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The Era of Prosperity World War I did not manage to make the world safe for democracy. However, one of its primary outcomes was the creation of a favorable situation for the American consumer. The 1920 s saw the growth of the culture of consumerism, as many Americans began to work fewer hours, earn higher salaries, invest in the stock market, and buy everything from washing machines to Ford Model T's. The culture of consumerism of the 1920 s changed the politics of American society and set the tone for American attitudes about money.
This decade was called The Era of Prosperity or The New Era and was characterized new opportunities and relative prosperity. However, the economic policy was not flawless and the 20 s eventually ended up with the Great Crash on the stock market and the beginning of the time called The Great Depression. I want to analyze economic factors that marked the Era of Prosperity and track forces that led to the Great Crash and the Great Depression. In general, the U.
S. economy experienced steady growth and expansion during the 1920 s. In those circumstances three factors of production became especially important. They were machines, factory, and the process of standardized mass production.
A self-perpetuating cycle was created. Its major characteristic was the fact that standardized mass production led to better machinery in factories, which in its turn led to higher production and higher wages. This led to more demand for consumer goods which led back to more standardized mass production. This upward spiral, which led to a business boom, continued until 1929.
Economists define five major forces responsible for the economic boom. The first force was the effect of WW I on technology. Resources were reallocated according to the needs of the time during the war and a significant labor shortage, combined with the need for increased production, necessitated new, more efficient methods of production. The second force is popularly called The Taylorism getting its name from Frederick Taylor who is considered to be the father of the scientific management. This scientific management was implemented on the large scale by American industries and millions of dollars were invested into industrial research.
The rapid increase in worker productivity is the third force being the primary outcome of the first two. The scientific management and new technologies increased workers productivity making them earn higher salaries and becoming better consumers. The fourth force was the changed psychology of consumption. One of the practical economists, Thorstein Veblen, introduced the new term - "conspicuous consumption. " Americans were doing their best to get rich. The final force was the system of interactions between businesses and the federal government. The government supported businesses in several ways.
First of all, high tariff policy for foreign-made goods was implemented by The Fordney-Mc Cumber Act (1922). There were cutbacks in the Federal Trade Commission (FTC) that had been created to regulate big business and to look into unfair trade practices, but did less and less of this in the 1920 s. Also, Herbert Hoover, first as Secretary of Commerce and then as President encouraged price-fixing and believed that the government was responsible for helping businesses to profit. The Era of Prosperity could last forever if only some perils were not involved in it.
Let me define and discuss factors responsible for the outbreak of the Great Depression. The roots of the problem were in the structure of the American economic system. Economists define five major reasons of the economy collapse. They are: unequal distribution of wealth and income, unequal distribution of corporate power, bad banking structure, foreign balance of payments, and limited or poor state of economic intelligence. Despite rising wages overall, income distribution was extremely unequal. Gaps in income had actually increased since the 1890 s.
The 1 % of the population at the very top of the pyramid had incomes 650 % greater than those 11 % of Americans at the bottom of the pyramid. The tremendous concentration of wealth in the hands of the few meant that the American economy was dependent on high investment or luxury spending of the rich. However, both high spending and high investment are very susceptible to fluctuations in the economy; they are much less stable than people's expenses on daily necessities like food, clothing, and shelter. Therefore, when the market crashed and the economy tumbled, both big spending and big investment collapsed.
From the late 1870 s on, there had been an ongoing movement of consolidations and mergers. During WWI, many would-be competitors were merged into huge corporations like General Electric, making competition nearly nonexistent. In 1929 two hundred of the biggest corporations controlled 50 % of the corporate wealth in America. This concentration of corporate wealth meant that if just a few companies went under after the Crash, the whole economy would suffer.
In the 1920 s, banks were opening at the rate of 4 - 5 per day, but without many federal restrictions to determine how much start-up capital a bank needed or how much of its reserves it could lend. As a result, most of these banks were highly insolvent; between 1923 and 1929, banks closed at the rate of two a day. Until the stock market crash in 1929, prosperity covered up the flaws in the banking system. After the WW I, America turned from debtor nation into a credit nation.
However, debtor nations could pay their debts in form of goods if only the tariffs were lower. The policy of protectionism kept foreign goods out of US, foreign countries couldnt pay their debts and had no money to buy American goods. Also, the fact that most American economists and political leaders in 1929 still believed in laissez-faire and the self-regulating economy made its contribution to the beginning of the depression. To help the economy along in its self-adjustment, President Hoover asked businesses to voluntarily hold down production and increase employment, but businesses couldn't keep up high employment for long when they weren't selling goods. There was a widespread belief that if the federal budget were balanced, the economy would bounce back. Hoovers Administration was also mistakenly committed to remain on the international gold standard.
The Great Depression lasted from October 24, 1929 until the economic recovery of the 1940 s. On October 29, Black Thursday, the stock market crashed heavily, and continued to fall sharply throughout the coming weeks. As a result, the United States and the world were thrown into a decade of poverty and unemployment. For five years prior to the crash, the stock market was characterized by the rising prices. Major reasons for such state included the rising stock dividends, increase in personal savings, relatively easy money policy, the fact that over-production profits were reinvested in new production, lack of stock market regulation, and the psychology of production. People invested in stock in the effort to get fast profits.
Increased personal savings made possible by the increase in wages provided people with the opportunity to invest. People also eagerly took loans to invest in stock. Over-production profits reinvested into new production led only to more over-production. As you can see, the transition from the Era of Prosperity to the Great Depression was rapid and unexpected and the major reason for such dramatic change was the structure of the US economy and with its imperfect system of regulations in combination with the new consumption psychology, badly developed banking system, and overoptimistic behavior of producers, investors, and consumers. Words: 1227. Bibliography: Bierman, Harold.
The Causes of the 1929 Stock Market Crash. Greenwood Press, Wesport, CT: 1998. Mitchell, Broadus. Depression Decade: From New Era Through New Deal 1929 - 1941.
M. E. Sharpe, Inc. , White Plains, NY: 1947. Rothermund, Dietmar. The Global Impact of the Great Depression. Routledge, London: 1996.
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