Economy: Boom and Bust (1920-32) Flashcards
1
Q
7
List the causes of the 1920s economic boom
A
- WW1
- Republican policies
- Consumerism + advertising
- Car industry
- Technological change
- Credit
- Market confidence
2
Q
4
Describe why consumerism rose during the 1920’s
A
- The growth of electricity
- Female employment led to increased need for labour saving devices under hire purchase schemes
- The popularity of entertainment meant more americans brought gramophones
- 1923 to 1929, the average wage rose by 8%
3
Q
2
Describe the growth of electricity
A
- 1912 to 1927, the no of americans living in electrically lit homes 16% to 63%
- The amount of oil used doubled and gas quadrupled
4
Q
5
Describe the rise of advertising in the 1920’s
A
- Companies began to hire psychologists to design campaigns and target specific groups
- Increasing focus on slogans, brand names, celebrity endorsements and consumer aspirations
- Lucky Strike encouraged young women to smoke by branding their cigarettes ‘torches of freedom’
- by 1928, 17k cinemas allowing for commercials pre-movie
- By 1929, companies were spending $3 billion annually on advertising, five times more than in 1914
5
Q
5
Describe the growth of the car industry
A
- production of cars increased from 1.9m (1920) to 4.5m (1929)
- Largest industry in the US
- by 1929, 23m cars on road
- hire purchase hugely increased demand
- 3 main manufacturers: Ford, Chrysler and General Motors
6
Q
4
Describe the benefits of the car industry
A
- It used many materials that generated jobs for 5 million people
- Around 90% of petrol, 80% of of rubber and 75% of plate glass made in the US was used by the car industry
- It promoted road building, travel and hospitality industry
- The production of automobiles rose from 1.9 million in 1920 to 4.5 million in 1929
7
Q
5
Describe road building
A
- The Federal Highway Act of 1921 gave responsibility for road building to central government
- Highways were being constructed at the rate of 10k miles a year by 1929
- In 1936, the Bureau for Public Roads reported that between 25 and 50% of the roads built over the previous 20 years were unfit for use as traffic was wearing them out
- Created service industries such as motels and petrol stations
- In 1929, 15bn gallons of petrol were used and 4.5m new cars sold
8
Q
5
Describe technological change
A
- by 1927, ⅔ homes had electricity - stimulated other developments such as refrigerators, vacuum cleaners and radios
- Conveyor belt and mass production techniques (assembly lines) were developed by the car industry and increased productivity and products
- Plastics like Bakelite were developed and used in household goods - could be moulded into any shape
- Other innovations included glass tubing, automatic switch boards and concrete mixers
- Skyscrapers started being built
9
Q
6
Describe new business methods
A
- By 1929, the largest 200 corporations possessed 20% of the nation’s wealth
- assembly lines
- They operated cartels to fix prices and the government turned a blind eye
- Some corporations were so big that they were able to dictate output and price level throughout the industry
- They also created holding companies (e.g Samuel Insull bought up 111 electrical companies)
- There was significant growth in business schools with 89 by 1928, training 67k students
10
Q
5
Describe Ford’s business methods in the car industry
A
- 1913, created assembly-line borrowing from slaughter houses to improve time-efficiency
- Ford Detroit Factory producing car every 10 seconds in 1920s; every 3 mins in 1913
- 1914, doubled wages to $5 a day, far exceeding rivals and leading to workers rushing to Detroit
- introduced hire purchase as method to buy
- price of Model T had dropped from $585 (1920) to $290 (1925)
11
Q
4
Describe credit
A
- Growth of availability
- This meant people could buy goods even if they did not have enough cash to pay for them immediately
- This was due to the development of hire-purchase where goods were paid for in instalments
- About half the goods bought in the 1920s were paid for by hire purchase
12
Q
5
Describe confidence
A
- Stocks and shares rose steadily throughout the decade and then rose dramatically in 1928 to 1929
- Even ordinary people became involved in buying and selling shares
- The number of shares traded in 1926 was 451m, increasing to 577m in 1927
- In 1929 there were more than 1.1 billion shares sold
- Up to 25 million Americans became involved in shares in 1929
13
Q
4
Describe the events of the Wall Street Crash
A
- 24th October 1929 - ‘Black Thursday’. Panic and prices falling, 13 million shares sold.
