The American Economy: 1920s to 1930s

The American Economy

• The case study analyzes the relationship between the US federal government and the economy in the 1920s and 1930s.
• It details how economic ideas about government intervention changed over time and how it reflected in government policy.
• The case study explains the causes of the 1929 stock market crash, President Roosevelt's response to the Great Depression, and how the US's current limited welfare state and mixed economy developed from the New Deal reforms.

United States at a Glance (1995 statistics)

• Area: 9,372,610 km²
• Population: 263.8 million (third-largest globally)
• Life expectancy (1994): Males 72.6 years, Females 79.4 years
• GDP (1994): $6,638.2 billion (US)
• GDP per capita (1994): $24,300 (US)
• Doctors per 1000 people (1993): 2.38
• Hospital beds per 1000 people (1993): 4.4
• Health expenditures as % of GDP (1990): 12.7%
• Telephones per 1000 people (1994): 590
• Televisions per 1000 people (1992): 814

Learning Outcomes

• Explain Republican economic policies (1921-1929).
• Understand the weaknesses of the 1920s economy and causes of the 1929 stock market crash and subsequent depression.
• Understand how the stock market operates.
• Explain the reasoning behind the New Deal.
• Analyze the successes and failures of the New Deal.
• Understand the historical roots of the American welfare state.

The Harding Administration

• During World War I, the government intervened in the economy extensively.
• Many Americans desired a return to a pre-war, stable economy.
• Warren G. Harding, president in 1921, aimed for "normalcy".
• His policies reflected a desire to reduce government involvement in business.
• The Harding administration faced a recession in 1921.
• Treasury Secretary Andrew Mellon reduced federal spending and taxes, particularly for the wealthy.

The Coolidge Administration

• Coolidge embraced a non-interventionist approach.
• He declared, "the business of America is business."
• Tax reductions for the wealthy were continued during his presidency.
• The Supreme Court limited social legislation and state intervention from the era.
• Coolidge's administration supported business interests and limited government intervention.

The American Economy in the 1920s

• The 1920s were a period of booming business and increased living standards.
• Increased worker productivity and new technologies played a significant role.
• Henry Ford's assembly line led to mass production of automobiles.
• The increase in personal incomes and the availability of consumer goods influenced the popular mood.
• The 1920s saw a growing materialism amongst Americans.

The Stock Market Crash of 1929

• The stock market experienced rapid growth in the 1920s.
• Many Americans invested in stocks "on margin" (borrowing money to buy stocks).
• Warning signs of the potential crash existed before October 1929.
• Rapid price increases for stocks led to inflated stock prices.
• Black Tuesday, October 29, 1929, caused a significant decline in stock values.
• The stock market crash triggered an economic depression.

The Great Depression of the 1930s

• Other factors besides the stock market crash contributed to the Great Depression (including international economic issues).
• Increased productivity and production outpaced wages and demand.
• Distribution of wealth was heavily skewed towards the wealthy, limiting the purchasing power of most people.
• High level of corporate fraud had an impact on the markets.
• The inability of the government to adequately address the crisis contributed to its duration.

Roosevelt's New Deal

• Roosevelt's campaign promised a "New Deal" for the American people.
• His policies aimed to restore stability to the economy and provide relief for the needy.
• The New Deal involved the creation of government programs such as the Public Works Administration and the Civilian Conservation Corps.
• It created programs to aid business and workers, such as the National Recovery Administration.
• New Deal policies included the establishment of social security and other policies which established the American welfare state.

Depicting Poverty

• A viewpoint letter describes the hardships faced by families struggling with poverty during the Great Depression.
• The letter expresses the desperation and loss of hope amongst a portion of the general population during an economic crisis.