Another group of people who seemed to not live the American way of life were the farmers. During the war, European countries had brought wheat from America and the farmers produced a lot because there was more demand for it. The European countries began to rebuild after the war and therefore European countries did not buy American wheat anymore. Demand of crops and wheat had dropped because of Europe trying to rebuild. Many farmers had used new machines and fertilisers on the soil and had over produced, exhausted and created a “dust bowl” of the soil. Since there was so much food produced by farmers, there was less demand and the price of food fell therefore farmers lost a lot of money. In 1920, after the First World War, a bushel of wheat fell from $2.50 to $1 a bushel.
Many farmers did own their own land and did not make enough money to pay their rent. They also used credit to mortgage their land so that they could survive. These farmers were known as “sharecroppers” and could not afford to buy the fertilisers and machinery to repair the soil. Fertilisers and farming machines were in such demand that these products were very expensive which made it very hard for many farmers to afford and resulted them to loose a lot of money. Many of the farmers were becoming bankrupt.
America’s society in the 1920’s was more confident to spend. Credit, Hollywood and advertisement influenced the growth of the industry in the U.S.A. There was more demand of products, which meant more production. More production led to more money, which was spent, and the more money that was spent lead to more employment. In addition, ideas and attitudes towards women had changed allow them to have more freedom and be more independent. The citizens of America were also consuming so much more and buying goods on credit. America was making a huge profit and the citizens of the country were enjoying themselves but some of the citizens were poor and had lost a lot of money after the First World War like the farmers. The black immigrants faced discrimination and were illiterate which allowed them to get the worst jobs, low wages and horrible living conditions.
During the boom period, America was doing very well economically. The American public were consuming a lot and were also building America. Since more items such as cars, radios and other household appliances were being consumed; it only felt right if industry could expand for this demand. So during the boom the industry started to expand.
Also, after the First World War in 1918, America took no notice of the political events that took place in Europe. They were too interested in expanding their own economy. In 1918, America did seem to be doing very well economically and they increased profits, as they had never done before. America was already very wealthy before the First World War in 1913; America produced around 32% of the world’s goods, more than any other country. America was a country, which was very rich in minerals and natural resources such as coal, iron, oil and forests and fertile land.
Here is a table showing the production of steel in America compared to the rest of the world’s wealthy countries in 1913 and in 1920.
Here you can see that USA is the only country that produced the most amount of steel in 1913 before World War I as well as in 1920, after World War I.
This boom that occurred in 1922 was helped by America joining the First World War later in 1917. This meant that three years during the First World War, America was neutral and could sell ammunitions and weapons to other countries as well as help them with economical problems by lending loans. The selling of ammunitions to Europe helped America’s chemical industry to expand and increase profits, leading it to the boom.
This helped America prepare for its boom whereas the other countries such as Germany lost out in business because of their involvement in the First World War. Also, after the war Europe had to rebuild itself whereas since America was not attacked during the war, it did not have to rebuild itself. The First World War also boosted America’s farming industry which. Since there war an outbreak f war in Europe, there were food shortages. Therefore Europe had to rely on America to provide them with crops and food supplies. Demand for crops from Europe also helped the chemicals industry in America to expand because so much fertiliser was needed to grow crops.
Henry Ford, who was the owner of the car manufacture, had a motto of making affordable cars so that everyone could afford one. His idea of an “assembly line”, to produce his “Model T” car allowed there to be many jobs because instead of there being specially skilled craftsmen who would spend ages on making one car, there were normal people who would all stand in one line and put one piece on the car as the car went along a rotating belt.
In 1908, his Model T car had cost $850 but during the period of the boom the same model car cost $290 to buy - drop of nearly two thirds of its original price. This encouraged more and more families to buy a car and became common to be driving a car on the streets of America. As the car, industry made profits so did the other companies such as oil, coal and the chemical industry. The demand for cars also increased the demand for steel and oil therefore the steel industry (which was run by Carneqie) and the oil industry (which was run by Rockerfella) increased their profits. The chemical industry also seemed to be doing well.
