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

Boom is a rapid increase in economic growth; or a period when demand for goods is high, factories operate at full capacity, wages are high and unemployment is low. Recovery refers to a period when the economy goes back to normal.  New industries begin and the economy begins to experience normal growth again.

  • 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.