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The Roaring 20’s and
the lead up to the Great
Depression
Morgan Fleming
Mr. Beck 1st period
IB History of the Americas
The beginning of the 1920’s
Nov 11, 1918 - Germany and the Allies sign an armistice to end the fighting in World War I
Nov 11, 1918
Jan 29, 1919 - Congress ratifies the Eighteenth Amendment, prohibiting the sale of alcohol
anywhere in the United States.
Jun 28, 1919 - In Paris, diplomats representing the combatant nations of World War I sign
the Treaty of Versailles, which promises to sustain peace through the creation of the League
of Nations but also plants the seed of future conflict by imposing mercilessly stiff reparations
on Germany.
August 19, 1920 - 19th Amendment was ratified and guaranteed all American women the
Economic Theories regarding the lead
up to the GD
Mercantilist Theory
Classical Theory
-Invisible Hand
Say’s Law
Mercantilist Theory
Mercantilist theory - is an economic theory and
practice common in Europe from the 16th to the 18th
century that promoted governmental regulation of a
nation's economy for the purpose of augmenting state
power at the expense of rival national powers. It was
the economic counterpart of political absolutism.
Mercantilism includes a national economic policy
aimed at accumulating monetary reserves through a
positive balance of trade, especially of finished goods.
*The more colonies that produce raw materials means
more finished products*
A picture painted at seaport during (By
Claude Lorrain) around 1639 at the
height of mercantilism
Good or Bad?
Some scholars rejected the idea of mercantilism completely, saying that it gives "a false unity to disparate
events". Smith saw the mercantile system as an enormous conspiracy by manufacturers and merchants
against consumers, a view that has led some authors, especially Robert E. Ekelund and Robert D.
Tollison, to call mercantilism "a rent-seeking society".
To a certain extent, mercantilist doctrine itself made a general theory of economics impossible.
Mercantilists viewed the economic system as a zero-sum game - in which any gain by one party required
a loss by another. Any system of policies that benefited one group would by definition harm the other, and
there was no possibility of economics being used to maximize the commonwealth, or common good.
Classical Economic Theory
The fundamental principle of the classical theory is that the economy is self‐regulating. Classical
economists maintain that the economy is always capable of achieving the natural level of real GDP or
output, which is the level of real GDP that is obtained when the economy's resources are fully employed.
Gross Domestic Product (GDP) is the broadest quantitative measure of a nation's total economic activity.
More specifically, GDP represents the monetary value of all goods and services produced within a nation's
geographic borders over a specified period of time.
In his first book, "The Theory of Moral Sentiments," Smith proposed the idea of the invisible hand—the
tendency of free markets to regulate themselves by means of competition, supply and demand, and selfinterest.
“Invisible hand”- is a metaphor for how, in a free market economy, self-interested individuals operate
through a system of mutual interdependence to promote the general benefit of society at large.
Adam Smith: the Father of Economics
Adam Smith was an 18th century philosopher
renowned as the father of modern economics, and
a major proponent of laissez-faire economic
policies.
Smith is also known for his theory of compensating
wage differentials, meaning that dangerous or
undesirable jobs tend to pay higher wages to attract
workers to these positions.
He is most famous for his 1776 book: "An Inquiry
into the Nature and Causes of the Wealth of
Nations."
Say's Law
Otherwise known as “Say’s Law of Markets”
The Say's law of markets is an economic rule that
says that production is the source of demand.
According to Say's Law, when an individual
produces a product or service, he or she gets
paid for that work, and is then able to use that
pay to demand other goods and services.
Say's Law is named after the 18th-century French
classical liberal economist Jean-Baptiste Say,
who popularized the notion. Say was an
advocate of laissez-faire economics and was
heavily influenced by Adam Smith.
So the 1920’s named it Say’s Law which states
that supply creates its own demand. The Great
Depression didn’t support this theory. The supply
of workers did not create demand and
unemployment remained high.
Roaring 20’s (1920-1929)
Roaring 20’s was a time of rebirth and
change….and also lots and lots of
parties!!! The wealthy had the luxury of
or being able to party all the time as well
as buy the new inventions of the 20’s.
Babe Ruth and Jack Johnson made
sports become very popular. Writes
such as F. Scott Fitzgerald, Edgar Rice
Burroughs, and Ernest Hemingway
became very popular on more of the
ideas of becoming rich and wealthy.