A form of payment was also introduced called “Hire purchase” also known as credit or a loan. This meant that Americans could “buy now and pay later”. If you had a stable job, you were offered credit where you could buy something now but pay off the money over some time (with a rate of interest on top) in instalments. This led the American industry to rise but at the same time, many people were in debt. People were buying goods with the money that they did not have. Demand for household objects started to increase America’s profits with the majority of the people buying on credit. America had made seven years worth of money just from the motor vehicle industry, the chemical industry and the electricity industry.
As I have already stated, the boom started when the American public wanted more products. Before the citizens of America, would save for the “rainy days”, but now everyone was encouraged to spend more money. Things such as adverts and Hollywood would persuade and encourage the public of America to buy products that were not even essential to everyday life. Adverts were placed on the billboards, magazines, newspapers and radios so that a large number of audiences would see or hear these adverts, and are encouraged to buy more items.
Adverts, which encouraged more people to buy, increased demand, which allowed companies to invest more money. Since all businesses were booming, companies invested a huge amount of money to make more profits. A lot the working class of America went to the cinema on a regular basis. They now had cars so that families could travel to the cinemas. Going to the cinema, became a hobby of the American people in the 1920’s.
An average of a 100,000,000 tickets were being sold per week. Hollywood also began to rise worldwide and actors such as Charlie Chaplin established that anyone in America could become rich. Adverts were placed in the intermissions in films and companies would sponsor programmes so that more people where influenced to buy more. By the early twenties, around 500 different face pacts for women were available as well as 2500 different types of perfumes for women were also available.
In 1919, 60 million radios were sold and by 1928, there was such a demand that 800 million radios were sold. More demand for products allowed more production, which also made items cheaper, and at a price that was affordable for everyone which at the same time provided more employment. Here is another table showing the economical situation of America in 1922 at the start of the boom until later on in 1928.
As you can see from this table, there was huge increase in the products made in 1928 as well as more money that was earned per head of a household.
An increase in the car industry allowed other companies such as the tin, steel, rubber and oil companies also to make more. In 1919, 1.9 million cars were sold. In 1929, the number increased to 5.6 million cars to be sold. This allowed the steel and tin industry to rise in 11%, the oil and petrol industry to rise by 7 billion gallons of petrol and oil, 50% in the glass industry rose and the upholstery industry rose by 65%. Buying on credit also allowed more people to be more confident to buy more. The policy was to “buy now and pay later”. This allowed people to buy on instalments even if they did not have all the money there and then.
In addition, the Fordney McCumber Act imposed high taxes on goods that were not made in America and were coming into the USA from abroad. This allowed American goods to become cheaper than foreign goods so that the public only brought American goods allowing the industry to increase more. As I have described in the first question the ideas and attitudes changed towards women. Women were also employed and therefore were able to spend their own money on the latest fashion, clothes and hair and make up.
This whole system worked in a cycle. This cycle was called “the cycle of prosperity”. This cycle worked like this. People made more money; this allowed them to get credit because of their secure job and money. The more money and credit they had, the more they wanted because of the adverts in radios and newspapers and Hollywood, which influenced them to buy much more than they needed. The more the public of America consumed, the more products that were sold. This increased demand which allowed more people to be employed for more goods to be produced. The more the people worked, the more they had to spend. The more they spent the more they increased demand and profit. Here is a diagram of this cycle.
As you can see, this is a continuous cycle that is repeating itself. This cycle is going into an upward spiral. If anyone of these people stopped consuming or making then all of the cycle would come to an end meaning America would fall in its economy. For example, if people did not buy, there would be no adverts which would mean no demand for items which would decrease manufacturing of items which would all in the end and lead to less employment meaning less money for people. This cycle of prosperity was like an upward spiral that kept going on making more money for America. The more it spiralled upwards the more the companies invested in it allowing the industry to grow more.
If any point in the cycle of prosperity stopped, the whole of America’s economy would, stop and decline which would mean the cycle to spiral downwards. If America’s economy declined, this would result to the whole worlds economy to fall because America provided many goods for the rest of the world.
This cycle spiralled upwards during the early twenties in America. This allowed the country to be the wealthiest country in the world but what made the boom and upward spiral in the first place? As I have mentioned before, adverts, which were used in newspapers and radios as well as Hollywood, encouraged more people to buy which lead the cycle of prosperity to spiral upwards.
Another point was the Republican governments policy of “Lassiez faire” which meant leave alone and let it be. This term was used so that the government would not interfere in the lives of everyday people. They thought that business of America was to run by the business experts and the government would deal with the political factors of America. The business was all run by entrepreneurs, which lead the country to increase its industry.