- 25th October 1929 - Bankers meet at midday and pour money into the markets in an attempt to support them. Prices steadied.
- 26th October 1929 - Hoover claims the panic is over and that banking would soon recover
- 29th October 1929 - ‘Black Tuesday’. The worst day ever with 16.5 million shares traded. Shares lost all value and many lost everything. Suicides reported.
14
Q
4
Describe how the banking system was a cause of the 1929 Wall Street Crash
A
- Many banks existed outside reguated, centralised system
- The Reserve Banks acted in the interest of bankers rather than the country as a whole
- In the 1920’s there were over 30,000 banks in the US and most of them were small and unstable.
- The Federal Reserve Board favoured low interest rates and in 1927 it lowered them from 4% to 3.5%. This encouraged easy credit and the ‘bull market’
15
Q
5
Describe how overspeculation on the stock market was a cause of the 1929 Wall Street Crash
A
- ‘bull market’ created by growing expectations
- Lack of government regulation allowed speculation to continue
- Trading exploded after Harding victory
- The stock market value of shares increased from $27 billion in 1925 to $87 billion by October 1929
- By summer 1929, there were 20 million shareholders in the US
16
Q
5
Describe how the availability of easy credit was a cause of the Wall Street Crash
A
- This allowed people to buy with money they didn’t have
- Firms allowed customers to pay in instalments in hire purchase
- ‘Buying on the margin’ - practice of buying shares on credit
- As prices started to slow down and then fall problems began
- Over 75% of the purchase price of shares was borrowed and this had created artificially high prices
17
Q
5
Describe how loss of market confidence was a cause of the 1929 Wall Street Crash
A
- The market was only maintained by peoples financial confidence
- In autumn 1929, experts started to sell their shares before prices fell further and small investors panicked
- This led to a rush to sell shares and prices fell
- Thousands of investors lost millions of dollars
- This was partly caused by rumours that the Federal Reserve Banks was about to make credit less available and experts were starting to sell their shares
18
Q
5
Describe the effects of the 1929 Wall Street Crash
A
- The collapse of businesses with individuals losing billions
- President of Union Cigar died after falling from a New York hotel when stock in his company fell from $113.15 to $4 in a single day
- ‘Credit squeeze’ with exisitng loans called in and new ones refused
- Unemployment reduced consumerism and investment, worsening spiral
- Destroyed market confidence
19
Q
5
Describe how falling demand for consumer goods was a cause of the Great Depression
A
- The construction boom came to an end in 1928
- Industrial production fell in the two months before the Wall Street Crash
- Unequal distribution of wealth meant that almost 50% of American families had an income of less than $2,000 a year (the minimum needed to survive)
- The market became oversaturated
- The US could not sell its market surplus abroad as Europe was still recovering from the war and had responded to America’s high tariffs with similar
20
Q
2
Describe how the instability of ‘get rich quick’ schemes caused the Great Depression
A
- There was huge over speculation and gambling on the markets
- In the early 1920’s Charles Ponzi conned thousands into investing in his ventures, promising 50% profit within 90 days
21
Q
6
Describe the Florida Land Boom and how it was a cause of the Great Depression
A
- Between 1920 and 1925, the population of Florida increased from 968,000 to 1.2 million
- Parcels of land were being sold to wealthy northerners and people began to invest in developments
- There were scandals of land being falsely advertised
- Demand tailed off in 1926
- Hurricanes in 1926 killed 400 people and left 50,000 homeless
- The Florida land boom collapsed leaving the state strewn with half-finished, storm-battered developments
