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François 1 & Wilmington Charter : A New Look
6 septembre 2021

TERMINALE SEA : Roosevelt and the New Deal : The economy in the late 1920s

THE ECONOMY IN THE LATE 1920s

 

Introduction : 

Throughout the generally prosperous 1920s, isolated voices warned of problems with the American economy. Some people pointed to the farm crisis and to ‘sick’ industries as problems in need of attention. Yet despite these warnings, most Americans believed that the economy would continue to thrive. Then came the stock market crash of 1929. Stock prices plunged, and investors lost billions of dollars. US industries, already showing signs of weakness, almost ground to a halt.

 

I° Economic danger signs

A) Uneven prosperity

- Despite the stock market success stories, it was mainly the rich who got richer. huge corporations rather than small businesses dominated industry. In 1929, some large companies controlled 49% of American industry.

- A small proportion of families held most of the nation’s personal wealth. In 1929, 24,000 families (0.1% of the population) had incomes of more than $100,000. They also held 34% of the country’s total savings.

- By contrast 71% of individuals and families earned less than $2,500 a year.

 

B) Personal debt.

- Many Americans became accustomed to credit spending during the 1920s. Thanks to manufacturing (taylorism) consumer items became affordable and available. In the context of the roaring twenties, prosperity eased worries about going into debt. Everything seemed affordable.

 

C) Playing the Stock Market.

- After WWI, many small investors entered the market, often spending their life spendings. To attract these less wealthy investors, stockbrokers encouraged a practice called buying on margin. This option allowed investors to purchase a stock for only a fraction of its price (10 to 50%) and borrow the rest. The brokers charged high interest rate and could demand payment of the loan at any time. If the stock price went up, everyone made money. That’s the way speculation worked.

 

D) Too many goods, Too little Demand

- By the late 1920s, the rising productivity led to overproduction. There were more goods than consumers would buy. Eventually the car industry slowed its production after 1925 and industries that depended on it (rubber, glass, steel…) also declined.

 

E) Trouble for Farmers and Workers

- Falling farm prices left many farmers unable to repay their debts for land and machinery. These farmers often lost their farms. About 6,000 rural banks failed during the 1920s. Congress passed a bill to increase the prices farmers received for their crops (1927 and 1928) but it was nit enough and farmers continued to suffer.

- Life remained extremely hard for factory workers as well. Most laborers worked long hours for low wages.

 

To some observers, these factors - uneven wealth, rising debt, stock market speculation, overproduction and  the hardships of farmers and workers clearly signaled trouble in the economy.

II° The Stock Market Crash

A) The Market Crashed

- Because of the speculation, prices for many stocks soared far above their real value in terms of the company’s earnings and assets.

- On October 24, worried investors began to sell, and stock prices fell. Investors who had bought General Electric stock at $400 a share sold it for $283 a share. Again, business and political leaders told the country not to worry.

- To stop the panic, a group of bankers pooled their money to buy stock. This action stabilized prices for a few days. By Monday prices were falling again. On October 29, Black Tuesday, a record 16.4 shares were sold compared with an average 4 million to 8 million shares a day earlier in the year. . 

- This collapse of the stock market is known as the Great Crash. Despite efforts to halt it, the Crash continued beyond Black Tuesday. By November 13, the Dow Jones average had fallen from 381 (Sept.) to 198.7.

- To finish with losses totaled $30 billion. The Great Crash was part of a nation’s business cycle. (Expansion and Contraction).

 

B) The Ripple Effect of the Crash

- By 1929, about 4 million people out of a population of 120 million were ruined.

- Banks were directly impacted by businesses and consumers who could not repay their loans. Then banks run out of money because people rushed to make withdrawals from their accounts.

- The combination of unpaid loans and bank runs meant that many banks across the country failed. In just a few years, more than 5,500 banks failed.

- Businesses were impacted as well because they lacked any incentive to spend money producing goods. Few people had money to buy them.

- As businesses cut back on production, they laid off workers. Unemployment grew.

- Incomes shrank and consumers spent less money on manufacturing goods. The overall output in the economy dropped.

 

C) Economic Contraction

- It si an economic decline marked by a falling output of goods and services. A particularly long and severe construction is called a depression.The result was the most severe economic turndown in the nation’s history - the Great Depression- which lasted from 1929 to 1941.

 

D) Impact on Workers and Farmers

- Factories throughout the country began to close. Thousands of workers lost their jobs or endured pay cut. In August 1931, Henry Ford, shut down his Detroit factories putting at least 75,000 people out of run.

- Restaurants and small businesses closed because customers could no longer afford to go to them. Farm prices, already low, fell even more, bringing disaster to many families. By 1932, more than 12 million people were unemployed (1/4 of the labor force). The GNP dove from $103 billion in 1929 to just $56 billion in 1933.

 

 

E) Impact on the World

- By the 1930s, international banking, manufacturing, and trade had made nations around the world interdependent. European depended on the US for investments, goods and loans.

- After WWI, the US had insisted that France and Britain repay their war debts. Congress kept import taxes high, making it hard for European nations to sell goods in the US. So the Allies had to rely on Germany’s reparations payments for income.

