a rate one fourth as fast as productivity increased. As production costsfell quickly, wages rose slowly, and prices remained constant, the bulk benefit of theincreased productivity went into corporate profits. In fact, from 1923-1929 corporateprofits rose 62% and dividends rose 65%.The federal government also contributed to the growing gap between the rich andmiddle-class. Calvin Coolidge's administration (and the conservative-controlledgovernment) favored business, and as a result the wealthy who invested in thesebusinesses. An example of legislation to this purpose is the Revenue Act of 1926, signedby President Coolidge on February 26, 1926, which reduced federal income andinheritance taxes dramatically. Andrew Mellon, Coolidge's Secretary of the Treasury, wasthe main force behind these and other tax cuts throughout the 1920's. In effect, he wasable to lower federal taxes such that a man with a million-dollar annual income had hisfederal taxes reduced from $600,000 to $200,000. Even the Supreme Court played a rolein expanding the gap between the socioeconomic classes. In the 1923 case Adkins v.Children's Hospital, the Supreme Court ruled minimum-wage legislation unconstitutional.The large and growing disparity of wealth between the well-to-do and themiddle-income citizens made the U.S. economy unstable. For an economy to functionproperly, total demand must equal total supply. In an economy with such disparatedistribution of income it is not assured that demand will always equal supply. Essentiallywhat happened in the 1920's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whoseneeds were not satiated could not afford more, whereas the wealthy were satiated byspending only a small portion of their income. A 1932 article in Current History articulatesthe problems of this maldistribution of wealth.President Calvin Coolidge had said during the...