In 1913,
refrigerators for
home use were
invented.
Fashion/Women
Women were becoming more independent. THey were starting to become men in the
area of business and working. Called “New Women Emerging”. The most farreaching change was political. Many women believed that it was their right and duty
to take a serious part in politics.
“Flappers” were the new trend, along with many other things such as:
Motion Picture Industry
The 1920s saw a vast expansion of Hollywood
filmmaking and worldwide film going.This is a change
that had begun with the long D.W. Griffith epics of the
mid-1910s. In Hollywood, numerous small studios
were taken over and made a part of larger studios,
creating the Studio System that would run American
filmmaking until the 1960s. Fox Studios and the
Warner Brothers were crucial in the development and
acceptance of the technology of sound in motion
pictures.
Paramount Fox
Universal
United Artists
Warner Brothers
Prohibition and Speakeasies
A speakeasy, also called a blind pig or blind tiger, is an
illicit establishment that sells alcoholic beverages. Such
establishments came into prominence in the United States
during the Prohibition era (1920–1933, longer in some
states). During that time, the sale, manufacture, and
transportation (bootlegging) of alcoholic beverages was
illegal throughout the United States
Speakeasies largely disappeared after Prohibition was
ended in 1933, and the term is now used to describe some
retro style bars.
A little info about Harding
Warren G. Harding was the 29th President of the United States. A personable,
conservative senator from Ohio, Harding won the presidential election of 1920 in a
landslide by promising a "return to normalcy" after World War I.
Harding's administration ended up plagued by corruption scandals, as many of the
President's cronies used their high positions in government for illegal personal
gain. Harding died of a heart attack less than three years into his term, before the
worst revelations of corruption in his administration were revealed to the public. In
retrospect, many historians rank Harding among the very worst presidents of all
time. Also blamed for the GD.
President
Calvin
Coolidge
30th President
1923 - 1929
President Coolidge
30th President of the U.S. Republican (His term was from: August 2, 1923 – March 4,
1929)
Coolidge later helped create the Federal Radio Commission, which has now evolved
to become the Federal Communications Commission (FCC). He was successful in
reducing taxes and he lowered the $20 billion in national debt by about a billion dollars
a year. He also helped fix and improve the mess of Harding’s administration.
He decided to not to run for office and a few months after he left, the stock market
crashed and he was part to blame. Others says it was because he followed the
laissez-faire policy.
(Laissez-faire - French for “Let (people) do (as they choose).” It describes a system or
point of view that opposes regulation or interference by the government in economic
affairs beyond the minimum necessary to allow the free enterprise system to operate
President
Herbert Clark
Hoover
31st President
1929 - 1933
President Hoover
31st President in U.S. Also a Republican. Unfortunately,
Hoover's presidency saw not the banishment of poverty,
but instead the onset of the Great Depression,
which began with the stock market
crash of 1929.
As the Depression deepened, Hoover failed to
recognize the severity of the situation or leverage the
power of the federal government to squarely address
it.This was why Hoover was VERY disliked by many
Americans as he also vetoed many bills that could have
helped many people struggling.
Key Industrialist and
their impact on the
20’s
Rockefeller
John Davison Rockefeller Sr. was an American oil
industry business magnate and philanthropist, who
is considered to be the wealthiest American of all
time by virtually every source, and—largely—the
richest person in modern history.
Rockefeller founded Standard Oil Company, Inc. in
1870. Oil was used throughout the country as a light
source until the introduction of electricity and as a
fuel after the invention of automobile. Rockefeller
had enormous influence on the railroad industry,
which transported his oil around the country.
Standard Oil dominated the oil industry and was the
first great business trust in the United States.
Puck magazine cartoon,
"The Infant Hercules and
the Standard Oil
serpents", May 23, 1906
issue; depicting U.S.
President Theodore
Roosevelt grabbing the
head of Nelson W. Aldrich
and the snake-like body
of John D. Rockefeller.
Ford
Henry Ford was an American industrialist, the founder of
the Ford Motor Company (1903), and the sponsor of the
development of the assembly line technique of mass
production.
Although Ford invented neither the automobile nor the
assembly line, he developed and manufactured the first
automobile that many middle class Americans could afford.
