In The 1920s The USA Became A

Major Industrial Power In The World, Yet By 1932 Twelve Million Ameri Essay, Research Paper

Unlike the other countries involved in the First World War, the USA emerged without any major drainage of her resources. Because the USA had elected to stay out of European affairs at first, they only joined in the conflict towards the end, when their own interests were being threatened. Seeing as, unlike the other nations involved, America hadn’t had to finance their nation through the entire war, the start of the 1920s saw America relatively unscathed by the war which had bankrupted other countries. This meant that the country could get on with building itself up while the European powers where still picking themselves out of the rubble.

The key to America’s prosperity was the Republican party, who’s policies allowed the USA to grow into a huge industrial nation. The party practised a policy known as “laissez-faire” – literally “leave alone” – that dictated that politicians keep out of the lives of the man in the street and let him get on with his own job, while the politicians focused only on politics. This meant that huge corporations could spring up without fear of fair trade laws or Government-imposed profit barriers. Mammoth conglomerations of firms appeared, called “trusts,” often monopolising whatever it was the trust dealt in. Some politicians, especially the opposition Democrat party, were opposed to this practice as it allowed huge amounts of power and national resources to fall into the hands of a single businessman or committee. However, the policy did have enormous benefits for the US economy, as the trusts could charge huge amounts to foreign firms buying their goods.

The Republican foreign policies also contributed to the nation’s wealth. Isolationist policies were introduced, including efforts to reduce the number of imported goods and encourage the public to buy American products. They did this by introducing heavy import tariffs, making foreign goods very expensive in the US and discouraging people from buying them.

However, the Republican policies didn’t benefit everyone. Businesses that had previously relied on the European market to subsidise themselves found their incomes dropping alarmingly as the bankrupted nations found themselves unable to afford American goods – which were made even more expensive by Republican trade tariffs. Farmers were hit especially badly. Not only had they lost this previously lucrative foreign market, they were now facing fierce competition from highly-efficient Canadian wheat farms. Overproduction also meant that farmers were forced to sell their produce off at rock-bottom prices. As roughly half of the US population lived in rural areas at the time, the struggling farms were a large economic problem. Around six million people were forced off the land and out of work, including seven hundred and fifty thousand immigrant workers.

Unemployment was also attributed to the increasing mechanisation of heavy industries, which meant that unskilled workers and cheap immigrant labourers were forced out of their jobs. Although this meant that the companies had fewer costs, and thus made more profits, it left millions unemployed in the US.

The depression at the end of the 1920’s boom period stemmed from the very prosperity of the period – especially the huge consumer goods market. Due to their new-found wealth, people in urban areas decided it was their right to have very convenience available to them. They were spending money that they sometimes didn’t even have in order to have every possible luxury – so they would buy the items on credit, knowing that their salaries would be able to pay off their debts.

But this didn’t always go according to plan, especially when people were borrowing in order to buy shares, something of a craze in 1920s America. Many Americans saw the stock exchange as a route to easy money. Large profits could be quickly made on the stock exchange, and in the 1920s this was increasingly through speculation. Speculation is a form of gambling, in which stockholders don’t intend to hold onto their shares for long. Speculators buy a lot of shares cheaply, then sell them all off when they increase in value.

Speculation is built on confidence. If a speculator loses confidence that his shares are going to become more valuable, he sells them all off quickly, hoping to at least break even so he can pay off the credit he bought the shares on. But if shares are being sold off quickly, their value decreases and other shareholders also sell rapidly, ridding themselves of their devalued stock. This can rapidly spiral out of control until eventually the shares are almost worthless, because scared stockholders are flooding the exchange with shares they no longer want.

As a result, everyone panics, and swiftly sells off any shares they might have. As a result, all shares drop in price, companies suddenly find themselves in trouble, and sometimes even fold altogether.

In 1929, the Wall Street Crash devastated US economics, and such a crippling blow to such an enormous world power affected stock markets worldwide. Economic problems had surfaced throughout the last few months of ‘29, but the Crash brought it all to a head.

In September, an economic forecaster called Roger Babson warns that “sooner or later a crash is looming and it may be terrific.” Shareholders take his words to heart and sell rapidly, but the market soon recovers and prices start rising again.

The following month, prices fall again. People are selling off their stock too fast for people to keep up with the changing prices. Stock values fall throughout, and the loss of confidence causes even more drops. But confidence was restored on the 24th, when banks intervened, buying up unwanted stock and therefor keeping prices stable.

But then the banks stopped supporting share prices. On the 29th of October, the stock market index loses 43 points. The next day saw another huge fall, as panicking speculators sell anything and everything for whatever price they can. The market crashed. The US economy was destroyed, and America fell into economic depression. Millions of jobs were lost as companies folded, factories closed, shops were bankrupted. By 1932, twelve million American citizens were out of work, and depression settled determinedly on the United States.