America Economy: Economic Change Abd Development (1920-1945) Flashcards
Why was there a boom in the 1920s?
-dislocation caused by war in Europe = rise in American exports
-business friendly republican policies by Andrew melon included minimal government intervention and low tax
-modern industrial management methods (used by Henry ford to make cheap motors) , increased profit
-hire purchase
-leisure / goods , brand products more aimed at women
What are some stats which is evidence for 1920s boom?
• from (1922) annual unemployment figures not rise above 2%
• gross domestic product grew by 2% a year
• real wages rose by 30%
• (1929) 16 holding companies control most of American electricity companies
• motor cars: model T ford in (1925) was $400
What were the consequences of the 1920s boom?
-higher living standards: automobile, business prosperity, leisure, entertainment and rise in stock market
What structural weaknesses were in Americas economy?
-staple industries
-problems in agriculture
-instability in financial systems
Why were there structural weakness in the staple industries?
-shipbuilding, railroads, shoemaking and textile industries were not rising
-was undermined by trade unions
-growth of mechanism and technology methods reduced skill labour
-labour unions weakened by anti union policies prevalent among business leaders
stats to evidenced the structural weakness in staple industry?
-2 million jobs a year in skilled labour lost
-united workers had 5 million members (1920) but 75,000 (1928)
What problems were there in agriculture ?
[overproduction & falling prices]
Demographics readjustment of US
• rise in urban areas
- (1920) consenses had fewer than 50% population living in rural areas
•end of wartime boom by (1920)
- falls in prices in cotton, wheat, livestock & corn lead to depression in agriculture through 1920s
Structural weakness:
- became dependent on loans to cover losses
- farmland value fell by 30%
- (1929) agriculture workforce reduced by 15%
- mechanism meant more produced by fewer farmers on smaller land
What acts had been passed for agriculture industry?
-(1922) fordney-McCumber Tarrif Act raise protective tarrifs against imports
-(1923) agriculture credits act made low. Interest loans available
Why was the American finance system unstable?
-little securitization in finance economic expansion
-cheap money & easy credit encouraged high risk borrowing & lending, was fuelled by beliefs that the great bull market will always last
-banks undercapitalized
-a lack of reserve money to pay banks
-speculative bubble: financial speculation on stock & shares that rose far above the real price
What evidence is there for americas unstable economy?
(1927) share index of New York Times at 245 and by (1929) was 452
(1928) federal reserve system barley had $200 million of government securities
How did the Wall Street crash occur?
-Value of shares rose higher than real worth of the economy
-shares were bought ‘on the margin’ (loans covering up 75% of purchase price)
-people forgetting the economy can fall
-lassez faire government business polices
-us backed Britain to return to gold standard, which meant americas interest rates became low.= cheap money to be available and easy borrowing
-physiological confidence that the boom was unstoppable
What developments occurred during the Wall Street crash?
(1929)
September, sharp fall in prices
-(24 October), prices collapsed [Black Thursday]
- (29 October) [black Tuesday]
paper value of stocks fell by $26 billion
What were the key reasons for the Great Depression occurring?
-Wall Street crash caused short term banking sector and financing of industry crisis. (Stock Prices by April (1930) returned to same level at start (1929))
Industrial stagnation:
- (1928) construction boom slowed down as most us people owned cars
-industrial production fell two months prior to the crash
-lack of government action
-rise in unemployment (1933) rose to 25% as workers were laid off from reductions in consumer spending
-collapse of world trade and fall in US agriculture industry caused banking and credit crisis [wheat prices fell to $0.62 per bushel in (1934)]
What was the impact of the Great depression on banking and finance?
-(1933) banking system was suspended by “banking holiday
-successive banking crisis in the years (1930) (1931) (1932) (1933) =by march (1933) 5500 banks failed
-federal reserve system enforced , wasn’t able to provide security to banks. (1931) they raised interests rates= deflation. (1930-1933) money supply shrank by more than 30%
-forced government to intervene, to save the banking system, although this was slow and ineffectual. (National credit corporation [1931] & glass steal act Glass steagall Act [1932])
What was the impact of the Great Depression in agriculture?
-the long term decline in the industry was intensified= small farms uneconomic = gov to manage decline
-struggled to get finance, caused government to introduce programmes to assist farmers with finance and loans
-the “dust bowel” situation on the Great Plains caused farmers to encounter wind erosion, soil exhaustion and specifically drought. =Caused farmers to get repossessed by banks and forced to become agricultural laborers/ tenant farmers. Or forced of land and migrate west “okies” for economic survival
What was the impact of the Great Depression on industry?
-slowed down from:
• high levels of unemployment (structural & cyclical) = depressed goods demands from reduced consumer spending
•extractive and transport industries suffered: low demand, low investment, reduced production and closures (but transport progress like automobiles still increased in 1930s but was slower than before)
• the variation for prosperous individuals with jobs and successful industry’s further widened
(Some grew such as household, appliances , oil refining, highway construction. glass sector specifically which increased production to produce light bulbs, food containers and cars) which was partly influenced by government intervention caused by depression
What was the impact of the new deals on the US economy?
By (1937) economy was at same levels in (1929), but unemployment and agriculture depression was still high
-caused double dip recession (1937-38) from government cuts in spending and taxation increased (monetary and fiscal policies) as industrial production dropped and unemployment rose sharply.= less consumer spending
What was the impact of the Second World War on the economy?
Rose from increased production to supply Britains war efforts
-following US rearmament (1941) after declaring war. Caused massive and rapid industrial expansion as it mobilized all the nations economic resources=
-reduced unemployment (1943) unemployment was 1.9 %
-aircraft’s produced at rate of 1000 per day
-war production board established which supervised allocation of strategic resources (petrol, rubber and steel)
-private and public sectors integrated
-huge gov federal contracts
-strict controls on prices and wages
-new technologies introduced =rise in productivity
