Notice: You are currently previewing Unit 11: Boom and Bust
Following the end of World War I, the United States underwent a transition from a wartime to a peacetime economy. Reductions in government spending and taxes by Republican leaders stimulated one of the greatest economic booms in history. The “Roaring Twenties” saw increases in both production and consumption. Resulting improvements to standards of living led to the growth of new technologies, leisure activities, and forms of entertainment. Unfortunately, the growth of the Roaring Twenties was not to last, and before the end of the decade the good feelings of economic prosperity became for many only distant memories.
Post-World War One Economic Transition
After World War I, the American economy had to adjust to peacetime conditions. By 1920, the American economy had entered into a depression. Soldiers had returned home, but could not find jobs. Demand and production had decreased after the war, weakening an economy still in wartime mode. The Wilson administration had tried to maintain national control of many of the industries, even two years after the war had ended. During the 1920 Presidential campaign, Warren G. Harding promised to move the nation in a different direction. He called for a “return to normalcy,” a return to pre-war ideals. Harding easily won election, and upon becoming President in March 1921 appointed Andrew Mellon as his Secretary of the Treasury. The Harding Administration’s solution to the depression was to cut government expenditures by 40% from Wilson’s large wartime spending. By July 1921, the economy had rebounded and in the 1920s the economy burgeoned. Wartime profits, improved technology, and marketing strategies made Americans think of themselves as producers. In addition, consumers of an ever-growing range of products fed an American economic boom. It was a time of great prosperity – the greatest time of any nation in the history of the world to date.
The Roaring Twenties
This period of economic prosperity was also was a time of innovation. The United States experienced the expansion of radio, aviation, the automobile, and many new electrical appliances. These new inventions helped raise the standard of living for Americans and also provided them with more leisure time. Leisure time allowed for great innovation in the arts. Jazz became a major American art form and gained world-wide popularity.
Abundant leisure time and massive spectator opportunities for the middle class were new phenomena brought on by the increased prosperity on the economic boom. Even powerful Americans began to spend leisure time as spectators of silent movies. With no speaking in the films, even non-English speaking immigrant workers could enjoy the new movies that came to local theaters.
Though the 1920s was a time of political traditionalism with the Republican Party dominating the government, it was also a time of progressive social change. Groups advocated and debated issues such as women’s rights, Prohibition, evolution, and eugenics. These debates were a precursor to the “culture wars” of the late twentieth and the early twenty-first century.
While American society continued to grow and change, President Harding, along with Andrew Mellon, believed in a minimalist approach to government’s role in society and the economy. After Harding’s death, the nation tried to “keep cool with Coolidge.” President Calvin Coolidge further reduced Harding’s tax cuts in 1924, 1926, and 1928, lowering the top rate to only 26%. He also made further cuts to Federal spending. The tax cuts and reduced spending brought in more revenue, and Coolidge was able to pay off one-fourth of the national debt. Under Coolidge only the richest 2% of people paid any income tax at all.
The Golden Age of American Sports
Increased leisure time and the radio also allowed people to not only participate in sports, but to also become spectators on a massive scale. Many cities such as Philadelphia, Boston, Chicago, and St. Louis had two major league baseball teams. New York had three, if you count Brooklyn, which was originally an independent city. Dynasties such as Connie Mack’s Philadelphia A’s, Miller Huggins’ New York Yankees, and John McGraw’s New York Giants, along with superstars such as Babe Ruth and Jimmy Fox brought baseball back from the depths of the 1919 Black Sox scandal.
The 1920s were also the golden age of boxing. Huge crowds flocked to see charismatic heavy weights such as Jack Dempsey and undefeated champions like Gene Tunney. In 1926 Dempsey lost to Tunney in Philadelphia in front of over 120,000 spectators at Municipal Stadium. Within a year, the men had a rematch before a crowd of nearly 105,000 spectators at Soldier Field in Chicago. In the seventh round, Dempsey knocked Tunney to the mat. Fortunately for Tunny, Dempsey refused to go to a neutral corner, giving the defending champion extra time to get up. Known as the “Long Count Fight,” Tunney was able to get up and defeat Dempsey.
Football, particularly college football, also grew in popularity during the 1920s, as games were broadcast over the radio. In addition, the game changed, and dominance shifted away from Ivy League schools on the East Coast. Schools in the Midwest such as Michigan, Illinois, and Notre Dame began traditions of success on the football field. Legendary coaches like Notre Dame’s Knute Rockne and players such as Harold “Red” Grange from the University of Illinois became household names.
The Great Depression
While the United States was experiencing unprecedented growth, hidden among the economic prosperity were what some historians consider the seeds of economic depression. One such factor was Federal tariffs on imports that limited American sales in Europe because of retaliatory tariffs. Another was credit inflation instituted by both the Federal Reserve and the Bank of England. Like most major events, there was a long list of factors that caused the Great Depression, and many more factors that lengthened its duration. There had been depressions (or “panics,” as they called them in the 1800s) before in the United States, but the depression that started in 1929 topped them all. The Stock Market Crash of October 1929 is normally considered the point where the Depression began. Even though it has not been the worst drop in the market in United States history, the crash had an extremely deleterious effect on the economy.
