The Great Depression Causes, New Deal – 1919-1939
Major Events Related to Great Depression:
The Prohibition era of the 1920s gave rise to the organized crime syndicate in the United States. Federal efforts to enforce prohibition, including raids on speakeasies, were countered by well-organized bootlegging operations with national and international connections. A particularly notorious gang of the times was Al Capone’s mob in Chicago. There were also gangs in Detroit, New York and other cities. Wars among gangs, producing grisly killings, frequently made headlines. Eventually, the public’s repugnance, given voice by the 1930 Wickersham Commission inquiry, as well as numerous revelations of compromised municipal officials, produced a temporary suppression of political corruption. When the 1933 repeal of prohibition made buying liquor legal once again, gangs that were still intact resorted to different sources of illegal gain, among them gambling, narcotics trafficking and labor racketeering.
The American grape growing industry was largely situated in California where there were about 700 bonded wineries producing table wines. Initially, prohibition forced the closure of most of the wineries when growers pulled up their vines thinking their market had evaporated. This created an enormous shortage of grapes forcing the the price per ton to rise 1000% and more from $20 to over $200. Growers realizing their mistake replanted vineyards but in their greed planted much greater acreages than previously. The increased supply forced the price per ton down to $15 by the end of prohibition.
Source: http://www.u-s-history.com/pages/h1596.html, http://www.1920-30.com/prohibition/
The Roaring Twenties were traditionally viewed as an era of great economic prosperity driven by the introduction of a wide array of new consumer goods. Initially, the North American economy, particularly the economy of the USA, took sometime to convert from a wartime economy to a peacetime economy. After this dull phase, the economy was booming. The decade saw North America becoming the richest region on the earth, with industry aligned to mass production, and a society with a culture of consumerism. At the same time the 1920s were setting the stage for the Great Depression that would dominate the 1930s.
During the 1920s, mass production developed which allowed for cheaper prices. Most of the devices that became commonplace in this decade had been developed before the war, but had been unaffordable to the majority. The automobile, movie, radio, and chemical industries skyrocketed during the 1920s. One of the most important of these was the automobile industry; before the war cars were a rare luxury. In the 1920s cheap mass-produced vehicles became common throughout North America. By 1927, Henry Ford had sold 15 million Model T. In all of Canada, there were only about 300,000 vehicles registered in 1918, but by 1929 there were 1.9 million. The automobile had wide effects on the economy and society. The automobile industry rapidly became one of the largest and a number of peripheral companies running gas stations, motels, and providing oil also became important.
The new technologies led to an unprecedented need for new infrastructure, mostly built by the government. Crucial to the new vehicles were new roads. Several roads were upgraded to become highways, and a number of expressways were constructed. There emerged a class of Americans with surplus money and a desire to spend the same, spurring the demand for consumer goods, including the automobiles.
Electrification, having slowed during the war, saw huge progress during the 1920s as most of North America was added to the electric grid. Most industries switched from being coal powered to using electricity. At the same time, vast new power plants were constructed. In Canada during this decade electricity production almost quadrupled.
Telephone lines also were now being strung across the continent. Another important technology that went from rare to common in the 1920s was indoor plumbing, and modern sewer systems were installed for the first time in many regions.
These infrastructure programs were mostly left to the local governments in both Canada and the United States. During the 1920s, most local governments went deeply into debt, under the assumption that an investment in such infrastructure would pay off in the future. This would cause major problems in the Great Depression. In both Canada and the United States, the federal governments did the reverse, using the decade to pay down war debts and rollback some of the taxes that had been introduced during the war.
Urbanization was one of the most important trends during the Roaring Twenties. For the first time, more North Americans lived in cities than in small towns or rural areas. Mass transit systems, the first skyscrapers, and the growing importance of industry contributed to this. A growing service sector was also increasingly important, with the finance and insurance industries doubling or tripling in size. The basic pattern of the modern white collar job is often believed to have been established during this period. Many of the clerical jobs went to women, who entered the workforce in unprecedented numbers. The fastest growing cities were those in the Midwest and the Great Lakes region, including Chicago and Toronto. These cities prospered due to their vast agricultural hinterlands. Cities on the West Coast saw increasing benefits from the 1914 opening of the Panama Canal.
What made the stock market crash?
Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital. A factory is a building with machines for making valued goods. Throughout the twentieth century, most of the capital in the United States was represented by stocks. A corporation owned capital. Ownership of the corporation in turn took the form of shares of stock. Each share of stock represented a proportionate share of the corporation. The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan.
Throughout the 1920s a long boom took stock prices to peaks never before seen. From 1920 to 1929 stocks more than quadrupled in value. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market.
But in 1929, the bubble burst and stocks started down an even more precipitous cliff. In 1932 and 1933, they hit bottom, down about 80% from their highs in the late 1920s. This had sharp effects on the economy. Demand for goods declined because people felt poor because of their losses in the stock market. New investment could not be financed through the sale of stock, because no one would buy the new stock.
But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stock market investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors’ money in the stock market. When word spread that banks’ assets contained huge noncollectable 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.
Franklin Delano Roosevelt became President of the United States in 1933. Shortly after, he initiated the New Deal. This program increased government involvement in the marketplace and significantly increased government spending. View the graphs and charts below to see what these legislation acts were and how it affected government spending and Gross Domestic Product.
|Act or Program||Acronym||Year Enacted||Significance|
|Agricultural Adjustment Act||AAA||1933||Protected farmers from price drops by providing crop subsidies to reduce production, educational programs to teach methods of preventing soil erosion.|
|Civil Works Administration||CWA||1933||Provided public works jobs at $15/week to four million workers in 1934.|
|Civilian Conservation Corps||CCC||1933||Sent 250,000 young men to work camps to perform reforestation and conservation tasks. Removed surplus of workers from cities, provided healthy conditions for boys, provided money for families.|
|Fair Labor Standards Act||FLSA||1938||Established the “Minimum Wage” and other labor laws.|
|Federal Emergency Relief Act||FERA||1933||Distributed millions of dollars of direct aid to unemployed workers.|
|Glass-Steagall Act||FDIC||1933||Created federally insured bank deposits ($2500 per investor at first) to prevent bank failures.|
|Federal Housing Administration||FHA||1934||Created as part of the National Housing Act of 1934, the goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market.|
|National Industrial Recovery Act||NIRA||1933||Created NRA to enforce codes of fair competition, minimum wages, and to permit collective bargaining of workers.|
|National Youth Administration||NYA||1935||Provided part-time employment to more than two million college and high school students.|
|Public Works Administration||PWA||1933||Received $3.3 billion appropriation from Congress for public works projects.|
|Reciprocal Trade Agreements Act||RTAA||1934||Provided for the negotiation of tariff agreements between the United States and separate nations. It resulted in a reduction of duties.|
|Revenue Act||&nsbp;||1935||Raised United States taxes on higher income levels, corporations, and gifts and estates.|
|Robinson-Patman Act||APDA||1936||The Act prohibits sales that discriminate in price on the sale of goods to equally-situated distributors when the effect of such sales is to reduce competition.|
|Rural Electrification Administration||REA||1935||Encouraged farmers to join cooperatives to bring electricity to farms. Despite its efforts, by 1940 only 40% of American farms were electrified.|
|Securities and Exchange Commission||SEC||1934||Regulated stock market and restricted margin buying.|
|Social Security Act||1935||Response to critics (Dr. Townsend and Huey Long), it provided pensions, unemployment insurance, and aid to blind, deaf, disabled, and dependent children.|
|Tennessee Valley Authority||TVA||1933||Federal government build series of dams to prevent flooding and sell electricity. First public competition with private power industries|
|Wagner Act||NLRB||1935||Allowed workers to join unions and outlawed union-busting tactics by management.|
|Wheeler-Lea Act||1938||This broadened the FTC’s powers to include protection for consumers from false advertising practices.|
|Works Progress Administration||WPA||1935||Employed 8.5 million workers in construction and other jobs, but more importantly provided work in arts, theater, and literary projects.|
Source: http://home.earthlink.net/~gfeldmeth/chart.newdeal.html, http://www.atr.org/stimulus-economics-historical-case-study-a3628, http://en.wikipedia.org/wiki/Timeline_of_United_States_history_%281930%E2%80%931949%29
Germany invades Poland which officially started World War 2. As a result, government spending on mass production of arms and military development significantly increased. Also, the US economy, which was already recovering, began to significantly increase.