In doing so, Ford converted the automobile from an
expensive curiosity into a practical conveyance that would
profoundly impact the landscape of the 20th Century. His
introduction of the Model T automobile (1908)
revolutionized transportation and American industry. As the
owner of the Ford Motor Company, he became one of the
richest and best-known people in the world. He is credited
with "Fordism": mass production of inexpensive goods
coupled with high wages for workers. Ford had a global
vision, with consumerism as the key to peace.
Time magazine,
January 14, 1935
The Creation of Henry Ford’s
Assembly Line
J.P. Morgan
John Pierpont "J. P." Morgan was an American financier
and banker who dominated corporate finance and industrial
consolidation in late 19th and early 20th Century United
States.
In 1892, Morgan arranged the merger of Edison General
Electric and Thomson-Houston Electric Company to form
General Electric. He was instrumental in the creation of the
United States Steel Corporation, International Harvester
and AT&T. At the height of Morgan's career during the
early 1900s, he and his partners had financial investments
in many large corporations and had significant influence
over the nation's high finance and United States Congress
Self-conscious about
his rosacea, Morgan
hated being
photographed.
Cornelius Vanderbilt
Cornelius Vanderbilt, also known informally as
"Commodore Vanderbilt", was an American
business management and philanthropist who built
his wealth in railroads and shipping. He is best
known for building the New York Central Railroad.
As one of the richest Americans in history and
wealthiest figures overall, Vanderbilt was the
patriarch of a wealthy, influential family. He
provided the initial gift to found Vanderbilt
University in Nashville, Tennessee. According to
Statue at the
modern Grand
Central Terminal
Al Capone
Alphonse Gabriel "Al" Capone went on to become the most
infamous gangster in American history. In 1920 during the height
of Prohibition, Capone's multi-million dollar Chicago operation in
bootlegging, prostitution and gambling dominated the organized
crime scene. Capone was responsible for many brutal acts of
violence, mainly against other gangsters. The most famous of
these was the St. Valentine’s Day Massacre in 1929, in which he
ordered the assassination of seven rivals. Capone was never
indicted for his racketeering but was finally brought to justice for
income-tax evasion in 1931. After serving six-and-a-half years,
Capone was released. He died in 1947 in Miami.
Rise of materialism
Market
The concept of leverage is used by both
In the traditional
culture of USLeverage
in 1920s,
rich people who have an enormous
amount of money to spent were seen as
a god, while the poors were left behind.
Popularity of any members of the society
were determined by the amount of money
one have to spend on alcohol and fancy
clothes.
investors and companies. Investors use
leverage to significantly increase the returns
that can be provided on an investment. They
lever their investments by using various
instruments that include options, futures and
margin accounts.
Many Americans bought items that they
would have no use for in life but were
deemed necessary by the upper-class or
the wealthy. So as new products were
coming out, more and more people
began to buy these new products in order
Companies can use leverage to finance
their assets. In other words, instead of
issuing stock to raise capital, companies can
use debt financing to invest in business
operations in an attempt to increase
shareholder value.
Role of income distribution
Throughout the 1920’s, many factors played a role in bringing about the depression;
the main causes were the unequal distribution of wealth and extensive stock market speculation. Money was
distributed unequally between the rich and the middle-class, between industry and agriculture within the United
States, and between the U.S. and Europe. This disproportion of wealth created an unstable economy.
From 1920 to 1929, productivity of the american workforce increased by 62%, while wages increased only
18% and the prices declined only 3%. Farm income declined while worker’s income increased. The US was
mostly interested and tended to support the concept in single- concept government. The business community
received tax advantages, productive tariffs, assistance through trade, and court assisted union-busting under
the so called “american Plan”. Labor Union membership declined by 28% between 1920-1929. Hoover did
very little to improve the bargaining power of works.
The point is, wealthy people often acted in terms of their own short-range advantage and not in the terms of
the needs of the economy as a whole. Had income been more evenly distributed, more consumer demand for
mass produced items would probably have been created, and there undoubtedly would have been a greater
incentive for the wealthy people to invest in productive enterprises like plants and equipment, rather than
speculating in stocks on an inflated market or risky land deals.
