USA 1919-42 (The Bust (The massive collapse of share prices on Wall…
massive collapse of share prices on Wall Street
in October 1929 has often been seen as one of the main causes of the Depression. It certainly had an impact on the crisis which followed. The terrifying fall in share prices dealt a massive blow to American business confidence. Thousands of shareholders were ruined, businesses collapsed and bankruptcies reached record levels. It would be years before investors recovered confidence in American economic growth.
However, it can also be argued that the Crash on Wall Street was more of a symptom, than an actual cause of the Depression. Other factors also contributed to the Depression.
The boom of the 1920s was based on
People borrowed huge sums of money, expecting to repay it easily, because they would continue to earn good wages. When the Stock Exchange collapse came, they were unable to pay their debts and the consumer boom came to a dramatic end. The fall in demand for goods led to huge lay-offs from factories. The number of people unemployed and without incomes increased rapidly.
During the 1920s huge numbers of banks had opened in response to the demand for hire purchase credit. Because of the laissez faire policies of the government, the reliability of these banks was never checked. The banks happily loaned out huge amounts of their investors' cash, expecting to make big profits. When the crash occurred,
panic-stricken investors demanded their money back.
Many banks lacked resources to fulfil these obligations and as a result large numbers of banks collapsed, adding to the economic crisis.
Towards the end of the 1920s the boom times were coming to an end anyway. People had bought what they needed. The American market had become saturated with consumer goods.
As confidence slipped and consumers began to try and save money, sales figures went down.
The economic crisis worsened.
Foreign countries had set up tariff barriers against imports from the USA, in response to similar policies from the US government. As a result,
it was virtually impossible for the USA to increase exports overseas
, leading to further falls in production and increased unemployment.
Eventually, there were too many goods being made and not enough people to buy them.
Too much speculation on the stock market - the middle class had a lot to lose and they had spent a lot on what amounted to pieces of paper.
America had lent huge sums of money to European countries. When the stock market collapsed, they suddenly recalled those loans. This had a devastating impact on the European economy.
The Boom -
an economic state of growth with rising profits and full employment
– During WWI the USA had made a lot of money through loans to Europe and by selling weapons and exporting food to European countries.
the government put a
tax on foreign goods
that entered the USA so that they would be more expensive than domestic products. Meaning more Goods were produced and sold inside the USA
- the ability to buy goods on credit. Because times were good, people were not worried about having to keep up payments. Hire purchase allowed many more people to purchase items such as motorcars, radios, refrigerators and cookers
goods could be produced in greater numbers and at much lower prices,
more people were able to afford them. This led to huge increases in the sales of products such as cars, refrigerators, radios and cookers.
Republican Presidents were in office from 1921 to 1933. They followed a policy of
meaning that the government interfered as little as possible in the running of the economy. Instead, they believed that business should get on with the process of creating wealth. The government helped in this by keeping taxes as low as possible. This had the dual purpose of allowing businesses to invest more money to expand their operations and giving consumers more money in their pockets to keep spending.
the 1920s was a time of Confidence.
America had never been so wealthy and most Americans saw no reason why the boom should not continue for a long time to come.
farm production increased dramatically.
This resulted in lower prices for their goods. At the same time, after the war, agricultural output in Europe recovered and the demand for American exports fell steeply. As a result,
American farmers' incomes were drastically reduced and they fell into debt.
The drastic drop
caused an overproduction of goods and therefore a surplus.
Due to new mass production methods,
Industries such as coal and shipbuilding were producing a huge amount of goods. Combined with a fall in overseas demand for their goods,
this led to over-production, lower prices and, as a result, a fall in wages for workers.
For the most part,
black and immigrant workers missed out on the prosperity
that had benefited other Americans. In industry and business, these ethnic minorities tended to be paid lower wages, live in the worst conditions and were usually the last to be hired for jobs and the first to be fired.
The economic boom affected society. Jobs were easy to find and were better paid than before. There was a clear link between prosperity and social change. For example, as middle-class women became better off they enjoyed greater social freedom - they wore make-up, shorter skirts and smoked in public.
