US After WWI: Politics & Economics

Topic Subtitle

• The USA was involved financially in WWI from the start, selling materials to both sides, but militarily only from 1917.
• President Woodrow Wilson negotiated the Treaty of Versailles and established the League of Nations.
  • The US refused to ratify the Treaty of Versailles or join the League.
  • Many Americans became disenchanted with international politics by 1919 and wanted a return to normalcy and rejection of European entanglements.
• WWI transformed the US economy from a debtor to a creditor nation.
  • Many US industries changed to focus on consumer goods after the war
  • The agricultural sector declined due to over-production and under-consumption.
• Post-war: nativism and xenophobia rose in US society; the 'Red Scare' increased anti-unionist and anti-communist sentiments

Post-War Presidents

• President Woodrow Wilson (1913-1921, Democrat):
  • Segregated federal buildings in Washington.
  • Vetoed the Volstead Act in October 1919 which would have introduced prohibition.
    • Veto was overridden, and prohibition was enforced from January 1920.
  • Initially pursued a policy of neutrality in WWI.
    • German declaration of unrestricted submarine warfare in 1917 prompted a request to Congress to declare war.
  • Advocated internationalism through his proposal for a League of Nations.
    • The US did not ratify the Treaty of Versailles nor join the League of Nations.
• President Warren Harding (1921-1923, Republican):
  • Promised a "Return to Normalcy" after WWI.
  • May have been the first modern president
    • Harding was the first to ride to his inauguration in a motorcar, and the first president to speak on the radio.
  • Restricted immigration with the 1921 Emergency Quota Act.
  • Raised tariffs to the highest level in US history through the Fordney-McCumber Tariff Act.
  • Harding refused to intervene to aid agriculture.
    • Immigration was incredibly restrictive which promoted xenophobia.
    • Did not address that American farmers were overproducing grain.
  • Presidency was plagued by corruption scandals, like the Teapot Dome scandal
    • Harding appointed friends to key positions.
• President Calvin Coolidge (1923-1929, Republican):
  • Passed the 1924 Johnson Reid Cat, which restricted immigration further.
    • This included a ban on all immigration from Asia.
  • Continued a policy of minimal government intervention in the economy while rejecting Wall St concerns about the unchecked stock market speculation
    • He refused to intervene to help agriculture.
  • The US signed the 1928 Kellogg-Briand Pact with 14 countries, which renounced war.
• President Herbert Hoover (1929-1933, Republican):
  • Epitomised rugged individualism and the American Dream.
  • Promoted progressive individualism.
    • He believed that those who achieved prosperity had a moral duty to help those who had not.
    • Hoover was a strong proponent of personal charity.
  • Supported prohibition, calling it a 'noble experiment'.
  • Intervened in the economy more than previous Republican Presidents.
    • Attempted to address the agricultural depression before the stock market crash.
    • Following the onset of the Great Depression, he made efforts to stimulate the economy throughout the Reconstruction Finance Corporation.
  • His decision not to veto the Hawley-Smoot Tariff contributed to the onset of an international depression.

Republican Economic Policies

• Those policies were underpinned by the notion of 'rugged individualism'
• Advocated a laissez-faire approach
• Republican governments promoted minimal government intervention in theory in areas such as:
  • Banking sector.
  • Stock market - few regulations.
  • Law enforcement of anti-trust legislation.
  • Refusal to intervene to help agriculture.
• Republican governments DID intervene in key areas of the economy, especially in interests of big business
  • This was evident in protectionism, anti-unionism and tax cuts.
  • Protectionism: introduction of import tariffs to encourage American consumers to buy American products
  • Anti-unionism, for example, support for business practices such as 'yellow dog contracts': factory workers signing and promising to never become a member of a union.
• Tax cuts favored the wealthy.
  • The cut to the surtax reduced tax rates from 50%-20% between 1921-1926.
  • This contributed to an unequal distribution of wealth
• There was no government protection of money in banks