This allowed the wages of the American public to be high and the taxes to be low. An example of this was Henry Ford’s idea of the “assembly line” which allowed illiterate people to gain employment, which made more cars for less money. His company could afford to sell cars at a cheap price for the public. Another term that the Republican Government concentrated on was “Rugged Individualism” which meant that anyone could become a millionaire in America. All you had to do was work hard and make more money and you could become rich very quickly.
This upward spiral seemed great for the economy of America for the short term but in the long term, if anyone of the points in the cycle of prosperity collapsed so would the whole economy of America. The cycle would spiral downwards creating poverty in America. Huge companies had invested in the boom period but if this period ended, there would be a period of recession allowing no investments and no money to be made. Other countries such as Europe would steal Americas business. Also, now that America was charging tax to any goods coming into America other countries starting taxing American goods so that they would be more expensive to buy in foreign countries. This would also allow there to be less demand of America goods in the rest of the world, cutting down on more business, which would mean the cycle spiralling downwards.
During 1917, the ‘Anti Saloon League’ and the ‘Women’s Christian Temperance Union’ had gained a lot of support in America. These groups believed that alcohol was responsible for domestic violence and was evil. By the time that USA went to war, these two groups had already banned alcohol in 18 states. During the First World War, many people had considered it to disloyal to use the wheat grain that was needed to make alcohol. Also, the war against Germany helped the ‘Anti Saloon League ‘ to make all states ban alcohol. Since the majority of the brewers were of German origins, the League claimed that the people who drank alcohol were traitors of America.
By 1919, 75% of the Congress government USA adjusted this law of making, selling or moving alcoholic drinks. In January 1920, the law banning alcohol was passed. It stated, “… The manufacture, sale or transportation of intoxicating liquors within ………the United States …… for beverage purposes is hereby prohibited.” This law was known as the Volstead Act, which defined that ‘intoxicating liquor’, as any liquid containing over half percent of alcohol. This was also known as Prohibition.
However, the major problem with prohibition was that it was difficult to enforce. As soon as this law was introduced in the 1920’s, there was a quick increase of American crime rate mainly because of prohibition. People began to smuggle alcohol over the Canadian border. Illegal distilleries operated and their drinks were sold in illegal bars called ‘speakeasies’ which were opened in cellars and back rooms of homes. They had names such as ‘dizzy club’ and ‘Sligo Slashers’ where drinkers would give passwords or a secret knock on the door code to be let into a speakeasy.
The criminal gangs and mobs that ran speakeasies were called ‘bootleggers’ because liquor was usually hidden in their boots so that it can be smuggled. ‘Moonshine and ‘hooch’ which were both a common name for a sprit drunk, which was secretly made in home made stills. Alcohol was in such demand that even alcohol made out of rubbish was sold to make a profit even though it was sometimes poisonous.
Prohibition also increased underage drinking as well as women drinking. Prohibition also increased crime and more illegal liquor trade. There were 32,000 speakeasies in New York alone whereas before the rule of prohibition there were only 15,000 saloons, an increase of 17,000 more after the Volstead Act. The most violent and corrupt city in America was Chicago. A gangster called Al “Scarface” Capone controlled it. By 1927, Al Capone was earning around $60,000,000 a year from bootlegging, $25, 000,000 a year from gambling (which was also illegal in many states) and $10,000,000 a year from other ‘rackets’.
Rackets was basic ‘protection money’ which was played by businessmen and shopkeepers so that if there business or shop is vandalised or attacked by any other gang, they will be supported by Al Capone’s ‘education committee’. Al Capone had an army of 700 men who he had under his command. They were always armed with machine guns such as the Thompson sub-machine guns and the sawn off shotguns. This army was known as the ‘Chicago typewriters’.
Bootlegging which made many gangsters a lot of money also caused rivalry between gangs. Gang warfare broke out and there were so many shootings taking place on the streets of America that it was common. The most horrible incident was the ‘St. Valentines Day Massacre’, which took place on the 14th of February 1929 involving Al Capone. This happened when a group of six leading members of the ‘Bugs Moran Gang’ where executed in a garage by gangsters dressed as policemen.
