O Level Revision : History - Boom, Depression and  Recovery in the USA: 1918-1939

• When Europe was at war, the USA was experiencing an economic  boom in 1918.
• The USA supplied Europe with food, loans, and equipment.

• The boom ended in 1929 and the USA experienced the Great Depression.

• A depression/slump is a period of reduced business activity, high unemployment and poverty; or a period when demand drops, production in factories goes down, output is reduced, wages fall and unemployment rises.
• During the depression there was loss of money; industrial collapse; a fall in the share prices; wages fell; bank closures; unemployment increased as bankruptcy rose in firms; insurance benefits and pensions vanished.
• This economic collapse also spread to Europe and the whole world.

The  economic boom  in the  USA

Causes of the  boom

• Between 1914  and  1918,  American  industries expanded to supply European powers with war needs such as food.
• The USA benefited from huge loans and interests on money borrowed by the European powers during the War.
• Influence of   partnership/collaboration   between business  and  the  Federal  Government  reduced taxes on the rich to increase wealth.
• Professional  factory   management   and   faster production methods encouraged a growth in the USA economy.
• Banks made big profits by lending people money to buy expensive items on credit (hire purchase system).
• The opening of the interior by the trans-continental railways improved the economy and enabled cheap transportation of goods.
• Ship-building was improved which meant cheap transport charges.

• American scientific inventions, e.g. the automobile.
• The tariff system made foreign goods expensive encouragingAmericans to buy local goods resulting in a growth in the local economy.

Features of the  boom

• High economic output (high factory production).
• Employment and high wages.
• More telephones.
• Advanced transport.
• More radios (music from every house).
• Advanced construction, buildings, new industries and vast cities being built.

• Adequate food.

Causes of the  Great Depression in the  USA

• Wall Street Crash: In September 1929, speculation and gambling brought about the crash at Wall Street in New York.
• Individuals and companies made quick profits by selling shares for more than initially paid for.
• Over-reliance on credit/hire purchase.
• Overproduction of goods resulting in low prices on farm and industrial products. The fall in prices reduced profits.
• Big business over-produced and did not pay their workers enough to buy these products. So as Europe recovered, the American corporations went into severe depression.
• Huge profits made by the industrialists were not shared evenly among the workers.
• Under-consumption due to low incomes.
• Agriculture had not benefited from the boom as farm prices were generally low so profits were low. Agriculture was the first to be hit by the depression.
• Protectionism – high tariffs.
• Inflation also led to the Great Depression.

Effects/consequences of the  depression

• The stock market crash ruined millions of investors as millions of people had bought shares on credit with borrowed money.
• Thousands of banks closed down as millions of people rushed to withdraw their savings. Debt and bankruptcy spread.
• Banks failed to pay back money and people failed to get money to repay loans.

• Many workers lost their jobs (unemployment) as factories closed.

• People failed to pay their mortgages.
• Many became homeless leading to a rise in suicide rate.

• Drug abuse and prostitution increased.
• Demand for goods of all types fell.
• Prices collapsed and those who had bought shares were ruined.

• Prices of goods fell, business profits and shares sank.

• There  was    huge    unemployment,    starvation, begging, political and civil unrest in many countries of the world.
• The USA and Britain devalued their currencies.
• Industrial production fell in 1933.
• Farmers lost property.
• Living standards fell as shown by bread queues, near-starvation for many and charity soup kitchens.

• The depression was felt worldwide as the USA withdrew loans and demanded repayment of short- term loans. Germany, Austria, Japan were hard hit by the effects of the depression in the USA.

Recovery measures:  the  New Deal of Franklin Delano  Roosevelt

In 1933, the Republicans of President Hoover, lost to the Democrats of F.D Roosevelt. F.D Roosevelt introduced a recovery plan called ‘The New Deal’ whose aims were:

-     Relief.

-     Recovery.

-     Reform.

-     To reduce poverty and bring confidence to the economy.

Roosevelt’s intervention measures

• The Emergency  Banking  Act  (EBA):  meant  to enable banks to function again.   Government provided funds to guarantee people’s deposits and re-control banks.
• The Agricultural Adjustment Act (1933): meant to increase agricultural purchasing power. It solved the problem of overproduction.
• Government  provided   cheap   credit   facilities to farmers and raised the prices of agricultural produce.
• Government established  the  Security  Exchange Act of 1933 which regulated the Stock Exchange to protect the public against unscrupulous stock manipulators.
• In June  1933,  Roosevelt  passed  the  National Industrial  Recovery Act  (NIRA)  to  enable  him to embark on a scheme of public works to create employment.  This meant that the economy would become ensured and also more balanced.
• The Social Security Act introduced pension and unemployment benefits.
• The Federal Relief Emergency Act (FERA) was passed to assist the unemployed.

• An Economic Act of 1934, cut Federal pensions and salaries so as to balance the budget; legalised the sale of beer and provided jobs for the unemployed.
• The Farm  Credit  Administration  Act  of  1933 provided mortgages for farmers who were in danger of losing ownership of their land.
• The   home   ownership   loan   corporation   gave mortgages to home owners.

• The Civilian Conservation Corps (CCC) brought about conservation projects.

• The  Works  Progress  Administration  (WPA)  of 1935 financed projects such as roads, schools and hospitals. These provided jobs for the unemployed.

• The Wagner Act, 1935 encouraged trade unionism and workers to bargain with management.

• The  Federal  Theatre  Project  provided  jobs  for artists.

• Roosevelt passed the Tennessee Valley Authority Act (TVA) which planned to provide flood control of the Tennessee River, the reforestation and proper use of marginal lands in the Tennessee Valley.
• There were plans to build dams to generate cheap electricity and organising conservation, irrigation and afforestation to stop soil erosion.