Long-Term Causes of the Great Depression

• The booming US economy in the 1920s was a 'House of Cards' as the prosperity rested on unstable foundations.
• Republican economic policies:
  • Republicans advocated a laissez-faire approach and the Republicans refused to intervene in economic practices.
• Nature of the banking system:
  • Only 1/3 of US banks were under the jurisdiction of the Federal Reserve Board.
  • Most US banks were small, unregulated state-based and local banks.
    • Banks collapsed when customer confidence led to a 'run on banks'.
  • Lack of government regulation enabled banks to provide easy credit
    • This contributed to the 1920s consumer boom and speculative bubble.
  • Many banks collapsed when money evaporated in the Great Crash.
• Unequal distribution of wealth:
  • While 5% of the population owned 33% of the nation’s wealth, 60% of families had an income of $2000 per year, or the minimum necessary for survival.
• The nature and impact of industrialisation and consumerism include:
  • As the 1920s progressed, mass production and mass consumption turned to over-production and under-consumption.
  • Republican protectionist policies led to retaliatory tariffs on American products from other countries.
    • This shrank the international market for US consumer products.
  • Unequal distribution of wealth meant that purchasing power was concentrated in a small proportion of the population.
    • As demand fell, factories laid of workers, leading to a further decrease in purchasing power, and demand falling further.
• Depressed sectors of the economy:
  • Overproduction and technological unemployment were major problems for agriculture.
    • Falling crop prices led to farm incomes dropped substantially.
    • Many farmers took out loans from banks, totalling $2 billion by the end of the 1920s.
  • Most farmers were unable to pay off their debts after the stock market crash/
  • Other industries faced long-term difficulties in the 1920s.
    • These included coalmining, ship-building, railroads, shoe-making, wool, cotton and textiles.
• Problems with the international market:
  • President Hoover blamed the Great Depression on international problems stemming from WWI
    • These included trade problems from the war debts system and problems related to political instability in Asia and South America.
  • Increased agricultural competition from overseas markets like Canada and Argentina contributed to agricultural income decline.
• Speculation:
  • Speculation was a major factor of the Florida land bubble of the mid 1920s, which burst in 1926, leaving many investors in debt.
  • Republican economic policies fostered non-regulation of the stock market and tax cuts.
    • These lead to low interest rates and easy credit purchases that increased the number of people speculating on the stock market.
  • The 'Great Bull Market' created confidence in the ability to make a profit because stock prices doubled between 1926 and 1929.
    • The economy was showing signs of cooling in 1929 as there was rising unemployment, falling house prices and underconsumption of 'boom' goods.
    • People continued to buy shares at unprecedented rates, creating a 'speculation bubble' that was burst by the Wall Street Crash.

Reactions to the Great Crash of 1929

• Politically:
  • Initially, there was non-intervention
• Economically:
  • Initially, this was seen as part of the cycle of capitalism, or boom-bust
  • It was assumed the market would correct itself
  • Later, credit froze, banks collapsed, factories closed and there was eventually underemployment and unemployment.
• Socially:
  • There was an end to the confidence of the 'jazz age, and the crash was viewed as equal to the Great Depression.
  • There was a loss of faith in institutions like banks and in the government.
• Overtime, this created a debate over how to respond to the Great Depression and led to a re-thinking of American Capitalism

