POLITICS of the 1920’sA turning away from the governmental activism of the Progressive Era

 

  Three Republican presidents—Warren Harding, Calvin Coolidge, and Herbert Hoover— steered the nation on the roller-coaster ride of the 1920s, a thrilling ascent from the depths of post– World War I recession to breathtaking heights of prosperity, followed by a terrifying crash into the Great Depression. In a retreat from progressive reform, Republicans

sought to serve the public good less by direct government action and more through cooperation with big business. Some corrupt officials served themselves as well, exploiting public resources for personal profit. Meanwhile, the United States retreated from its brief internationalist fling during World War I and resumed with a vengeance its traditional foreign policy of military unpreparedness and political isolationism 

A Review of Presidential Scandals     

 

POLITICS of the 1920’s Why a turning away from the governmental activism of the

Progressive Era? Point #1 People looked for “return to normalcy” after sacrifices and hardships of World War I. Point #2 Many believed in limited role in foreign affairs and international efforts to prevent war Point #3 Supported interests of big business through tax cuts for corporations and the wealthy and through high tariffs; believed government should not intervene in the economy Point #4 Manu believed government should NOT act to protect or assist individuals Point #5 Economy grew rapidly from 1920–1929. and Republicans won three elections with conservative views.       

 THE BOOMING ECONOMY of the ROARING TWENTIES

  

1. Growth in Automobile industry; Mass Production - Assembly line e.g. Ford's car factory

2. High levels of Consumer confidence, increased by new attitudes to consumerism.

3. Improvements in technology, partly as a result of WWI4. Improvements in labor productivity - e.g. technology and new

management techniques5. Scientific Management - Taylorism

  Boom in Stock Market The performance of the stock market, seemed to create an easy way to make money. This encouraged more speculators to enter.  

 

What made the stock market crash? Here's a brief summary. But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors' money in the stockmarket.When word spread that banks' assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings.

  

     Boom and Bust.This was not the first investment bubble, nor was it the last. Most recently we saw a similar phenomena in the dot com bubble. Here, the effects were much less because it was confined to a small sector of the stock market.

The weakness of capitalism is people’s irrationality. i.e. people stopped judging shares on economic potential, but, got caught up in a speculative bubble.Therefore, in October 1929, Shares were grossly overvalued. When some companies posted disappointing results, some investors started to feel this would be a good time to cash in on their profits. This initial selling caused a fall in prices; this change in market sentiment soon spread as other investors started to panic and follow suit. Before long the market was falling very rapidly. The bull market had been replaced by a bear market.

 Call Money - a term used for funds used to finance stocks held on margin. At this time a speculator could buy stocks for a little as 10 percent margin, borrowing the rest from the broker. Banks and even industrial corporations flocked to lend money to brokerage firms at 12%, while the brokers in turn lent it to their customers at 20%. Bethlehem  Steel had $150 million and Chrysler had $60 million in the call money market by the end of the summer of 1929 Banks began borrowing money from the Federal Reserve through a discount window of 5% and lending it to brokers. When a bank borrowed at 5% they would lend it out at 12%, making a 7%return on someone else's money.   Mismatch between production and consumptionThe 1920s saw great strides in production techniques, especially in industries like automobiles. The production line enable economies of scale and great increases in production. However, demand for buying expensive cars and consumer goods were struggling to keep up. Therefore, towards the end of the 1920s many firms were struggling to sell all their production. This caused some of the disappointing profit results which precipitated falls in share prices. InequalityOne reason why consumption struggled to match production was that the benefits of economic growth were not equally distributed. The majority of Americans still earned less than $2000 per year. Wealth was inequitably distributed. Weaknesses in the Banking SystemBefore the Great Depression, the American banking system was characterised by having many small to medium sized firms. America had over 30,000 banks. The effect of this was that they were prone to going bankrupt if there was a run on deposits. In particular, many banks in rural areas went bankrupt due to the agricultural recession. This had a negative impact on the rest of the financial industry.Between 1923 and 1930 5,000 banks collapsed 

Note: If the question was – What Caused the Great Depression? the answer would be slightly different. This is because some believe the Stock market crash was only partly to blame for the Great Depression (although a significant factor in precipitating it.)     

        

 http://www.tubechop.com/watch/1045673 

 http://workforall.net/the-great-1929-Depression.html