Summary
Summary CIE A Level History Notes: The Great Crash, The Great Depression and the New Deal policies, 1920
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Part of: American option: The history of the USA, 1820–1941
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1920’s: 1920’s was a reaction to WW1 – feeling that the old traditional way of life needed to
change
Prosperity mostly in urban areas – tension between rural and urban America (rural
wanted to protect traditional WASP America.
WW1 strengthened the position of America.
1. The Allies bought munitions and armaments
2. US expanded its coal, steel and engineering industries
War ends - people supported Republican policy of Isolationism.
Both Houses of Congress voted against joining the League of Nations and signing the
Treaty of Versailles.
Republican Era:
All the Presidents in the years 1920-32 were Republican
1. Harding 1920-23
2. Coolidge 1923-28
3. Hoover 1928-32.
Policies:
1. Supported isolation and internal growth.
2. low taxation
It encouraged businesses to invest.
It gave consumers more to spend.
3. Laissez-faire economics: very little government intervention.
4. Tariffs
Fordney-McCumber Act (1922) increased taxes on foreign goods
entering America. The average rate was 38.5%.
The Boom:
Between 1922 and 1929 the total annual wealth produced in America increased by 40%.
The average income per head of the population increased by 27%.
Changing role of women i.e., flappers:
1. Economically 50% more of the population tapping into the economy.
2. Housewife jobs make easier by appliances.
Consumer industries:
Cinemas and dance halls were built
Hollywood boomed.
The number of radios increased from 60,000 to 10 million.
Increased electricity supply led to a demand for radios, vacuum cleaners and
refrigerators.
The start of radio broadcasting in 1921 created further demand.
The growth of the chemical industry created new cheap materials such as rayon
and Bakelite. The invention of talking pictures boosted the film industry.
Improved advertising encouraged people to buy consumer goods – Sears
Roebuck catalogue.
Cars:
Number of car-owning Americans increased from 8 million to 23 million.
Annual car production rose from 1.6 million to 5.6 million.
The technique of mass production and assembly lines enabled goods to be
, built more cheaply
Between 1914 and 1916 the purchase price of a Ford Model T fell from $850 to
$295.
Henry Ford famously declared: “Any customer can have a car painted any color
that he wants so long as it is black.”
The impact of the automobile industry stimulated demand for steel, rubber
and glass. Roads needed to be built and the need for petrol boosted the oil
industry.
Shares and Speculation
Shares in companies were seen as a guaranteed way to make money.
Between 1924 and 1929 the value of shares had risen five times.
The system of ‘buying on the margin’ allowed ordinary people to buy shares on
a hire purchase basis.
If the shares rose, they could pay for the purchase and make a profit. This
boosted investment in industry.
This was encouraged by low interest.
Rise of personal debit enabled by the growth of credit and popularity of
investing in the stock market.
Gov selling war bonds grew people’s interest in investing – people also saw
rich making huge profits by buying and selling shares.
Many ordinary people became dangerously caught up when they could afford
it.
Economic Weaknesses in 1920’s
The richest 5% of the population earned 33% of all the money earned in the USA
(There was a fundamental imbalance in the economy).
Although profits rose by 80 percent, wages rose by only 8 percent.
There were always two million unemployed throughout the 1920s. Unemployed
people could not buy the new consumer goods.
Recent immigrants got the worst jobs with casual work and low pay
Mechanisation often replaced workers, especially unskilled workers.
In response to America introducing tariffs, foreign countries-imposed tariffs.
Trusts were large firms that dominated key industries. They worked together to keep
wages low and prices high.
Older industries, such as coal and textiles, did not expand.
Coal lost out to new forms of energy.
Textiles were hit by the new fashion for shorter skirts and the popularity of
new synthetic materials, such as rayon.
Wages were low in these industries facing world competition.
A 1929 survey showed that 60% of American families earned less than the $2000
regarded as the basic minimum.
The poorest were farmers, black Americans and unskilled new immigrants.
Businesses were investing in expanding rather than giving people a pay rise –
more being made but people still can’t afford it.
If people aren’t making money, they can’t buy consumer goods, so the
economy slows.
Republican policies:
o La issues-faire led to little regulation in the economy causing banks to be
unregulated and many went out of business leaving customers with no way of
, getting their money back.
o Banks were also local and small, not national.
o McNary Haugen Form Relief Bill was blocked by President Coolidge.
It would have allowed farmers to sell their goods abroad meaning less
grain at home reducing the price.
Republicans believed that government shouldn’t interfere with
business.
Overproduction:
o By the late 1920s America was suffering from over-production – too many
goods unsold in US, those who could afford had already purchased them
(supply outstripping demand).
o This led to companies lowering their prices, making smaller profits and laying
off workers.
Agriculture
During the First World War US farmers had made record profits.
They had been able to supply Britain and France with food on a regular basis.
Britain relied on imports of foreign food to feed its population
When the Germans began to sink merchant ships in 1917, food supplies became even
more important.
But farming did not do well in the 1920s:
1. Less demand from Europe:
US agriculture had expanded during the First World War to sell food to
Europe.
But afterwards countries returned to growing their own a grain.
2. Tariffs made this worse (The Fordney- McCumber tariff).
European countries would not buy from the USA, because the USA was not
buying from Europe.
3. Overproduction:
New machinery developed during the war meant that farmers over produced,
driving down demand and price.
The expansion had led to over-production and now there was too much food
on the market.
4. Demand for grain also fell because prohibition changed people’s tastes in food.
5. There was also competition from Canada:
They produced large amounts of wheat.
Prohibition hit the production of barley, which was not needed for the
production of beer and spirits.
Stats:
Many farmers could not meet their repayments, so banks started to evict them.
In 1924 about 600,000 farmers lost their land.
By 1929 millions of farm workers were out of work.
Between 1920 and 1932, one in four farms was sold to meet financial obligations and
many farmers migrated to urban areas.
With one-fifth of the American population making their living on the land, rural
poverty was widespread.
During the 1920s more than 600,000 farmers went bankrupt.
In The South farming was the main industry:
In parts of the South, farm labourers were only earning one third of the
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