While gangsters ruled the streets of America, the normal citizens of America enjoyed drinking alcohol. When prohibition was introduced, it took an immediate effect on the American society. The government also introduced a new law, which explained exactly what an alcoholic drink was. Any form of liquid containing more than half per cent of alcohol was defined as an alcoholic drink. Alcohol free drinks were also introduced which were called ‘near beer’ during the period of prohibition to decrease the number of people drinking alcohol. The majority of the people in America still wanted to drink alcohol. Therefore, gangsters set up speakeasies and influenced more of alcohol consumption. Within a short period, speakeasies became very popular to the public of America.
Cocktails developed and became very popular to drink in the speakeasies. This allowed the gangsters to make more money from bootlegging. They smuggled alcohol from other countries such as Canada since it was nearby. Men and women who went to these speakeasies tended to dress up more to look more glamorous. During the period of prohibition, the boom was also taking place in America. People lived a life of glamour and were encouraged to spend more this led to the long term glamorisation of alcohol as well as he long term growth of criminal activity.
The public went to the cinema on a regular basis and because it was so cheap to go to, the majority of the public went to watch movies every week. Soon Hollywood started showing more of the lives of gangsters. Since gangsters made a huge profit from speakeasies and various other activities, they could afford to dress expensively and look more glamorously. Hollywood started to show this all of this and encouraged more of the public to believe that drinking alcohol was great. The public believed that gangsters were cool, exciting, wild and tough. Gangsters were shown as people who were daring and broke the law by carrying out illegal activities such as drinking alcohol although not all were always a tough as they looked. According to the government, anyone who went to a speakeasy was a criminal and this made the public think that this was thrilling and more daring.
The film industry also influenced more people to drink alcohol. Speakeasies were very popular and the people who went to them felt that they were special and belonged to a special society. Alcohol such as ‘Moonshine’ and ‘hooch’ was made illegally in homemade stills. Even if alcohol tasted disgusting, (sometimes even poisonous) people still drank it because it was now a trend in America. People who went to these speakeasies tended to dress up more glamorously just as the gangsters were show in the movies even women started to drink alcohol. Before prohibition, alcohol seemed to be drunk less, but after prohibition, the drinking of alcohol increased because of the reputation of gangsters, which was shown in Hollywood. Now the public had become much more aware about alcohol than before.
Soon drinking in speakeasies became very common. People who went there enjoyed themselves by dancing and drinking in the speakeasies as well as dressing up and loosening their sexual inhibitions. Although the police force tried to control America, it was not possible to stop people from drinking alcohol. The crime rate of America seemed to be on the rise and more people where being arrested for being drunken and disorderly and for drink driving.
By 1925, in a single year, Americans drank 200,000,000 gallons of sprits, 685,000,000 gallons of malt liquor and 118,000,000 gallons of wine. In New York alone, there were 32,000 speakeasies whereas before the law of prohibition there were 15,000 saloons over 50% of an increase of what was originally there. In Philadelphia, there were 58,517 prosecutions for drink related offences in 1925. Crime rate was increasing rapidly in the mid 1920’s.
Since America was a huge country, there was not enough money to enforce the police force. With a population of 100, 000,000 America only had 4,500 prohibition agents throughout the whole of America which made it very difficult to stop alcohol being drunk and smuggled. The Canadian border was 18,700 miles long and was very difficult to police during prohibition, which lead to bootleggers smuggling more alcohol into America. Prohibition agents were only paid $30-$50 a week which was not enough during the period of the boom. As the industry was rising in profits, prohibition agents were paid less money.
Soon corruption began to grow in the police force and the government. Since the criminal gangs were in control of the selling and making of alcohol, they made a huge profit from it. Gangsters such as Al “Scarface” Capone who made $60,000,000 a year only from illegal alcohol alone, was wanted by the police and was “Public Enemy Number One”. As I have mentioned before, Al Capone had 700 men under his control that killed, threatened and intimidated people and he controlled the majority of Chicago. Some judges were threatened of these gangsters and therefore did not give the gangsters heavy punishments so that they were no in any danger by the criminal gangs. In addition, the fines for breaking the law were so small compared to the profits made by the gangsters. Gangsters earned so much more than police officers of inspectors did.