- As long as the US invested in Germany, reparations payments continued. But with the Depression, investments fell off. Germans banks failed, Germany suspended reparations, and the Allies, in turn, stopped paying their debts. Industrial production fell by 40 percent in Germany, 14% in Britain, and 29% in France. Europeans could no longer afford to buy American goods. 

 

Thus the American stock market crash started a downward cycle un the global economy.

 

III° Social Effects of the Depression  

A) Poverty spreads

- People at all levels of society faced poverty during the Great Depression. Professionals and white-collar workers, who had felt more secure in their jobs than laborers, suddenly were laid off with no prospects of finding another position. Those whose savings disappeared could not understand why banks no longer had the money they deposited for safekeeping. 

- The hardest hit were those at the bottom of the economic ladder. Some unemployed laborers, unable to pay their rent, moved in with relatives. Others drifted around the country. In 1931, census takers estimated the homeless population in NYC alone at 15,000. Homeless people sometimes built shanty towns. These shelters came to be called ‘Hoovervilles’ mocking the President, whom people blamed for not resolving the crisis. Many homeless and jobless people became drifters, hitchhiking from one ‘hobo jungle’ to another. By 1933, an estimated one million people were on the move, risking jail, injury, or death.

- For thousands of  farm families in the Midwest, an environmental crisis occurred : The Dust Bowl. The Dust Bowl was created, in part, by dust storms that began in the early 1930s. Farmers said the storms were the result of a severe drought. While drought was a major factor in creating the Dust Bowl, it was not the only factor. Farming practices also contributed. The drought and winds persisted for more than seven years, bringing ruin to the farmers.

The combination of terrible weather and low prices for farm products caused about 60% of Dust Bowl families to lose their farms. Relief did not come to the Dust Bowl region until early 1940s, when the rains finally arrived and WWII drove farm prices up.

 

B) Poverty strains society

- Impoverished people who could not afford food or shelter got sick more easily. Children suffered most long-term effects of poor diet and inadequate medical care.

- Men who had lost their jobs or investments often felt like failures. Some committed suicide or abandoned their families.

- Women faced other problems. Some were dependent on their husbands’s pay check and could not feed their children anymore. Working women were accused of taking jobs away from men. Many women women were fired because they were married. Many women continued to find poor-paying jobs such as domestic service…

- Hard economic times put ethnic groups in competition. African Americans, Hispanics and Asian Americans lost their jobs and thousands were deported, even those born in the USA. 56% of Afro Americans were out of work in 1932. Because government relief programs often discriminated against African Americans, black churches and organisations like the National Urban League gave private help. Discrimination was even worse in the South, where African Americans were denied civil rights such as access to education, voting and health care. Lynchings increased.

 

C) Americans pull together.

- In the first two months of 1933, more than 70 foreclosure sales on farms were blocked by penny auctions. Penny auctions were, in some farm communities, secret agreements to keep bid low during the auction. Farmers would bid mere pennies on land and machines auctioned by the banks in order to help their struggling neighbors. Buyers then returned the farms and machinery to their original owners.

- At the height of the Great Depression, many young people left their homes. In the mid-1930s roughly 250,000 teenagers were living on the road.

- For some Americans, radical changes were necessary. In the 1932 election, the Communist candidate polled just over 100,000 votes and the socialist one, won 2.2% of the total vote.

- In February 1933, the Congress passed the 21rst Amendment, repealing Prohibition. Most considered Prohibition as a failed experiment and as a curb on gangsters who profited from bootlegging.Control of alcohol returned to the states, 8 of which chose to continue the ban on liquor sales.

- For many, a dramatic symbol of hope was the new Empire State Building. The building officially opened on May 1, 1931. And it was nicknamed the Empty State Building.

 

Conclusion

By the mid-1930s, it was clear that an era was ending. The Great Depression affected Americans in countless ways. The Great Depression of the 1930s was not the first depression in American history, but it was by far the worst. It lasted for most of a decade, and during that time millions of Americans lost their jobs and sank into poverty. In cities and in rural areas, many people suffered from hunger, homelessness, and despair. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ROOSEVELT AND THE NEW DEAL

 

 

 

For each topic : Start by the historical background (the causes). Then the enforcement of those laws and their limits.

 

 

 

Presentation by the students :

 

- The Election of 1932 : FDR and HH and the Lame Duck Months

- Emergency measures (the First Hundred Days) : Emergency Banking Act, Economy Act, Beer Act

- A New Deal for the unemployed : the CWA (Civil Works Administration) and PWA (Public Works Administration)

- A New Deal for the farmers  : the AAA (Agricultural Adjustment Administration) and the Dust Bowl

- A New Deal for the land : the 3 Cs : Civilian Conservation Corps and the TVA (Tennessee Valley Authority)

- A New Deal for industry : the NRA (National Industrial Recovery Act and the Blue Eagle

- Opposition to the New Deal

- A second New Deal : The Wagner Act and the Social Security Act

- The End of the New Deal : The problem of the Supreme Court, strikes, a new depression. 

- The New Deal’s Effects on Culture : Literature, Radio and Movies, the WPA and the Arts

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