Above all, the motor industry (automobiles) grew rapidly. As the cars poured off the production lines there was a need for more rubber to make tyres, glass for windscreens and leather for seats. The man behind the rise of the motor industry was Henry Ford.
The New Deal
Roosevelt had three basic aims which directed his actions:
Help the victims of the Depression.
Millions of ordinary Americans faced unemployment, hunger, and poverty. Roosevelt was determined to help them.
Encourage economic recovery.
The Depression was a disaster for America. Roosevelt knew that he had to take action to encourage recovery, to get the nation back to work.
Reform the economic system.
The whole economic system would have to be altered so that there would never again be a Depression as bad as the 1930s.
The American Depression years
After the calamitous Wall Street Crash in 1929,
America plunged into a severe economic crisis.
The 1930s would come to be referred to as the Great Depression.
Industries and businesses faced low demand for their products
as people tried to save what little money they had. Banks collapsed as loan repayments went unpaid and unemployment reached unprecedented levels. All over America people were living in poverty.
The laissez-faire politics of the Republican Party that had helped create the economic boom of the 1920s no longer seemed relevant. In 1932, the American people elected the Democrat, Franklin D. Roosevelt, because he promised to tackle America's many problems.
The "New Deal" has become the accepted name for the policies followed by the Roosevelt administrations during the 1930s.
Following a landslide election victory, Roosevelt faced the enormous task of restoring confidence in a shattered economy.
The New Deal
ederal Emergency Relief Administration (FERA).
This helped the poor in a number of basic ways, such as giving clothing grants and setting up soup kitchens for the poor.
Agricultural Adjustment Act (AAA). This tried to help farmers by controlling farm production and stabilising prices. It was an attempt to end the over-production and falling agricultural prices that had crippled American farmers.
National Recovery Administration (NRA). This tried to help industry and factory workers by increasing wages and improving hours and conditions.
Public Works Administration (PWA). This created jobs by paying unemployed people to build schools, bridges and dams. This was replaced by the Works Progress Administration in 1935.
Civilian Conservation Corps (CCC). Similar to the PWA, this department provided jobs to large numbers of young men in conservation schemes in the countryside.
Tennessee Valley Authority (TVA). This scheme brought hydro-electric power to seven states in the Tennessee Valley, one of the worst affected areas of the country. Dams and power-plants were built, creating many jobs.
Did the New Deal work?
The numbers out of work fell steadily after Roosevelt took over - from 14 million in 1933 to under 8 million by 1937. Clearly, the New Deal, through the work of the "Alphabet" agencies,
did help restore confidence and help alleviate poverty
However, in 1938 unemployment increased again to more than 10 million, after Roosevelt reduced government spending. It only began to fall steeply again in 1939 when the USA began to build up its armaments in case of war.
This led to huge increases in jobs in industry.
In its efforts to help the poor and the destitute, the New Deal had many successes.
The many relief schemes provided jobs and support for millions of people
. The help itself may have been fairly basic, but, at least the government was now taking responsibility for the welfare of US citizens. The days of laissez-faire were gone.
Under the New Deal,
the country gained from public works projects -
dams, roads, airfields, schools, bridges, reforestation schemes, and similar projects. These brought lasting benefits to local communities.
American banks were regulated and properly vetted.
This helped restore public confidence in them and helped place them on a more secure and stable footing - ready to support steady and sustained economic growth.
But when it came to recovery, the New Deal's performance lagged. It was certainly successful in both short-term relief, and in implementing long-term structural reform. However, as Roosevelt's political enemies fought him,
the New Deal failed to end the Great Depression.
Roosevelt restored confidence in the American people.
Millions of people were given work in government projects.
A lot of valuable work was carried out by the in building schools, roads and hospitals.
Roosevelt rescued the banking system from collapse and saved capitalism.
There was a new recession - the 'Roosevelt recession' in 1937.
Unemployment was not conquered by the New Deal.
Many of the jobs created by the New Deal were only temporary.
The New Deal was the most costly government programme in American History and some of its projects could be accused of wasting money.