The Economy Flashcards
(25 cards)
1
Q
Overview of the economy 1920-1945
A
- 20 year cycle of boom, bust + recovery
- 1920s = sustained period of prosperity + rising living standards, led by a surge in production of consumer goods
- the 20s boom concealed structural weaknesses in the economy = easy availability of credit led to a dangerous ‘bubble’ of speculation that overheated the financial system
- bubble burst in the Wall Street Crash in October 1929
- the crash led to the Great Depression = slump in production, mass unemployment = at its worst 1932-33
- Roosevelt’s new deal policies shaped the long, slow recovery from the depression in the 1930s
- 1941 = recovery still not complete but WWII bought the economy back to sustained growth + mass employment
2
Q
Contribution to 20s boom
A
- most of the prosperity was due to the strength of industry + big business
- WWI = stimulated by the mobilisation of the war time economy —> increased efficiency = boom in manufacturing + agriculture —> American exports were aided by the dislocation in Europe
- business-friendly Republican policies throughout the 1920s, supervised by Andrew Mellon = minimal govt intervention + low taxes
- markets expanded as more + more Americans lived in urban areas
3
Q
Mass-production in the 1920s
A
- factories were increasingly taken over by mass-production + the methods of industrial management pioneered by Frederick Winslow Taylor = ‘Taylorism’ stressed the importance of systematic work schedules + worker corporation strictly enforced by management
- Henry Ford used these methods to introduce the first cheap, mass-produced car = Model T —> one car produced every 93 minutes + 15 million were built in 19 years
- the drive to modernise the manufacturing industry = expanding production + increase profits, aligned with the boom in demand for consumer goods (cheap motor car, radio, vacuum cleaner)
4
Q
Growth of consumer goods
A
- radios were in almost every home = opening new opportunities for business + advertising
- price of a model T was $400 = what an average worker might earn in four months
5
Q
Economic growth statistics in the boom
A
- from 1922 annual unemployment figures never rose above 4%
- GDP grew by 2% per year - double the average increase in prices
- real wages went up by 30%
6
Q
Energy industry in 1920
A
- significant expansion of energy industry as new oilfields were developed in Oklahoma, Louisiana + Texas
- oil was vital for the growth of the motor industry, for home heating + generation of electric power
- already a big business before the war, with the consolidation of the giant monopoly General Electric
- by 1929, 16 holding companies controlled the majority of American electricity production
7
Q
What were the structural weaknesses in the economy in 1920s?
A
- staple industries
- problems in agriculture
- instability in the financial system
8
Q
Staple industries
A
- long established sectors of American industry e.g. coal mining, railroads, shoemaking + textiles, were stagnating or declining
- this was due to long term structural weaknesses, as well as the revival of foreign competitions after WWI
- the growth of mechanisation reduced the demand for skilled labour = wages rose more slowly than productivity + profits
- estimated that mechanisation took away about 2 million jobs each year
- this undermined the trade unions, with the American Federation of Labour (AFL) lost 1.7 million members, and labour unions were weakened by the anti-union policies prevalent amongst business leaders
9
Q
Problems in agriculture during the boom
A
- wealth was shifting away from staple crops towards consumer industries + the urban middle class - e.g. most farmers lived without electricity
- the agricultural situation seemed so bad in the 1920s due to years from 1900 being the ‘Golden Age’ for American farmers with a long boom in prices + production
- war time boom cut off in 1920 = wheat prices fell by 50%
- mechanisation meant more could be produced by fewer farmers working smaller areas of land = value of farm land fell by 30%
- average annual per capita income for farm workers in 1929 was $273 compared to the national average $750
10
Q
Govt response to agricultural problem during the boom
A
- 1922 Fordney-McCumber Tariff Act raised the protective tariff against foreign imports
- 1923 Agricultural Credits Act = low interest rate loans available
- BUT huge farm surpluses continued to exist + when the Great Depression hit farmers were already vulnerable
11
Q
Instability in the financial system
A
- growth of the ‘real economy’ (what was produced by agriculture + industry) didn’t match the steep rise in the ‘paper value’ of stocks + investment
- the rising stock market was used to finance economic expansion + there was little securitisation or regulation
- expansion benefited from supply of cheap money + easy credit = encouraged high risk borrowing + lending
- a frenzy of speculation was partly caused by the belief that the Great Bull Market would last forever
12
Q
Stock market figures during boom
A
- 1927 share index of the New York Times stood at 245, it rose to 331 by October 1928 + then 452 by September 1929
- banks were becoming undercapitalised, lacking the money to reserve to pay out if too many customers withdrew deposits
- 1928 Federal Reserve System had barely $200 million of govt securities = compared to the $8 billion of call loans outstanding
13
Q
Wall Street Crash
A
- prices of shares doubled between 1926 + 1929 = value of shares rose far higher than the real worth of the economy + too many shares were bought ‘on the margin’
- prices collapsed first on 24 October (Black Thursday) then five days later on 29 October (black Tuesday) the paper value of stocks plunged by $26 billion
14
Q
Causes of the Wall Street Crash
A
- inadequate regulation = 1920s was a decade of pro-business policies under Harding, Coolidge + Andrew Mellon
