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Overview: the Economy of the Twenties-After World War I, the economy became consumer-oriented which resulted in both an increase in business profits and production of goods and services. However, concerns about overproduction, consumer debt, and problems faced by farmers, led many to ponder whether the twenties was a decade of economic “boom” or one of “false prosperity”. Overall, the economy under the guidance of the “Republican ascendancy” was mixed.
The decade began with a brief postwar recession (1921), entered a lengthy period of business prosperity (1922-1928), and ended in economic disaster (October 1929) with the nation’s worst stock market crash. During the boom years, unemployment was generally below 4%. The standard of living for most Americans improved significantly. Indoor plumbing and central heating became commonplace. By 1930, two-thirds of all homes had electricity. Real income for both the middle class and the working class increased substantially.
The prosperity, however, was far from universal. In fact, during the 1920s as many as 40% of US families in both rural and urban areas had incomes in the poverty range—they struggled to live on less than $1,500 a year. Farmers in particular did not enjoy the “fruits” of the booming economy.
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Economic Growth was high, with significant increases in living standards for many.
The Stock Market Crash
SNAPSHOT of IMPACT 1933 6,000 banks have closed,
Between 1929-1933 Nation’s total GNP drops from 104-59 billion
Unemployment leaped from 3% (1.6 million) in 1929 to 25% (13 million) in 1931
But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors' money in the stockmarket. When word spread that banks' assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings. Unable to raise fresh funds from the Federal Reserve System, banks began failing by the hundreds in 1932 and 1933.
Fundamental causes of the Great Depression
Old industrial base is outdated, time for new equipment
Crisis in the farm sector – OVERPRODUCTION
Availability of easy credit (installment plans)
Unequal distribution of income, too little money in the hands of working people
A Worldwide Global Depression
“Examine the steps taken by the Republican presidents to “return to normalcy” during the and assess the reasons for the seemingly prosperous economy of the 1920s.”
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Overview: the Economy of the Twenties-After World War I, the economy became consumer-oriented which resulted in both an increase in business profits and production of goods and services. However, concerns about overproduction, consumer debt, and problems faced by farmers, led many to ponder whether the twenties was a decade of economic “boom” or one of “false prosperity”. Overall, the economy under the guidance of the “Republican ascendancy” was mixed. The decade began with a brief postwar recession (1921), entered a lengthy period of business prosperity (1922-1928), and ended in economic disaster (October 1929) with the nation’s worst stock market crash. During the boom years, unemployment was generally below 4%. The standard of living for most Americans improved significantly. Indoor plumbing and central heating became commonplace. By 1930, two-thirds of all homes had electricity. Real income for both the middle class and the working class increased substantially. The prosperity, however, was far from universal. In fact, during the 1920s as many as 40% of US families in both rural and urban areas had incomes in the poverty range—they struggled to live on less than $1,500 a year. Farmers in particular did not enjoy the “fruits” of the booming economy.
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Republican Ascendancy: Government Policies Favoring Business
The Republican presidents of the 1920s did not preach laissez-faire economics but rather accepted the idea of limited government regulation as an aid to stabilizing business. The prevailing idea of the Republican Party was summed up in President Calvin Coolidge’s prescient comment: “The business of America is business.” In short, the Republican administration, strengthened by a Republican majority in Congress, believed the nation would benefit if business and the pursuit of profits took the lead in developing the economy. To this end, during the presidencies of Harding, Coolidge, and Hoover, the following occurred:
Promoting Business Interests-the regulatory commissions established in the Progressive era were now administered by appointees who were sympathetic to business. The Interstate Commerce Commission (ICC) and the Federal Trade Commission (FTC) were headed by officials who, as advocates of business, undermined government regulation of industry. Mergers became commonplace and by 1929, the two hundred largest corporations controlled 50% of all corporate wealth.
High Protective Tariffs-the Fordney-McCumber Tariff of 1922 and the Smoot-Hawley Tariff of 1930 effectively raised tariffs to protect US industries from foreign competition (an average of 30% and over 50% respectively).
Taxation-Republicans believed that if business owners received tax breaks, they would invest their “windfall” and thus stimulate the economy. In order to accomplish this, the tax burden on the wealthy and corporations were decreased.
Vetoes and Inaction-believing limited government and a balanced budget to be of paramount import, President Coolidge would not allow bonuses for World War I veterans and vetoed the McNary-Haugen Bill of 1928 to help farmers cope with falling crop prices. In addition, the government during the 1920s did almost nothing to enforce antitrust laws of the Progressive era.
Reasons for Prosperity of the Twenties
The business boom—led by a spectacular rise of 64% in manufacturing output between 1919-1929—resulted from several factors:
Increased Productivity-the manufacturing process was mad more efficient by the adoption of improved methods of mass production especially with the expanded application of Fredrick Taylor’s principles of scientific management (a.k.a. “Taylorism”). By far, the most important factor in the prosperity of the 1920s was the automobile. Henry Ford’s use of scientific management, including the assembly line, revolutionized the production of goods in the US. This not only caused a boom for the auto industry but stimulated industries directly or indirectly related (steel, rubber, glass, roadside inns, restaurants, gas stations, and repair shops). In the 1920s, most major industries adopted the assembly line and realized major gains in worker productivity.
Energy Technologies-increasingly, oil was used to power factories and to provide gasoline for the rapidly increasing numbers of automobiles. By 1930, oil accounted for 23% of US energy (up from a mere 3% in 1900). Electric motors in factories and new appliances at home increased electrical generation over 300% during the decade.
Mass Consumption-during the 1920s, methods were derived to increase the sales of the increased goods being produced. The installment plan was created, allowing consumers to buy on credit. A small down-payment and subsequent monthly payments allowed consumers to purchase autos, refrigerators, and other household appliances they otherwise could not afford. Many consumers, purchasing more and more on credit, fell increasingly into debt during this period.
Government Policy-as mentioned, government at all levels in the 1920s favored the growth of big business by offering corporate tax cuts, enacting high protective tariffs, and doing almost nothing to enforce antitrust laws.
http://bss.sfsu.edu/tygiel/hist427/texts/1920seconomy.htm
The Dawes Plan (1924)
The first indication that things were not going well came early on. During the 1919 Paris Peace Conference, British economist John Maynard Keynes resigned as the principal representative of the British Treasury and stormed out of the conference to protest the high reparations demanded of Germany. Keynes, one of the fathers of modern economics, warned that punitive reparations would cripple the German economy and could lead to future conflict. It didn’t take long for the rest of Europe to realize that Germany had neither the ability nor willingness to pay the full amount.
The Stock Market Crash (1929)
SOURCE LINK : http://advisoranalyst.com/glablog/tag/interwar-period/