Great Depression Flashcards
1
Q
What was the Great Depression?
A
A period of economic collapse that started in the USA in 1929 and affected the global economy for the next decade
It introduced a crisis in capitalism and spread communist ideology due to extreme poverty.
2
Q
What is Capitalism?
A
An ideology or set of ideas about how the economy works, emphasizing a free-market economy with minimal government interference
Capitalists believe that wealth disparity motivates individuals to work harder.
3
Q
What does the word ‘capital’ mean?
A
Money used to buy or invest in land, mines, factories, and businesses
Capital is a fundamental concept in capitalist economies.
4
Q
What is the main economic policy in capitalist countries?
A
To protect the rights of individuals, often favoring those who own large industries
This can result in wealth concentration while others remain poor.
5
Q
Which country became the most powerful capitalist country after World War 1?
A
The USA
This marked a significant shift in global economic power.
6
Q
What are the core beliefs of capitalist ideology? (List)
A
- People need freedom.
- Competition leads to greater achievements.
- Wealth disparity reflects better use of abilities.
- Minimal government interference in the economy.
- Emphasis on private ownership of the economy and individual profits.
7
Q
What are the core beliefs of communist ideology? (List)
A
- People need one another.
- Cooperation as equals leads to greater achievements.
- No one should have more than anyone else.
- Governments should ensure everyone’s needs are met.
- Total government control over the economy with no private ownership.
8
Q
What is entrepreneurship?
A
The process of owning a business and making money by taking risks, investing, and accepting responsibility for profits or losses
Entrepreneurs play a crucial role in a free-market economy.
9
Q
What risks do entrepreneurs take when starting a business?
A
Investing their own money and accepting full responsibility for profits or losses
This risk is a fundamental aspect of entrepreneurship.
10
Q
Fill in the blank: In a free-market economy, the entrepreneur takes a great risk when they start a business that will provide a __________.
A
product or service
11
Q
Competition
A
12
Q
Competition between businesses is an important feature of capitalism. A capitalist economy
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13
Q
is driven by individuals with new ideas. Capitalists believe that hard work and creative
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14
Q
imagination can lead to success. All businesses exist to make a profit.
A
15
Q
When a company develops a new product
A
it is usually sold at a high price. This may be
16
Q
because the demand for the product is greater than the supply. When it has been on the
A
17
Q
market for some time
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the price of the product goes down as other companies make new
18
Q
and similar products. Some may be of poorer quality than the original product. In a
A
19
Q
competitive market
A
poorer versions of the product or overpriced products will not succeed
20
Q
because consumers will reject them.
A
21
Q
A successful business makes consistent profits against its competitors.
A
22
Q
● Rugged individualism
A
23
Q
The Republican Party was in power in America in the 1920s. It believed that the government
A
24
Q
should not offer much help to people in economic difficulties. ‘’Rugged individualism” is the
A
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belief that all individuals can succeed if they try hard enough. The Republican Party
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president
Herbert Hoover used this term in the USA during the 1920s. He thought that if you
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were in financial trouble
you should help yourself and not expect others to help you.
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In a capitalist society
there is minimal state control over
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businesses.
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● A free market
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America’s free-market economy was based on supply and demand with little or no
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government control. The price of goods and services was determined by supply and
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demand. The price of goods and services would go up if there was a demand. The hands-off
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approach by the government towards big businesses had dangerous consequences. It led to
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unsound business practices as owners knew they did not have to answer to the government.
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demand - need for a
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product
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supply - amount of good
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available
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rugged - sturdy and strong
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Capitalist boom
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At the beginning of the 20th century
the United States emerged as the world's leading
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industrial power. There were many reasons for this:
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● It was a huge country
with vast fertile plains and many agricultural food crops were
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grown.
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Strengths in the US economy
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● It had large supplies of natural resources such as coal
iron
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were used in factories. It also has the advantage of bordering two oceans
namely
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the Pacific and Atlantic oceans
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● It had a big population
with many recent immigrants who were prepared to work hard
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and accept low wages which kept the cost of production down.
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During the 19th century
the USA had developed its resources by building factories
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oil wells
cultivating the land and laying railways. The development of new technologies and
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the use of cheap labour were crucial in increasing the industrial output for the growing
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American market.
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Year 1920 1929
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Impact of World War One (1914-1918)
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World War One was another reason why the American economy and
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especially its industries grew rapidly at this time. American industries and
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banks supplied the European allies with the vital food
weapons
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and money they needed to fight Germany. America also took over
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Europe’s overseas markets. During the war European trade was disrupted.
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By the end of the war
the USA had become a creditor nation. European
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countries owed it nearly $300 million.
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Political climate and policies
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In the United States of America
there are two main political parties: the Republicans and the
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Democrats. In the 1920s the USA was governed by the Republic Party. President Warren
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Harding (1921 - 1923) and President Calvin Coolridge (1923 - 1928) both believed that the
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government should not intervene in the economic life of the people. They believed that the
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economy should be driven by market forces
not by the government. A french word for this
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idea is laissez-faire
which means ‘‘let go’’
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Calvin Coolidge was vice-president when Warren Harding was president. Harding died in
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1923 and Coolidge automatically became president. Both these presidents were laissez-faire
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capitalists.