- gold standard = in 1925 Benjamin Strong (head of Federal reserve board) backed Britain’s decision to go back to the gold standard + strong kept lowering US interest rates to support sterling = caused the disastrous increase in speculation in US because borrowing was too easy
- psychological factors = too much confidence + faith in the ever-rising market = feeling speculative bubble + Bull Market
15
Q
Causes of the Great Depression
A
- Wall Street Crash = triggered the depression by causing a crisis in the banking sector + financing of industry = affected business confidence, slowed consumer spending etc. BUT by April 1930 average industrial stock prices were back to same levels as the start of 1929
- short term factors created problems for the economy by 1929
- great boom in automobile sales slowed sharply = by 1929 most Americans who could afford a car had one
- industrial production fell in two months before the crash
- actions (or inactions) of the govt allowed the crisis to develop = hoover denounced for doing ‘too little, too late’ + for following deflationary policies that made it worse
16
Q
Great Depression statistics
A
- mass unemployment = soared from 3% in 1929 to 25% in 1933 —> figures dipped slightly from 1934 onwards but remained high until WW2
- number of bank failures to rose from 599 in 1929 to 3927 in 1933
- GDP at -13.3%
17
Q
Impact of Great Depression on banking
A
- by 1933 the crisis was so severe the whole banking system had to be suspended with a ‘banking holiday’
- there was not one single banking crisis, but four successive financial panics = first in 1930, then two more in 1931 + the fourth in late 1932 + early 1933
- by March 1933, 1 in 5 banks had failed
18
Q
Govt intervention in banking during the depression
A
- Federal Reserve raised interest rates in 1931 which had a deflationary effect
- between 1930 + 1933 the money supply shrank by more than 30% + industry was starved of investment
- hoover set up the national credit corporation in 1931 to provide smaller banks with capital + congress established the Reconstruction Finance Corporation in 1932 to provide federal loans to banks but these policies were relatively ineffective
- Roosevelt intervened more radically than hoover had ever done in 1933 = introduced an emergency banking holiday + passed the Emergency banking act
19
Q
Impact of Great Depression in agriculture
A
- already depressed long before Wall Street crash = hoover had promised in his 1928 election campaign to help struggling farmers
- long term decline had been developing since 1920 due to changes in world markets, mechanisation + expansion of ‘big agriculture’ meant small farmers became uneconomic
- problem of access to finance = easier to solve = both hoover + Roosevelt introduced programmes to assist farmers with loans + support
- ‘dust bowl’ = climate of the Great Plains meant this region had always been vulnerable to drought, wind erosion etc since the 1880s —> intensive heat waves hit Nebraska + Oklahoma in 1930 + 31
- years of drought pushed farmers in the Great Plains to bankruptcy, with lands being repossessed by banks + forced to become tenant farmers, or were forced to migrate to west (Okies)
20
Q
Govt intervention in agriculture during the depression
A
- Hoover set up the Federal Farm Board to provide loans to farmers + the Grain Stabilisation Corporation to maintain the price of wheat, but these measures had limited effect
- As part of the ND Roosevelt introduced similar measures on a bigger scale, using more federal power
- but both hoover + Roosevelt were confronted by huge difficulties in attempts to stabilise American agriculture
21
Q
Impact of Great Depression on industry
A
- caused a massive slowdown in American industry that was not really bought to an end until the economy was stimulated by WWII = shown by persistently high levels of unemployment
- the high unemployment rates depressed the demand for goods = reduced consumer demand
- many industries suffered badly e.g. mining, timber, manufacturing of textiles, railroads etc.
- the automobile industry was hit by reduced demand + falling prices mostly due to their success in 1920s + the durability of cars
- HOWEVER - other industries enjoyed rapid growth e.g. processed food, household appliances, oil refining, high construction etc. = due to govt intervention
- one booming industrial sector was glass which was extensively used in the construction industry + production of light bulbs + food containers
22
Q
Impact of New deal on economic recovery
A
- by 1937 the interventionist policies of the ND had bought the American economy back to 1929 levels BUT agriculture was still depressed + unemployment remained stubbornly high (14.3%)
- however, from mid 1928 the recovery faltered as the US was hit by a ‘double dip recession’ = also known as the Roosevelt recession
23
Q
Roosevelt recession
A
- recession of 1937-8 was more than just a blip
- industrial production dropped sharply, backed to levels of 1934
- unemployment went sharply upwards from 14% to 20%
- therefore, by the end of 1938 the new deals had not ensured complete recovery
24
Q
Impact of WWII on economic recovery
A
- from 1939 American industry was boosted by increased production to supply what was needed for Britain’s war effort + because of US rearmament
- from December 1941 direct American involvement in the war required massive + rapid industrial expansion = millions of new jobs were created to increase production + fill jobs left by workers who were called for military service
- the motor industry switched from cars to military vehicles + aircraft
- mass production methods were intensified + by the middle of the war aircraft’s were being produced at the rate of 1000 per day
- private + public sector was integrated + industry benefitted from from huge federal govt contracts
25
Govt intervention in the economy during the war
- govt intervened in the economy to a far greater degree that had been the case during the New Deal
- strict controls on prices + wages
- 1942 the War Production Board was set up to supervise allocation of strategic resources such as petrol, rubber + steel
