The Great Depression (1920–1940): The Politics of Conservatism: 1920–1928

The Dawes Plan

With business burgeoning at home, Coolidge focused on foreign policy. At the time, Germany was suffering from extreme hyperinflation in the aftermath of World War I due to unrealistic French and British demands for war reparations. In 1924, Coolidge and Vice President Charles Dawes drafted the Dawes Plan to assist Germany by setting up a new timetable for its reparations payments.

Under the plan, U.S. banks issued long-term loans to the German government; France and Britain then used the German reparations to pay back the billions of dollars they themselves had borrowed from the United States during the war. For a time, the system worked: Germany had a little breathing room, while France and England were able to maintain their credit by paying off war debts to Washington. Meanwhile, American bankers reaped huge profits from the plan.

The U.S. stock market crash of 1929 (see The Depression Begins, p. 5), however, changed everything. Suddenly, the United States needed the money it was being paid as badly as the other countries involved in the plan, and U.S. banks refused to issue any more private loans to Germany. Germany, therefore, could not pay France and Britain, who then had to default on their loans to the United States. Neither American investors nor the U.S. government ever saw the money again, and the United States came away from the Dawes Plan looking like greedy backstabbers in the eyes of Europe.

The Kellogg-Briand Pact

In 1928, President Coolidge and Secretary of State Frank B. Kellogg touted the signing of the multinational Kellogg-Briand Pact, a rather naive agreement that “outlawed” war in an attempt to ensure that World War I was the “war to end all wars.” The pact specified virtually no means of enforcement and was thus effectively useless. More than anything, it was a reflection of American public sentiment during the peak of prosperity in the late 1920s: Americans began to feel that if another world war erupted, the United States should not have a part in it. Many Americans wanted a return to the neutrality and isolationism that George Washington originally advocated, leaving Europe to solve its own problems.