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:
- 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.