1920-1945 The economy: boom to bust and recovery; structural weaknesses and the impact of the New Deals and the Second World War on economic recovery Flashcards
What were the economic effects of the New Deal?
Economic recovery was sluggish during the New Deal years, in part because many of its measures were contradictory. Roosevelt believed in a balanced budget. He was, therefore, reluctant to spend excessively on federal projects. He failed to see that massive government expenditure might be necessary to offset the reduction in spending in the private sector. This desire for a balanced budget led to a reduction of the budget deficit over the course of Roosevelt’s presidency. In 1938, the deficit was lower than the $2.5 billion deficit Hoover had run up in 1932 and over which Roosevelt had criticised him in the 1932 presidential election.
The actual achievements of the New Deal were rather slender. The national total of personal income stood at $86 billion in 1929 and only $73 billion in 1939.
This was despite a population increase of 9 million during the course of the decade. The Government seemed reconciled to a permanent unemployment figure of at least 5 million. Wages averaged $25.03 per week in 1929 and $23.86 ten years later.
In 1933, 18 million Americans were unemployed. In 1939, 9 million were still out of work. While there was a reduction in unemployment in the early years of the New Deal, it may largely have been the result of people working in the alphabet agencies. The Roosevelt Recession of 1937 saw a return to higher unemployment with nineteen per cent of the workforce jobless in 1938. Most historians agree that the real reason unemployment fell was the amendment of the 1935 Neutrality Act in November 1939. This meant that belligerents could buy from the USA. Within a year there were orders for 10,800 aircraft and 13,000 aeroplane engines.
How did a belief in Laissez-faire economics lead to the economic boom in the 1920s?
President Coolidge held the view of many Americans, that governments should be involved as little as possible in the day-to-day running of the economy. If businessmen were left alone to make their own decisions, it was thought that high profits, more jobs and good wages would be the result. This was the policy of laissez-faire - the only role for the government was to help business when it was asked to.
Under Harding and Coolidge, the Republican economic policy of laissez-faire contributed to the prosperity of the USA. Low taxes and few regulations meant that businessmen were able to chase profits without fear of interference. Indeed, laws concerning price fixing were often ignored.
How did rugged individualism lead to economic boom in the 1920s?
Successive Republican presidents believed in rugged individualism. This was a term used by Republican presidents such as Hoover who believed that people achieved success by their own hard work. It originated with the early Americans who moved to the West and made a new life for themselves through their own efforts.
How did protectionism lead to economic boom in thw 1920s?
Republican governments put tariffs on imported goods in order to limit the competition from foreign imports, Imports became more expensive compared with American-made goods. This, in turn, encouraged the purchase of American goods and helped US-based producers. The Fordney-McCumber Tariff (1922) raised import duties on goods coming into the USA to the highest level ever, thus protecting American industry and encouraging Americans to buy home-produced goods.
In addition, a reduction of income tax rates left some people with more cash to spend on consumer goods. This, in turn, provided the cash to buy the home-produced goods. Mellon handed out tax reductions totalling $3.5 billion to large-scale industrialists and corporations.
How did technological change lead to economic boom in the 1920s?
The development of electricity was fundamental to this advancement. It provided a cheaper, more reliable and flexible form of power for factories and other industries. Moreover, it stimulated other associated electrical goods industries such as refrigerators, vacuum cleaners and radios.
Other key developments included the conveyor belt and mass production techniques adopted by the car industry, which speeded up industrial production, improved productivity and led to greater profits.
How did new business methods lead to economic boom in the 1920s?
There was a significant growth in huge corporations that made use of more scientific business methods. By 1929, the largest 200 corporations possessed twenty per cent of the nation’s wealth. They dominated industry in various ways:
They operated as cartels to fix prices. The government turned a blind eye to these practices.
Some corporations such as US Steel were so big that they were able to dictate output and price level throughout the industry.
Management science led to the development of different management roles such as specialisms in production, design, marketing or accounts. There was a significant growth of business schools with as many as 89 by 1928 training 67,000 students. There were new ‘scientific’ theories put into practice, particularly the work of Frederick Taylor and his followers.
What were the reasons for increased consumerism, and how did this lead to economic boom in the 19290s?
Increased demand for consumer goods was due to several factors. By 1927, two-thirds of US homes had electricity. In 1912, only sixteen per cent of the American people lived in electrically-lit homes. By 1927, the number had risen to 63 per cent. The growth of electric power encouraged a much more widespread use of electrical goods. During this period, consumption of other energy sources also grew, for example the amount of oil used doubled and gas quadrupled.
The growth in female employment also increased the need for labour-saving devices such as washing machines and vacuum cleaners and hire purchase schemes made it easier to buy goods on credit. Furthermore, the popularity of entertainment meant more and more Americans bought radios and gramophones. For the majority of workers in industry, wages increased.
Between 1923 and 1929, the average wage rose by eight per cent. In other words, workers had more spare money to spend on consumer goods.
How did advertising lead to economic boom in the 1920s?
