Prosperity and Depression Lecture Notes

Topic 32: Prosperity and Depression

Focus Questions

• What were the major cultural, economic, and political effects of World War I?
• What changes took place in Western social and cultural values after World War I?
  • Reflected in art, music, architecture, and literature.
• Explain the postwar economic dislocation in Europe and the US.
• What were the causes of the Great Depression?
• What were the social and political impacts of the Great Depression in the US and Europe?

The American Postwar Boom

• The US emerged from WWI diplomatically and economically strong.
• Adopted isolationism and protectionism post-war, leading to the “Roaring 20s.”

Economic Growth in the 1920s

• US became the leading economic power post-WWI, strong growth resumed by 1921.
• Growth centered around industry, especially automobile manufacturing.
• Production of consumer goods surged (e.g., radios, vacuum cleaners, washing machines).

Stock Market Dynamics

• Stock market value rose by 400% in the 1920s, leading Americans to invest heavily.
• "Buying on margin" allowed investors to purchase more stocks by borrowing money.

Hidden Economic Problems

• Economic disparity: richest 1% held 19% of national income.
• Easy credit contributed to consumer spending, but many reached credit limits by decade's end.

The Stock Market Crash of 1929

• By late 1929, consumer spending slowed, leading to a loss of confidence.
• Massive sell-off began on October 29 (Black Tuesday) with 16 million shares traded, causing prices to plummet.
• Investors who borrowed money to buy stocks faced significant losses.

Immediate Effects of the Crash

• The crash not only affected investors but also destabilized banks that lent money.
• Industries, already struggling, faced a more severe crisis, leading to widespread economic collapse.

The Great Depression

• Resulted from complex factors, including US economic problems impacting the global economy.
• Characterized by falling wages, rising unemployment, and halting production.
• Stopped loans from the US to Europe and increased tariffs worsened the situation.
• Weimar Republic in Germany destabilized; Hoover's limited response further deepened the crisis.
• Franklin Roosevelt introduced the New Deal in response.

Factors Causing the Depression

• Slowdown in industry prior to the crash led to layoffs and increased unemployment.
• By 1933, 25% unemployment in the US; joblessness exacerbated the economic decline.
• Bank runs caused by fear of bank failures further destabilized the economy.

Government Responses

• President Hoover favored minimal government intervention, reflecting a belief in limited federal roles.
• Hoover's response seen as inadequate by many, leading to growing public discontent.
• Franklin D. Roosevelt's election (1932) marked a shift towards increased federal involvement in the economy through the New Deal.

The New Deal Initiatives

• Government spending aimed to stimulate economic recovery; public works programs created jobs.
• Sought to regulate the stock market and banks to prevent future disasters.
• Included social security pensions and labor laws for enhanced economic security.

Economic Theories

• John Maynard Keynes argued for increased government spending to mitigate economic downturns.
• Initially successful, but the Great Depression persisted through the 1930s.

Worldwide Impact of the Depression

• American economic troubles triggered a worldwide recession given the US's role in the global economy.
• Other countries like Britain and Germany faced severe economic challenges predating the crash.

Trade Slowdown

• The Smoot-Hawley Tariff Act of 1930 aimed to protect US goods but led to retaliatory tariffs worldwide, crippling global trade.
• Declines in trade goods prices, particularly affecting major exports like Japanese silk.

Political Impact

• Political instability grew in postwar Europe as economic crises deepened.
• Extremist groups gained strength; in Germany, the Nazis blamed Jewish populations for economic woes.
• Mussolini's dictatorship in Italy continued to tighten control during the Depression.

Concluding Observations

• The New Deal reshaped Americans' perspectives on government roles in the economy and safety net establishment.
• Though unemployment remained high, the New Deal laid the groundwork for future reforms in economic policy governance.

Next Topic

• Tensions Build in Europe