Gangsters paid prohibition agents a lot of money prohibition agents a lot of money so that they could ignore what was happening. Some judges, officers and agents were also paid a lot of money to ignore what was going on and help gangsters with their business. Soon gangsters came to control of whole suburbs of the cities and of most of the politicians who ran them. Whilst gangsters bribed most of the politicians (such as the mayor of Chicago), officers and agents, more and more crime began to increase than before. Over half the police force took bribes from Al Capone and judges and police chiefs invited him to cocktail parties and called him Al. In 1931, Al Capone was finally found guilty by the federal government of tax evasion and he was sentenced for eleven years in prison.
More people began to die from opposition in between criminal gangs. Gang warfare began to break out in the majority of the cities because of the liquor trade. Al Capone’s rivals were all killed one by one. In four years, 227 of Al Capone’s rival gangsters were “rubbed out”.
Soon the people of America began to loose faith in the police and justice system. At the same time, they were afraid of the gangsters and only supported them because they wanted to continue drinking alcohol or because they felt threatened of the gangsters. Prohibition seemed to cause more illegal crimes and activities and decreased respect for the government authority. During the late 1920’s, the Volstead Act (Prohibition) was totally ignored by the American society and Prohibition failed completely. During the early 1930’s, the Volstead Act was no longer in use in America.
Prohibition was a great idea to reduce crime and domestic violence but it was not carried out in the way it should have been. The majority of America’s crime, drink driving and drunkenness decreased and many people followed the law of Prohibition. The only problem was that there was not enough money spent by the government to impose this rule. As there were less prohibition agents (4,500) to control a country of 100,000,000 people, bootlegging began to take place and because there were not enough police to patrol the 18,700 miles border of Canada. More and more people especially in the cities were soon breaking this law of prohibition. This led to more illegal activities especially with gangsters and mobs that fought over the alcohol trade. Prohibition led to an increase in violence all over the country. The majority of the country had believed that prohibition was a good law but the only problem was the fact that no one was ready to give up drinking alcohol. During the early 1930’s, prohibition had failed and there was no rule to stop people drinking alcohol.
The beginning of the 1920’s saw America building’s its economy. As the American public consumed more items, the more the industry expanded. As more and more was made to keep up with the demand of the customers, the more competition there was between prices. Items became cheaper than before and people brought less. America’s economy looked very strong but there were many weaknesses lying beneath the economy. People thought that the boom would last forever but to their surprise it did not.
In October 1929,the American boom came to a sudden end. On the 24th of October, (also known as “black Thursday”) 13 million shares were all sold on this day. Share prices fell rapidly on this day. An example of this was the Union Cigar Company. Cigars were smoked by a lot of the public, since America was influenced by the gangsters to smoke cigars and drink alcohol it was a common product to buy. On “black Thursday”, the share price fell from $113 per share to $14 a share.
Bankers invested $40,000,000 over the weekend to prop up the share market and encourage everyone to spend more. On the following Tuesday, (28th October also known as “black Tuesday”), 16,000,000 shares were sold on this day which resulted to the loss of $10,000,000, which was twice the amount of money that was actually circulating America. America’s economy ended and Wall Street crashed down. What was the main cause of this sudden end to prosperity in America?
There were many short-term causes, which caused the Wall Street Crash. A way to make money during the 1920’s was to buy stocks and shares. Investors brought many shares, which meant that the share prices were kept up but after a while the investors sold the shares and made a good profit. During the early 1920’s, people who could not afford to buy the shares brought them on credit just like the consumer goods they brought. An investor could buy shares with a deposit of only say, 10% of the total value of the share. This was known as the “margin” and buying shares, this way was called “buying on the margin”.
People who brought shares this way were able to pay the balance of the shares by taking a loan. The majority of the country did buy shares this way. People expected the price of shares to rise so they brought more shares and the price of the shares were rising and everyone was making money. Banks lent a lot of money to the public and the stockbrokers to invest and but more shares when the price of shares increased, they would cash their shares and pay off the debts and make a lot of money out of the stocks without having the real money in the first place.
