the economy of the 1920s and the market crash of...
TRANSCRIPT
The Economy of the 1920s
and the Market Crash of
1929
Introduction:
The Second Industrial Revolution
1
Learning Objectives
Explain the elements of the economic
changes of the 1920s.
Analyze the weaknesses of the American
economy of the 1920s.
Examine how weaknesses underlying the
prosperity of the 1920s led to the Stock
Market crash and the Great Depression.
2
Thematic Questions
1. Analyze the movement toward social
conservatism and the cultural conflicts over the
issues of race, religion, evolution, and
prohibition.
2. Explain the Republican administration’s policies
of isolationism, disarmament, and high-tariff
protectionism.
3. Describe the interrelatedness of international
loans, war debts, and reparations payments and
how the U.S. dealt with it.
3
The Second Industrial Revolution
The first industrial revolution took place
when steam was harnessed to run heavy
machinery.
The second took place in the 1920s when
electricity replaced steam and the modern
assembly line was introduced for the
production of consumer goods.
At this time, the U.S. developed the highest
standard of living in the world.
4
The Automobile Industry
The auto industry epitomized the changes
taking place in the economy. The car was an
expensive item, and not quickly replaced.
Auto makers relied on model changes and
advertising to stimulate demand.
The auto industry fostered the growth of
other businesses and encouraged the spread
of the suburbs farther from the inner cities.
5
Patterns of Economic Growth
Other industries also flourished in the
1920s, including electricity, light metals,
and the chemical industry.
Professional managers, who believed profit
making was compatible with social
responsibility, replaced individual
entrepreneurs.
Corporations became the dominant business
form.
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Patterns of Economic Growth
The success of large business brought
standardization and uniformity to America,
at a cost of regional flavor.
Every town had the same A&P Grocery
Store, and the same “five and ten” store.
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Economic Weaknesses
Although there was real economic
prosperity in the U.S. in the 1920s, there
were also disguised economic problems.
Traditional industries, like railroads and
steel, were in deep trouble, and farmers
suffered from a decline in both exports and
prices.
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Economic Weaknesses
Laborers saw their real wages rise, but not
as rapidly as the income of middle class
managers.
The increasing income of the middle class
created its own peculiar problem.
Because the middle class had so much idle
money, much of it went into speculation.
It is not surprising that the 1920s ended in a
stock market crash.
9
Income
Consumers lacked sufficient income to
purchase the total output of increasingly
efficient corporations.
worker’s wages failed to keep pace with
increased productivity and prices.
The new wealth of the 1920s was largely in the
hands of a few people.
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Technology and Unemployment
Technological unemployment grew steadily
in the 1920s.
Machine production replaced men (hand
production)
Between two and four million worker jobs
were lost
unemployment increased.
consumer purchasing power declined.
fewer products were purchased
13
American Agriculture
American farmers did not share in the prosperity of the 1920s.
Farms became more efficient & mechanized (tractors)
Farmers went into debt
Increased efficiency and high American tariffs kept agricultural prices low.
Farmers had low incomes which resulted in lowered purchasing power.
14
America & the World
International trade declined because of protective tariffs enacted by Republican Administrations (protect the American market)
WW I hurt Europe’s economy and lessened the ability of many European countries to purchaseAmerican-made goods. (early 1920s)
As Europe’s economy revived, productivity and manufacturing increased.
The U.S. closed its market to European trade goods
15
The Problem of War Debts
U.S. loaned Allies $10 billion for armaments and reconstruction purposes.
Repayment of loans was difficult
High U.S. tariffs prevented Europeans from earning profits by selling their products in the American market.
(US buys foreign goods, $ to Allies, Allies repay loans, basically with U.S. loan money)
Debtor nations hoped to repay their loans to U.S. using German REPARATIONS payments.
U.S. viewed loans as investments; demanded repayment.
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The Role of Bankers
American bankers made unsound loans,
both domestic and foreign.
These bank loans later resulted in bank
failures.
Bank failures wiped out the investment
capital of businesses and individual’s
savings.
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U.S. InvestorsWALL STREET
BANKERS
SAVINGS
DEPOSITS
WALL STREET
BANKERS
MAKE
PRIVATE INVESTMENT
LOANS
GERMANY to
finance(GOVERNMENT & BUSINESSES)
FRANCEGREAT
BRITAIN
REPARATIONS
Payments
REPARATIONS
Payments
U.S. TREASURYALLIED WAR DEBT PAYMENTS
Owes G.B billions
Owes U.S. 4 billion
$ 13 billion total
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Buying on Credit
Installment buying resulted in the over-
extension of personal debt.
Consumers stopped buying once consumer
confidence in the economy was shaken.
Historians have described the American
economy of the 1920s as a “house of cards”
or a PONZI scheme
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The 1920s Speculative Boom
The 1920s saw a speculative boom in realestate and common stocks.
Most Americans believed the bull market would last forever.
The boom encouraged investment of savings in overpriced stocks.
Increasingly, investors bought stock on margin, where they could purchase the stock with only a small down payment and pay the balance off later (after it had increased in value)
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The Collapse of the Stock Market
By the summer of 1929, the speculative bubble was near the bursting point.
Pres. Hoover tried to curb speculation through the Federal Reserve Board (raise interest rates)
However, speculative fever caused the stock market to reach its all-time high on Sept. 3, 1929.
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The collapse began on Monday, October 21, 1929 and was partially triggered by the British.
To gain more capital for investment, British banks raised interest rates paid on savings,
Foreign investors began selling American stocks and moving the capital to Great Britain.
The Market continued falling until Friday (10/25)
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The Crash of 1929
Through massive buying, bankers and large investors temporarily stopped the decline in stock prices on Fri., 10/25 (stimulate demand)
When the Market opened Monday, prices kept falling.
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“Black Tuesday” occurred on Oct. 29th
Panic selling occurred
16.5 million shares were sold (four times the normal trading volume); prices dropped dramatically; brokers called their margin accounts.
Stockholders lost $ 40 billion in paper value by January, 1930 (more than the U.S.cost of W.W. I)
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Cause & Effect: The Great Depression
The 1920s economy
was out of balance.
Americans were
increasingly in debt.
Speculation on land
and in the stock
market was on the rise
The Stock Market
crashed in Oct. 1929
Millions of American
workers lost their jobs
as businesses reduced
production
The Nation’s Gross
National Product fell
dramatically.
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Overproduction by
increasingly efficient
businesses slowed
industrial production.
The federal government
introduced tight-money
financial policy in order to
control the growth of
credit.
The stock mkt. Reached
an alltime high on 9-3-29
Many banks failed and
closed their doors.
Personal and business
savings vanished.
Increased poverty led
to health and social
problems.
The global economy
suffered.
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