is a coherent alternative to Keynesian economics, and even to monetarism, or supply-side-ism, other isms that in whose terms we do our analysis today.  It is classical liberalism, and we might want to think about that.  Not liberal like on television, but the old kind from the Whigs.

The sixth is that it is possible to recover from a great economic disruption, like we’ve had.  That is what they showed us.

Refraining, squelching, cutting, believing.  All of Coolidge’s knowledge can help us in our policy setting today.  But it will only do so if we first train our ears to hear what he says.

Thank you very much.