Some people even set up companies, which did not really make or do anything but because they sounded so convincing and because the share prices were rising, investors brought shares in these companies thinking they would make a profit and not knowing that no profits could be made. Still the share prices kept on increasing. In 1924, the index was 106 whereas in 1929, it rose to 542. An example of this rise is the radio company of America, in 1928, a share was worth $85 by September 1929, and a single share was worth $505. Within a few months, the share price in the radio company had increased by $420. As the share prices increased more people brought, more shares (with money they did not have in the first place), which made the share prices, rise even more.
In an article called “Everybody ought to be rich”, John Jascob claimed that by investing $15 a month, it would be possible to make $80,000 in the next twenty year. Another investor called Will Payne said that in 1929 that it had become so easy to make money on the Wall Street Stock Exchange, that it had finished and become a gamble instead. He also said that a gambler only wins if someone loses but when we all invest in shares and stocks we all win.
Since there was so many people were “buying on the margin”, banks were lending out so much money to investors. Soon people began to speculate about the long-term effects of the share prices increasing. In 1928, the large investors began to wonder and realised that business would decrease because factories were producing a lot more than that which was being sold. Warehouses were full of goods and now that everyone had the modern goods such as cars, they were common and therefore were not being sold as much as they were being sold at the beginning of the boom. More products were being made but the demand for them was less.
Soon demand would fall of products and less staff would be needed resulting to an increase in unemployment. People would not have much to spend and therefore would not buy the non- essential items and since the majority of people had most of the items, fewer goods would be sold causing a drop in the prices of shares. The large investors noticed these long-term effects and started to sell their shares. Soon the share prices began to fall and people began to panic and rumours start to spread. The small investors also started to worry about the prices of shares falling so they start to sell their shares at whatever price. The share prices only went down because everyone sold their shares because they worried about the share prices falling, which resulted to the share prices actually falling.
So on the 24th of October 1929, there was panic on Wall Street as the share prices tumbled down. On this “black Thursday”, nearly 13 million shares were sold. Many bankers tried to stop people from selling their shares and agreed to invest $40,000,000 on buying shares so that people would not sell their shares. This seemed to calm down the rumours for a few days. In addition, President Hoover tried to calm down the fears of people by this speech.
“The fundamental business of the country, that is, production
and distribution of commodities {goods}, is on a sound and prosperous basis”
President Hoover
Still investors panicked but many brought more shares on Monday the 28th October and 9 million shares were sold, but on the next day (“black Tuesday”) the stock market had collapsed totally. Huge companies such as General Electric and the Radio Corporation of America had collapsed. The Stock Exchanged had closed at 3pm on the 28th of October and by that time, 16,282,700 shares had been sold, and $10,000,000 had been lost which was twice the amount that was actually circulating America. The Wall Street Stock Exchange Market had totally crashed.
The reason why the boom came to an end (LONGTERM CAUSES) was that that banks had lent too much credit to the public. Now that the share prices had fallen, many people that had brought the shares on credit had lost a lot of money during the Wall Street crash. Many people were in debt, they had borrowed the money that they did not have in the first place which meant that they could not pay off their loans, and therefore banks went bankrupt because they had lent too much money in the first place. Over $10,000,000 was lost during the Wall Street crash, which was equivalent to twice as much money that was actually circulating the whole of America.
In addition, the share prices were only high in the first place because more and more people were investing in them. People assumed that the share prices would increase so they brought more shares and therefore the stock market did increase. People brought shares “on the margin”, and when the price of shares went up, they cashed their shares and paid back the bank loan and also made a fair amount of money without investing any of their money in the first place.
As soon as the citizens of the country started to consume less, there was less demand in products and many factories had a lot of supply. There was more supply and less demand and warehouses became full of consumer goods. Soon less staff was employed and wages started to decrease as fewer goods were being sold. The large investors started to sell here shares secretly as soon as they noticed this long – term effect.
Soon the shares began to fall and rumours began to spread. People panicked and thought the share prices would fall so they did fall because people started to cash their shares. The large investors who were worried about the long - term effects therefore sold their shares and created the short - term effects.
People were selling their shares quickly because they were worried that they would loose their money. Although the bank owners tried to prop-up the stock market, which did help more people to buy more shares. This was only for a few days, which afterwards resulted to all the shareholders to sell. On the 29th of October many people sold their shares. Around 16,000,000 shares were sold and $10,000,000 was lost which led to the Wall Street crash.