US Society 1919-1941: Implications of Growing Urbanisation and Industrialisation

• American Boom 1921-9:
  • Prosperity was so great that in 1928, Herbert Hoover declared “we in America are nearer to the financial triumph over poverty than ever before in the history of our land.
  • The poor house is vanishing from among us'
• Factors contributing to this prosperity:
  • Developments in the early twentieth century such as industrial development and mass production.
  • Economic development and technological innovation made America a world industrial leader.
  • WWI enabled the US to supply Allies/Allied Forces with food and munitions, taking over markets previously supplied by Britain and Germany.
• Impact of WWI:
  • Accelerated the growth of the United States.
  • Changed the US from a debtor nation to being the world main creditor.
  • Opened up export markets previously serviced by Britain and Germany.
• Government policies of low taxation and protectionism:
  • While upholding minimal government the Republican politicians believed strongly that it was their role to create economic success for businesses that would prosper the whole nation.
  • Low tax policies allowed business and industry to invest some of their profits in future development, while also giving the spending power to middle and upper classes.
  • High tariffs produced expensive foreign imports which made domestically produced goods cheaper.
    • There was no foreign competition and it therefore stimulated the continued growth of manufacturing industry because it guaranteed the success of home-produced goods.
    • However, foreign nations often created similar high tariffs on US goods that were entering their countries.
  • The Wall Street Journal at the time stated, "never before, here or anywhere else, has the government been so completely fused with business."
• Development of capital and credit:
  • Development of banking- -cheap capital and credit led to increased spending power. -Hire-purchase and demand for consumer goods stimulated further industrial growth.
• American banks profited from loaning money to Allies/Allied Forces in WWI.
  • Banks were eager to lend money to foreign governments again
  • Cheap credit allowed the American people to purchase goods
• Installment plans or hire-purchase schemes boosted demand therefore boosting production.
  • US Federal Reserve Bank credit: 45.3 billion in 1921 and 73 billion in 1929.

Main Features of Economic Prosperity

• Supply and demand:
  • The average of wages rose from $1308 to $1716 between 1921 and 1929.
    • With low levels of taxation, this resulted in increased spending power for the American people
    • Consumers spent a lot of that increased wealth on a range of new consumer goods
• Marketing and the Media:
  • The rise of media, specifically advertising on commercial radio
  • The amount of Americans that owned radios increased exponentially between 1920 and 1929
• Consumer Spending:
  • There were a growing number of department stores which meant there were taking advantage of schemes like hire-purchase in order to buy cars, radios etc.
  • As a result, there was the emergence of the first mass consumer society
• Effects of Consumer Spending:
  • Share Dividends paid to investors rose by 65%
  • The amount of US factories powered by electricity rose from 30% in 1914 to 70% in 1929
• Speculation and Accumulation:
  • Increased investing on the stock market led to the expectation to get rich quick.
  • Broker loans jumped from 3.5 Billion to 8.5 Billion between the years 1926 - 1929

Henry Ford and his Motor Company

• Founded in 1903
• In 1908 was producing 100 cars a day a its Highland Park factory which was achieved by simple mass production methods.
• Ford's moving assembly line allowed a real breakthrough to cheaper mass production.
  • It reduced the production time of a car to 1.5 hours.
  • Machinery replaced skilled workers
  • These developments lead to the birth of new industrial complexes which was furthered by the combination of cheap prices and readily available credit
• In 1914, to counteract his worker's discontent, Ford reduced work days to 8 hours, raised the daily wages while introducing a profit-sharing scheme.
• in 1930, the car industry was contributing 13% of US manufacturing production and employed 4 million workers.
• Industry stimulated the increased usage of road construction, gas stations, hotels and restaurants - with 23 million cars on US roads by 1929, the motor industry was a large contributor tot he US economy as a whole.

Implications of Industrialisation

• Only businessmen and those who could buy shares who enjoyed tripled value of profits benefited from boom as many still lived a terrible existence.
• 2 million people in NYC lived in tenaments that were condemend as fire traps.
• Lax regulations resulted in high death rates:
• 25000 worker deaths a year and 100000 permanent disabilities.
• High poverty in farming + government backed high employers and low worker wages.
• "rugged indivudualism" lead to no welfare or laizze faire toward work safety etc.
• Farm poverty rose, and the rate of inability to pay off loans rose as well.

Resources, Policies and US Urban/Rural

• USA economic advantage to British in terms of resources like people + land for markets.
• Low Tax = business and industry profit in future
• High Tariff = guarantee for domestic production
• Urbanization contributed to new opportunities and new society.