During the worst days of the crash, approximately 16,000,000 shares were up for sale with no buyers in sight. In a few well-publicized cases, speculators who had bought, on credit, much more stock than they could afford, lost everything and escaped their creditors by jumping from the windows of their skyscraper offices. With confidence in the economy eroding, companies cut back, and workers were laid off or given fewer work hours. As more people lost their jobs, fewer people bought things, which led to more job layoffs.
President Herbert Hoover attacked the problems of the Great Depression by increasing government spending on projects and on government jobs. By 1932, however, Americans were not satisfied with the progress the nation had made. They responded by electing Franklin Delano Roosevelt, who promised to return the nation to prosperity.
FDR’s New Deal
By 1932, the unemployment rate was 25%. By 1933, when President Franklin D. Roosevelt took office, banks were failing across the country. Those who did not mob the banks to retrieve their savings before the banks closed lost everything. These were desperate times in the United States.
Roosevelt was elected on the promise that he would take decisive government action to deal with the crisis. While he had no clear idea of how exactly to do this, he surrounded himself with experts and worked on finding answers. The result was a program called the New Deal. It was based on the idea that the government should intervene in this economic downturn to help those most severely hurt and stimulate economic growth by federal spending programs. The plans were based around the three basic needs of Relief, Recovery, and Reform. Programs either provided immediate relief to people in dire crisis, helped stimulate economic recovery to get the economy operating as it was before, or initiated new programs designed to prevent some of the conditions that had led to the depression in the first place. Ironically, a member of Roosevelt’s “Brain Trust,” Rexford Tugwell, later wrote, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
Success did not come at once. Some of the programs worked well. Others did not. Conservatives complained that the New Deal was leaning toward Socialism and did what they could to obstruct it. They also argued that the New Deal was too expensive. They feared growing debt would force the Federal Government to raise taxes. Roosevelt countered with the arguments that, by putting more people to work, there would be more tax money coming in, thus helping to pay for the New Deal. Voices to the left, such as Huey Long and Father Charles Coughlin, said that the New Deal did not grow government enough.
The lasting legacy of the New Deal was that it established the precedent that the Federal Government would take action to limit economic disasters. The bottom line, however, is that the New Deal did not end the Great Depression, and after eight years of spending the unemployment rate was as high in 1939 as it had been in 1931. Roosevelt’s trusted friend, Secretary of the Treasury Henry Morgenthau, Jr., told the House Ways and Means Committee “We have tried spending money. We are spending more than we have ever spent before and it does not work.” It is likely true that Hoover’ policies and the New Deal may have unnecessarily lengthened the economic depression. Conversely, the New Deal may have saved the United States from major social upheaval. What really ended the Great Depression, though, were the vast demands of the coming Second World War.
- a sudden and dramatic drop in the value of shares traded on a stock exchange that often occurs after some unexpected event creates panic among investors who then rush to sell their stock, driving prices down
- The idea expressed in the Constitution that the government has certain limitations designed to protect the rights of the people.
- worldwide economic crisis which began with the stock market crash of 1929 and lasted throughout the 1930s
- a term used to describe the distinctive cultural, artistic and social evolutions as well as the economic prosperity of the 1920s
- all of the activities involved in running any type of organization (such as a school or a company); the group of people responsible for running an organization
- the total financial obligations of a nation; the total amount of money a nation owes
- a place where investors buy and sell shares of stock, also known as a stock exchange
- progress; moving forward
- a long downturn in economic activity; sustain recession; low production and sales with a high rate of business failure and unemployment
- a time period of great prosperity or peace
- the system which governs or exercises influence over a state or community
- the introduction of a something new or better, such as a new product or way to do something
- a person who favors a republic as the best form of government; a member of the Republican Party
- the use of knowledge to develop new devices, tools, or techniques intended to solve an existing problem or to improve, in some way, our quality of life
- a group of people delegated to perform a certain function such as investigating an issue or taking action for a specific cause
- a scientific theory that the genetic makeup of all living things has and continues to change over a very long period of time due to processes such as genetic mutation and natural selection.
- a person who moves to a new country
- chief executive; the highest position of office in a Republican state
- a social systems which advocates the shared ownership of the means of production and community as a whole by the citizens
- the theory that the overall genetic makeup of human populations can be improved scientifically, usually by controlling reproduction.
- not favoring any side during a dispute; not aligned with
- a period of one hundred years
- a culmination of knowledge, beliefs, and values developed through an individual's experiences in the world
- the way people use what they have in order to get what they need or want
- time to enjoy hobbies or sports free from the restraints of work
- a period of ten years
- the amount of a particular good or service that people want and have the ability to buy
- a change, event, or condition that is produced by a cause; a result
- something handed down from the past, such as an heirloom or inheritance; anything for which a person, group, or event from the past is remembered
- to improve; to change, especially for the better; to modify
- a principle of entitlement; fundamental rules
- land along a sea or ocean
- a particular space with definite or indefinite boundaries that has a specific name
- a system used for standardized measurment
- something that is greater in excellence (better) or higher in quality; favorable
- the amount of time a person has been alive; or a period of time usually named for a particular characteristic or condition shared by those who lived during that period; an era