Various advertising techniques developed rapidly during the 1920s. Advertising campaigns began to emphasise slogans, brand names, celebrity endorsements and consumer aspirations. There was a constant need to create demand.
The growth in industrial production required a continuous market. It was no longer enough to sell a durable unchanging product that might last the purchaser for life, as Ford had done with his Model T. Now, to fuel the boom, it was necessary for people to buy new things frequently. They had to be convinced that they could not do without the latest model of an electrical appliance or the new design in clothing.
For many consumers advertising techniques worked. Not only did they associate products with a slogan, but they also believed they could not manage without the advertised product. The Kansas City Journal-Post was hardly exaggerating when it wrote, Advertising and mass production are the twin cylinders that keep the motor of modern business in motion. By 1929, companies were spending $3 billion annually on advertising, five times more than in 1914.
How did the growth of credit lead to economic boom in the 1920s?
The growth of credit made it much easier for people to buy goods even though they did not have enough cash to pay for them immediately. This was due to the development of hire purchase whereby goods were paid for in instalments.
The goods were owned once the last instalment was paid. About half the goods sold in the 1920s were paid for by hire purchase.
How did the car industry influence economic prosperity in the 1920s?
The car industry played a very important role in the boom of the 1920s, often leading the way in technological change as well as stimulating the growth of other industries. It grew dramatically in the 1920s and by the end of the decade there were 4.5 million cars on the road, the largest industry in the USA.
How did the introduction of the assembly line impact efficiency for ford?
In 1913, Ford introduced a much more efficient method of producing cars, the assembly line or ‘magic belt’.
He had seen how efficiently this was used in meat-packing factories and slaughterhouses. An electric conveyor belt carried the partly assembled car at the same speed past workers who stood at the same spot and did the one job such as fitting on the wheels or doors. This saved time as the tools and equipment were brought to the worker rather than him having to waste time walking about for these. In 1913, the Ford factory in Detroit was producing one car every three minutes. By 1920, the same factory was producing the same car every ten seconds.
What did Henry Ford do for his workers?
Ford believed in hard work and would walk round his factory each day encouraging his workers to do their job properly. However, he had quite a turnover of workers who found the assembly line boring and monotonous.
Therefore, in 1914 Ford announced that he would double the wages to 5 dollars a day, which was far more than anyone else paid for the equivalent job. He also reduced the length of the working day to eight hours and introduced a third shift, so the factory was operating a three-shift system and working 24 hours each day.
Owing to his business methods and new technology, Ford brought down the price of cars and made them affordable to many Americans. Ford also led the way in introducing hire purchase as a method of credit.
What were the benefits of the car industry?
The car industry revolutionised American industry. It used so much steel, wood, petrol, rubber and leather that it provided jobs for more than five million people. Around 90 per cent of petrol, 80 per cent of rubber and 75 per cent of plate glass produced in the USA was consumed by the car industry by the late 1920s. The car industry transformed buying habits, making hire purchase a way of life for most Americans because it enabled an average family to buy a car. It promoted road building and travel, which in turn led to motels and restaurants being built in places that had been considered out of the way.
The production of automobiles rose dramatically from 1.9 million in 1920 to 4.5 million in 1929. The three main manufacturers were the giant firms of Ford, Chrysler and General Motors.
How did the building of roads lead to economic prosperity?
Breaking with the policy of laissez-faire, the federal government expended a great deal of energy on road building in the 1920s.
The Federal Highway Act of 1921 gave responsibility for road building to central government and highways were being constructed at the rate of 10,000 miles per year by 1929. But this was not enough. New roads could not keep pace with the growth of traffic. Congestion was common, particularly in the approaches to large urban centres.
Motor vehicles also created the growth of new service industries such as garages, motels, petrol stations and used car salerooms. They gradually changed the landscape alongside the highways of the USA.
Improved transportation also afforded new opportunities for industry. For example, goods could be much more easily moved from factories to their markets. The number of truck registrations increased from less than 1 million in 1919 to 3.5 million by 1929, when 15 billion gallons of petrol were used and 4.5 million new cars were sold.
How did the stock market boom cause economic prosperity in the 1920s?
In the 1920s, the stock market seemed to be the link to the prosperity of the USA. The values of stocks and shares rose steadily throughout the decade until they rose dramatically in 1928 and 1929. Moreover, the amount of buying and selling of shares grew substantially until it was a common occurrence for ordinary working people to become involved.
Most companies’ shares seemed to rise, and so people were prepared to risk their money on buying shares - after all, their value would rise. The USA began to speculate. Even if people did not have enough money to pay the full amount, they would make a deposit, borrow to pay the rest and then sell the shares in a couple of weeks when their value had risen and a profit had been made. The speculator would then pay off his debt and still have made money on the deal.
(This was called ‘buying on the margin’.)
The number of shares traded in 1926 was about 451 million, increasing to 577 million the following year. By 1928, with share prices rising fast, there was a bull market on the Wall Street Stock Exchange and, in 1929, there were more than 1.1 billion shares sold. Up to 25 million Americans became involved in the frenzy of share dealing in the last years of the decade.