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Although the Republicans did not believe in interfering in the economy
they took many steps
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to promote economic expansion and supported big businesses. Their policy was to create
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favourable conditions for businesses and entrepreneurs to thrive. The Republican
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government in the 1920s:
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● Cut taxes so that people would have more money to spend and the wealthy could
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reinvest their money in the industry.
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● Allowed trusts to develop. These were large corporations (groups of companies) that
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joined together to form a single company which then controlled all the trade in a
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single product.
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● Did not approve of trade unions because they believed they interfered with the
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effective running of the businesses. Employers were encouraged not to allow the
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formation of trade unions. They were also allowed to use violence to crush strikes. As
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a result
trade union memberships declined in the 1920s. This meant that most
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industries were able to pay workers low wages and force them to work long hours
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New technology and innovations
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The United States experienced a consumer revolution in the 1920s. Due to the economic
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boom
Americans bought more goods. The government allowed businesses to exploit the
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country's vast natural resources to produce steel
chemicals
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These products became the basis of an enormous boom in consumer goods. New
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technologies and industries included:
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● The start of radio broadcasting in 1921
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● The widespread availability of electricity stimulated the demand for electrical goods
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such as vacuum cleaners
refrigerators
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● The movie industry and the development of “talking pictures’’ in 1927
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● The car industry pioneered mass-production.
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This caused a boom in related industries such as steel
glass
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asphalt (tar)
petrol
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textiles
agriculture and the railways stagnated. This uneven industrial expansion meant that
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opportunities to access wealth/ earn more were not available to all = people who worked in
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these industries had less spending power.
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Advertising
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Advertising played a major role in the growth of American
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consumerism. Mass nationwide advertising made people feel that
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luxury items were necessities. Mail-order catalogues
posters
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and movie commercials all encouraged consumers to buy goods
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that they did not really need. Business/industries grew as people
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had more disposable income and bought more luxury items.
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If people did not have the money to buy these goods
they were
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encouraged to buy them on credit. Hire purchase schemes were
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introduced
where people could buy goods and pay for them in
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weekly instalments
paying interest on the loans. This encouraged
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people to get into debt
owing money to the banks and finance
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Not all Americans shared in the wealth and prosperity of the 1920s. In 1929
60% of
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American families lived below the poverty line and could only afford the bare necessities.
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Older industries
such as coal and textiles
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mines had to close down because more and more industries started using oil
gas and
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electricity instead of coal.
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An a
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Capt
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put v
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Problems for Native Americans
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Native Americans also failed to benefit from the prosperity of the 1920s. The majority of
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Native Americans were forced to live on reservations. These were areas set aside by the
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Weaknesses in the US economy
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9
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American government and were usually dry areas with poor soil which made it very difficult
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to make a living off the land. Life on a reservation was a continual struggle with very few
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opportunities.
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Problems for African-Americans
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If times were hard for white American farmers in the 1920s
they were worse for African-
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Americans. Black people working on farms were the first to be laid off when the agricultural
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crisis hit. In the southern states
where more than 75% of the black population lived
139
faced legalised discrimination under the Jim Crow laws. They were forced to use separate
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public facilities
go to separate and inferior schools and live in separate neighbourhoods.
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They were also victims of the Ku Klux Klan (KKK)
a group of white supremacists who used
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violence and intimidation to make sure the black people did not forget their low social status.
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The KKK also persecuted Catholics and Jews.
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Problems of farmers
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Agriculture was the worst affected industry of the 1920s. Farmers had done very well during
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World War One because they were able to sell their produce in European markets. However
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after the war
Europe began to increase its food production. Tariff barriers against American
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grain made it expensive to import and international demand for American wheat declined.
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Overproduction was at the heart of farmers’ problems. Improved machinery
especially the
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combine harvester and better fertilisers made American agriculture extremely efficient. As
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a result
farmers were producing more than they could sell. The price of wheat collapsed and
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many farmers could not pay back loans they had taken out to buy land and machinery. They
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lost their land and their livelihood.
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10
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Prejudice in America
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Between 1900 and 1914 more than 13 million immigrants arrived in the USA from southern
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or eastern Europe. In the 1920s
the US government began to restrict the flow of immigrants
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who were mostly Catholics or Jews and included Italians
Poles and Greeks. There were a
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number of reasons why the immigrants were made to feel unwelcome. There was growing
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religious and racial prejudice and the government feared that new immigrants would take
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jobs from long-established Protestant Americans. In addition
many new immigrants had
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socialist ideas and supported trade unions
which was seen as un-American.
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Combine harvester - a farming
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machine that harvests
threshes
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d l i
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Economic Isolation
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After World War One
the USA developed a policy of isolationism aimed at protecting the
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American industry. President Harding implemented this by increasing import tariffs (taxes on
170
imported goods). This made it expensive to import foreign goods into the country and difficult
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for European companies to compete in the US market. Although this helped the American
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economy boom
foreign countries retaliated by placing similar tariffs on US goods. This cut
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US companies off from European markets. America was unable to sell its goods overseas
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and contributed to the problem of overproduction by the end of the 1920s.