Key Government
policies and
legislative actions
Dawes Plan (1924)
The Dawes Plan (as proposed by the Dawes Committee,
chaired by Charles G. Dawes) was an attempt to solve
the World War I reparations problem, which had
bedeviled international politics following World War I and
the Treaty of Versailles.
Results - The Dawes Plan provided short-term economic
benefits to the German economy and softened the
burdens of war reparations. By stabilizing the currency, it
brought increased foreign investments and loans to the
German market. But, it made the German economy
dependent on foreign markets and economies. As the
U.S. economy developed problems under the Great
Depression, Germany and other countries involved
economically with it also suffered. The Allies owed the
US debt repayments for loans.
Smoot-Hawley Tariff Act (1930)
Smoot-Hawley Act was an act sponsored by Senator Reed Smoot
and Representative Willis C. Hawley and signed into
law on June 17, 1930.
The act raised U.S. tariffs on over 20,000 imported goods to record levels. Most economists view the Act, and
the ensuing retaliatory tariffs by America's trading partners, as responsible for reducing American exports and
imports by more than half. The extent of Smoot-Hawley's negative effect on the Depression-era economy
remains debated by economists.
The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin
Delano Roosevelt and the now-Democratic Congress passed Reciprocal Trade Agreements Act of 1934. This
act allowed the President to negotiate tariff reductions on a bilateral basis, and also treated such a tariff
agreement as regular legislation, requiring a majority, rather than as a treaty requiring a two-thirds vote.
According to Ben Bernanke, "Economists still agree that Smoot-Hawley and the
ensuing tariff wars were highly counterproductive and contributed to the depth and
The Crash of 1929
The Wall Street Crash of 1929, also known as Black Tuesday (October 29) the
Great Crash, or the Stock Market Crash of 1929, began on October 24, 1929
("Black Thursday"), and was the most devastating stock market crash in the history of
the United States, when taking into consideration the full extent and duration of its
aftereffects. The crash, that had followed the London Stock Exchange's crash of
September signaled the beginning of the 10-year Great Depression that affected all
Western industrialized countries. "Overall, prosperity and unregulated business had
led to a very active and volatile stock market. That situation plus a lack of clear
banking practices to protect investments eventually caused a stock market crash in
October 1929 that would halt the prosperity of the decade and bring about the Great
Depression of the 1930s." (Thomas Pendergast).
Women’s Suffrage
Cartoon 1920’s
Origin: Cartoon, drawn in 1920 by...
Purpose: To show people (men) that
women are now able to vote and that the
“roles” can now legally be reversed.
Content: Babies crying shows Father is not
used to being a Mr. Mom, teapot is blowing
steam signaling that it is ready, plates
smashed on the floor - all means that a man
is not used to a woman's job
Value: It is a cartoon drawn in the 1920’s which is when the
19th amendment was ratified. “The right of citizens of the
United states to vote shall not be denied or abridged by the
United States or by any State on account of sex”
Content: Women voting was new gossip and big news. This
cartoon was everywhere expressing how things were going to
change now that women were starting to be given rights as
men.
Limitation: It is a biased picture (favoring women). Does not
show the violence that women received and how not so nice
husbands reacted to the 19th amendment. A picture with no
dialogue.
Content: (No comment bubbles) The woman is obviously not
doing her “normal house duty” and only focuses on one
household.
Bibliography
http://www.pbs.org/wgbh/americanexperience/features/timeline/rails-timeline/
http://us-presidents.insidegov.com/compare/12-17/Calvin-Coolidge-vs-Herbert-Clark-Hoover
http://www.pbs.org/wgbh/americanexperience/features/timeline/rails-timeline/
http://www.investopedia.com/terms/s/says-law.asp?lgl=no-infinite
http://www.shmoop.com/1920s/timeline.html
http://creation.com/the-history-of-the-rise-of-materialism-in-western-society
http://www.investopedia.com/ask/answers/06/forexleverage.asp
Bibliography
http://www.economicshelp.org/blog/17553/trade/mercantilism-theory-andexamples/
https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act
Sandia Website Sources
http://school.eb.com/levels/high/article/106214#
https://www.mackinvia.com/Reader/Launch?viaId=2704320&bookId=13750901&la
nguage=0&page=1
https://www.mackinvia.com/Reader/Launch?viaId=2704001&bookId=13719896&la
nguage=0&page=18
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