Before the Wall Street crash took place, the large investors knew that this crash would occur because they had over produced goods and less were sold. They could no longer produce the goods, which many people could, in any case, not afford to buy. The years of prosperity were finally over. Here is a quote from a twentieth centaury historian,
“By 1921 there were already signs that the American economy was slowing down. Fewer new houses were being built, and sales of motorcars declined. Industrial workers’ wages were not rising fast enough for them to buy (even on the never - never) all the consumer durables the factories could produce. American farmers had over - expanded their production of food: food prices went down, farmers’ earnings decreased - and so, inevitably, did their purchases of goods”.
Well before the boom actually started around 1920, America seemed like a wealthy country. Although America did not get attacked it because it joined the First World War later than everyone else, it did not have rebuild itself like the other countries did. Another long-term factor, which caused the end of the boom period, was that America seemed wealthy but actually, beneath it all it had 60% of the country (equivalent to 12,000,000 families) living below the poverty line. The Blacks provided cheap labour for the country but at the same time, they to were actually living and working in bad conditions.
Also, during the First World War, America's farmers had overproduced crops. During the war, these crops were sold but after the war, the prices of crops became very competitive. Fewer crops were sold during the boom time because there were lots of supply and less demand. The farmers had worn out the soil and had also created a "dust bowl" of the soil. Most farmers did not own their land and therefore were in debt. The farmers had made no money during the boom and many were in debt.
The small investors did not notice the long - term causes, kept on investing, and increased the prices of shares. They also borrowed money on credit and where in more debt because they assumed that the shares and stocks would always rise. The large investors invested much more than the small investors did and therefore they kept an eye out on the stock market and knew that the share prices would fall. They did notice that the share prices would fall and started to sell their shares, which in the end decreased the share prices and led to the Wall Street crash.
The stock market was not the only reason that caused the Wall Street crash. The government’s idea of “Lassiez faire”, adverts and Hollywood also led to the Wall Street Crash. The Republican government did not help the poor people of the country at all. They believed in "Lassiez faire" which meant leave all alone. President Hoover only handled the political issues of America and let the business men take care of the economy of America.
Also, America started to impose taxes on foreign goods, which during the boom made a lot of profit for America. The Fordney McCumber act charged any goods coming into America money, which meant that only American products were cheaper and more likely to be brought. Later European countries also started to impose taxes on American products. This meant in other countries, American goods would be more expensive to buy and therefore less would be brought. This decreased demand for American goods in other countries. This allowed more goods to be made and less to be sold.
Also, much of the country had spent money on illegal activities such as drinking alcohol and gambling. People were making a lot of money and spending it on useless and illegal activities. Less people were saving up like they used to due to President Hoovers ideas such as "Rugged individualism" and "Consumerism". These ideas encouraged the people of America to work hard, buy as much as you can and enjoy yourself. The government had spent less money on enforcing more police, which led to useless spending of money. Gangsters also made a lot of money through bootlegging. All of these illegal activities wasted money, which was made through mass consumerism. Now that fewer products were being consumed, there were less jobs but a lot of money being wasted on illegal activities. Soon the economy was coming down with people selling there shares. The boom soon ended.
Overall, the boom came to an end because of its underlying weaknesses of the fragile economy in America. So much was being made and less being consumed that it did not balance. People had had enough of wasting money and therefore brought less. Prices of items fell and were now very common. Also, there was always speculation in shares prices right from the beginning, which was always a worry for all investors. Rumours of the share prices coming down were causing panic and lack of confidence to buy products.
The large investors had always been more aware of the situation in America. Since they had brought more shares, they were more concerned about America’s economy. When they realised that there was no point in investing, they sold their shares leading to share prices falling. Also, because of insufficient buying power of the public the boom could not stay forever unless the confidence in the people was back to buy.
In addition, the government spent more time on making sure that the political issues were sorted. They had a laid back job and due to their term “Lassiez faire” they did not handle the business. This meant that the businessmen made all the decisions. When it came to selling the shares they would have made sure that they were first because they did not care about the other small shareholders. If the government had controlled the economy right from the beginning then they would have made sure that the boom did not end in the way it did.
Finally, the taxes that foreign countries had placed on their goods just like America did, made it impossible for American goods to be sold abroad. Also, after the First World War, Europe did not depend on America therefore they did not buy American products. This all led to less consumerism, which help to end the boom.
