Depression and The New Deal

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DEPRESSION AND THE NEW DEAL

Introduction

 First World War ended on 11th November 1918. Over next 10 years the USA became 1 of the strongest economic powers in the world. War had a great effect on the USA, economy improved as the need for food, raw materials and manufactured goods of all kinds increased. European countries (including Britain) had their economies destroyed in the war hence were unable to produce enough goods to supply their countries. USA made loans of $10.2 billion during the war to its allies and 90% of this was used, by European countries, to buy US goods. By 1918, US farmers sent triple the amount of produce to Europe than they did in 1914.

 USA had three Presidents from 1921 to 1933- Harding (1921-23), Coolidge (1923-29) and Hoover (1929-33). Under Harding and Coolidge, USA enjoyed a period of prosperity. Most Republicans believed governments should not involve itself in the daily economic life. They thought business people should be left alone to make decisions hence businesses can achieve high profits, employment opportunities and good wages. This policy was named “laissez-faire” which literally meant to let people do as they chose in French. The only role of the government should be to help businesses when they wanted it.  

 The end of the war was described by the Republican Party as a “return to normality” that is peace and prosperity. In 1922, the US government introduced the Fordney-McCumber Tariff (a tariff/tax made on goods entering the USA to be sold). The tariff increased the price of foreign goods in the US hence it persuaded the public to buy US (home produced) goods.

 Profits increased, wages increased. Between 1923 and 1929, the average wage increased by 8%, that was enough for some to purchase the new consumer luxuries that were being advertised through the media.

An industrial revolution

 In the 1920s, the use of electric power allowed the industry to develop. In 1912, only 16% of the US population lived in houses with electricity however the number rose to 63% in 1927. This increase allowed the sales of electrical products such as ovens, washing machines and radios to increase. The 1920s also boosted the gas (four times as much) and oil (twice as much) figures.

 The Ford Model T has an immense effect on US life and industries. Henry Ford had invented a system of mass production through a production line. Large numbers of this vehicle could be created by a mechanical process. The 20bhp Model T was nicknamed the “Tin Lizzie”. The Model T was launched in 1908-9 so by 1928 15 million of these vehicles had been sold.  

 Automobile industry used vast amounts of steel, glass, wood, petrol, rubber and leather hence it provided 5 million people jobs. Promoted highway construction and travel – led to demand for hotels and restaurants in “remote and out-of-way places. Production of automobiles rose from 1.9 million (1920) to 4.5 million (1929) mainly manufactured by the three giant firms – Ford, Chrysler and General Motors. Car manufacturing industry changed the way of purchasing expensive goods with the new Hire Purchase. Hire purchase meant that it was possible to buy an expensive item – a deposit was put down and the remaining balance was paid for over several instalments, over time. By 1928, 85% of all furniture and 75% of all washing machines and refrigerators were bought on hire purchase. This was fine provided there were many jobs.  

 Life was enjoyable for those Americans who had jobs. Unemployment was low and average wages increased. This allowed workers to participate in the consumer boom. By 1929, there were over 26 million cars and 20 million telephones. There were over 10 million radios by the end of the decade with food sales tripling and clothing quadrupling.

       

Poverty in the midst of plenty

 Many people did not share the country’s increasing wealth hence they were overlooked as they struggled to make ends meet. The people that suffered most existed in urban ghettos – squalid areas which were separated from the rich cities, where people from minority groups tended to live and rural areas. Poverty also lived among unskilled immigrants in large cities and African-Americans in the Deep South/North. They were treated as second class citizens – low paid, lived in poor housing and had no food. In 1929, the average yearly wage in the North-East was $881 but in the South-East it was $365.

 US farmers suffered during the 1920s. During WW1, farmers purchased more land to meet the government’s requirement for food hence after 1920, European industries and economies began to recover the damage they faced in the war. The European countries began to produce their own food, US exports decreased and prices fell. May of these farmers bought land on credit in order to meet the demand so as prices fell; they found it difficult to pay their mortgage. Farmers could not always sell their produce easily (although prices dropped), this added more mortgage problems – bankruptcies. By 1924, 600,000 farmers experienced bankruptcy. There are other factors which brought a decrease in farmer’s incomes –

  • People ate less in the 1920s than those years before the war.
  • Demand for cotton and wool fell because of the competition from synthetic fibres.
  • ½ the market for barley and much of the grape market disappeared overnight when prohibition (ban on the sale of alcohol) was introduced in 1919.

The income of the farm labourer, even in the 1920s, was generally half the income of a coal miner and not much more than ¼ of a clerical worker’s.

 When Hoover won the 1928 Presidential Election, the US economy was booming. Hoover felt that the boom could last indefinitely and many people agreed with him. There was plenty of credit and people continued to purchase goods. Many people were making money by investing in land deals particularly in Florida. Speculating the Stock Exchange seemed too easy – “even shoe shine boys could make a fortune”. There seemed to be many chances of making money hence many Americans were happy to follow the “American Dream”. One view of the 1920s was that greed motivated people and that made people more selfish and money-orientated.

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Causes and Consequences of the Wall Street Crash

The share boom

 During the 1920s, many people invested in shares hence it became a regular feature in the daily life of the average citizen. Number of shares bought and sold rose from 451 million in 1926 to 1.1 billion in 1929. In the same 3 years, the average top rice for the 25 leading companies rose from $186 to $469 per share. Many ordinary people made decent profits from these shares.

 The increase in the stock market relied on confidence – confidence that the US industry would continue ...

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