US Economy: Roaring Twenties, 1929 Crash & New Deal

The US: Prosperity, Crisis, and the New Deal

The Roaring Twenties: An Era of Economic Growth

The decade from 1918 to 1929, following World War I, was a period of significant economic growth in the United States. The American Way of Life, with its core values of individual initiative and the pursuit of success, became an influential model for much of the world.

Key Drivers of 1920s Economic Growth

• Significant technical innovations.
• The implementation of Fordism (mass production techniques), leading to mass consumption and a booming stock market.
• A notable rise in workers' wages.
• Extensive and persuasive advertising campaigns.
• The widespread availability of hire-purchase (installment buying) options.
• Increased accessibility to bank loans for businesses and consumers.

The Paradox of Prosperity in the 1920s

• Despite general prosperity, many farmers faced severe financial hardship, nearing ruin. They had borrowed substantial sums of money to acquire more land and machinery, aiming to increase production to meet wartime demands. However, once World War I concluded, European agricultural production recovered. This recovery led to a surplus in agricultural goods, as domestic and international markets, along with consumers, could not absorb all the American farm output. Consequently, overproduction became a critical issue, leading to an accumulation of unsold stocks. As a result, agricultural prices fell rapidly, ultimately ruining many farmers.
• Similar issues of overproduction and accumulating unsold stocks also emerged in the industrial sector. The overall American economy began to stagnate, and the government at the time did not implement effective measures to address these growing economic problems.

The Wall Street Crash of 1929 and Its Impact

• During the boom years, many people began to invest heavily in the stock market.
• A significant stock market boom occurred, with numerous citizens investing their savings to purchase shares, often fueled by speculation.
• However, the value of these shares was frequently overvalued and not reflective of the companies' actual worth, creating a real and growing risk of a major financial disaster.
• On October 24^th, 1929 (Black Thursday), widespread mistrust suddenly gripped investors. They rushed to sell their shares en masse, but there were virtually no buyers available at prevailing prices.
• As a result, share values plummeted dramatically, triggering the infamous Wall Street Crash.
• Panicked citizens then rushed to banks in an attempt to withdraw their savings. However, many banks were unable to meet these massive withdrawal demands. A substantial portion of their funds had been loaned out to individuals and businesses that were now bankrupt due to the devastating stock market crash.
• The crisis deepened further on October 29^th, 1929 (Black Tuesday), when another massive wave of share selling occurred, provoking renewed and intensified panic across the financial markets.
• A severe liquidity crisis (a lack of available money) ensued within the United States. Consequently, the U.S. government ordered the recall of all outstanding loans that had previously been extended to European nations to aid in their post-war reconstruction efforts. The abrupt withdrawal of these American funds caused the economic crisis to spread rapidly to Europe, transforming it into a global depression.

Combating the Crisis: Roosevelt's New Deal

• In response to the escalating economic catastrophe, the United States, under new leadership, and most European countries subsequently adopted a variety of measures aimed at mitigating the devastating effects of the crisis.
• President Franklin D. Roosevelt, who took office in 1933, introduced the New Deal. This was a series of comprehensive political programs, reforms, and public works projects. These initiatives were largely based on the economic theories of John Maynard Keynes, a prominent economist who advocated for significant state intervention in the economy to stimulate demand, create jobs, and promote recovery during times of economic downturn.