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While some Americans enjoyed prosperity
most survived on the
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12
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The policy of isolationism harmed the USA greatly. The USA came to rely too heavily on its
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domestic market. The aggressive increase in production and advertising encouraged
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consumerism and spending on all fronts. Americans began to favour extravagance over
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thrifting. Credit and hire- purchase facilities led to debts caused by irresponsible spending on
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THE WALL STREET CRASH
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Years 1923-1929 were ones of unbelievable prosperity and were called the “Seven Fat
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Years”. The Wall Street Stock Exchange played an important part in the lives of the people -
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buying and selling shares and speculating. Speculation caused rising prices
which were
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incompatible with the growth of the industry. This was known as the “Stock Market Craze”
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However
by 1927
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● Fewer houses were being built
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● Motor vehicle sales were declining.
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13
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● Workers wages were not rising fast enough for them to be able to afford all the
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consumer goods that were being produced.
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● Prices of food were dropping because American farmers were producing too much.
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In October 1929
an economic crisis broke when the price of shares on the Wall Street Stock
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Exchange collapsed. Panic-stricken investors tried to sell shares. As a result
millions of
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shareholders lost their money
firms closed down
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ground to a halt. This event was the trigger that led to the collapse of the American economy
197
and the Great Depression.
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Why did the Stock Exchange crash?
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● Buying and selling shares on the Stock Exchange
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One of the most popular ways of making money during the 1920s was to buy stock and
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shares. A company can sell shares in the ownership of the business on the stock exchange
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in order to raise money. The company uses the money from these shares to expand the
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business or to buy more factories or land in order to make higher profits.
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If the company makes a profit
it gives its shareholders a dividend (a small share of the
205
company’s profits). The more profit a company makes
the larger the dividend.
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14
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When a company is doing well
more people will buy shares in that company so that they
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can earn dividends. As more people buy shares in a company
the company increases in
209
value. There is a greater demand for shares in the company and the price of shares
210
increases. In this way both the company and the shareholders benefit.
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Buying share “on
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margin”
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In the 1920s
the price of shares on the stock market increased rapidly. People believed that
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buying and selling shares and speculation on the stock market was an easy way to make
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money fast. Speculation is a form of gambling. Speculators buy shares but they do not
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intend to keep them for long. They buy shares that they believe will make a quick profit and
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sell them as soon as the price rises.
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In the 1920s speculation was widespread. Speculators often borrowed money to buy shares
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or bought shares “on the margin” this means that they “bought” shares with money they did
220
not have. This also meant that the value of the share was based on people's willingness to
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buy the share rather than on the real value of the company.
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15
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● Panic sets in
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By 1928
share prices had risen far above their real value and this rise was not supported by
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real industrial expansion. Financial experts warned that this false prosperity would not last
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but most speculators ignored them. People's confidence in their ability to make money on
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the stock market lasted well into 1929. However
in September
228
and panic set in.
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In many ways
the investors caused the collapse of the stock market. Confidence is vital for
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successful speculation. However
some investors began to lose confidence in the market.
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They believed that something must be wrong
so they decided to sell their shares while the
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● Overproduction
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As a result of mass-production techniques
American companies were making more goods
234
than people could buy. This led to a growing consumer crisis. Demand for goods began to
235
fall as people had already bought all the goods they wanted
or could not afford to buy more.
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A stockpile of unsold goods began to build up and so factories began to produce less. This
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meant that factories needed fewer workers and many workers lost their jobs. There were
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more and more unemployed people and they bought fewer and fewer consumer goods
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which caused the cycle to repeat itself.
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● Import tariffs
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When the United States imposed tariffs on imported
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European goods in the 1920s
European countries
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responded by introducing tariffs on imported American products. This made it difficult for
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Americans to sell their surplus (extra) products in overseas markets.
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17
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● Unequal distribution of wealth and under-consumption
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Another way of looking at the Depression is to see it as a crisis of under-consumption. In this
248
view
the depression was not caused by too many goods being produced. Rather
249
caused by the fact that people were too poor to afford them.
250
While productivity increased by 43% and industrial profits rose by 72% during the 1920s
251
wages only increased by 8%. If employers had increased wages and shared company profits
252
with the workforce
then workers would have had the money to buy things.
253
The idea of prosperity for all was a myth. American wealth was unevenly distributed. The
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majority of Americans could not afford to continue buying consumer goods.
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On the other hand
about 200 large trusts or super-corporations dominated the American
256
industry. These trusts were controlled by individuals and each one had almost complete
257
control of one vital sector of the industry. For example
Andrew Carnegie controlled
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American steel manufacture through his US Steel Corporation and John D. Rockefeller
259
controlled American oil production. These “Captains of Industry” were enormously wealthy
260
and made huge profits
largely at the expense of the ordinary people.
261
When there is a trust or a monopoly of a certain industry
there is no competition because
262
one company controls a whole industry. Without competition
the “Captains of the Industry”
263
could charge high prices and pay low wages. This helped the rich get richer and the poor get
