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Prosperity, Depression, and the New Deal 1920s Economy and Advertising “Mass production is only possible where there is mass demand. Mass demand has been created almost entirely through the development of advertising. …” President Calvin Coolidge, 1926 1920s Economic Prosperity Industry *Percentage Increase, 1922-28 Industrial Production: 70% Gross National Product (value of total goods and services produced): 40% Output per factory man hour: 75% Corporate Profits: 62% (1923-1929) Standard of Living * Percentage Increase, 1923 – 1929 Homes with Electricity: 30% Telephone Ownership and Use: 54% Home Ownership: 25% Automobile Ownership: 150% Workers *Percentage Increase, 1923-29 Worker's Incomes: 11% Average Work Week: -4% In what general ways did the economy change in the 1920's? What changes in the average worker's wage, output, and work day length do you notice? What effects did this have on the average American? 1920s Economic Prosperity Unemployment remained low and prices for consumer goods remained stable people had $ to spend on affordable goods Availability of electric power Telephones, radios, and electric appliances Henry Ford and the Automobile Industry Mass production and moving assembly line affordable car for the masses, the Model T $290 in 1927 ($2900 today) Ford paid workers $5 a day workers could afford to buy cars themselves increased demand for cars 1903: Ford made 1700 cars in 3 different styles 1914: Ford made 286,770 cars in ONE style 1925: Ford made 1 car every 10 seconds!! 1924 Advertisement for a Ford Model T – “available in any color so long as it is black” The Automobile Industry The automobile industry drove the 1920s economy Road construction, gasoline/service stations, oil, and motel industries all profited Job creation Led the way in installment plan buying – “buy now and pay later” Encouraged consumer spending and increased consumer debt created artificial demand Superficial and temporary prosperity The Politics of Prosperity Republican Party dominated the 1920s and encouraged business growth Cut taxes on wealthy unequal distribution of wealth Opposed labor unions wages remained low Cut federal spending; believed in a balanced budget Laissez-faire approach High protective tariffs promote American businesses over foreign competition Undid many Progressive Era Reforms The Politics of Prosperity President Warren G. Harding, 1920 - 1923 President Calvin Coolidge, 1923 - 1928 “The chief business of the American people is business…The man who builds a factory builds a temple.” President Coolidge The “Bull” Market, 1920 – 1929 What is “stock?” Why would someone buy stock? Are there risks? How/why are stocks valuable? What determines the prices of stocks and direction of the stock market? What is the “stock market?” Stock Prices, Round #1 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 80 80 120 110 70 120 120 150 Stock Prices, Round #2 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 100 110 150 120 60 140 130 160 Stock Prices, Round #3 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 150 130 190 130 50 150 140 200 Stock Prices, Round #4 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 140 180 40 140 90 110 100 210 Stock Prices, Round #5 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 160 190 30 160 100 170 110 210 Stock Prices, Round #6 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 150 220 60 150 110 180 90 230 Stock Prices, Round #7 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 180 270 100 200 180 90 180 270 Stock Prices, Round #8 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 160 280 150 180 210 60 100 170 Stock Prices, Round #9 Kroger RCA Mammoth Oil City Corp. Durant Motors Midland Power K & P Railroad Tel-Tone 80 50 30 150 50 10 20 80 Causes of the Great Depression Agricultural Weaknesses – 1920s Falling demand after WWI decreased farm income Overproduction worsened the situation Increased debts, loss of farms and homes Uneven Distribution of Wealth by 1929 Low wages workers can’t afford all of the products they produce 70% of American families lived in poverty; 80% had no savings Causes of the Great Depression Struggling Industries Housing, automobile, steel, and RR’s Overuse of credit consumers cut back on spending by late 1920s Low demand for goods less production unemployment no $ to spend less demand Poor Fiscal Policies by the Federal Government Not enough $ in circulation no $ to spend High interest rates difficult to borrow $ Republicans tried to balance the budget by raising income taxes people have less $ to spend Causes of the Great Depression International Problems WWI economic devastation and huge debts in Europe High tariffs worldwide (Hawley Smoot Tariff) contracted trade and decreased international demand by 70% Weaknesses in the Stock Market Inflated stock prices reflected demand and confidence, not actual business value Speculation – “risky business” Buying on margin – works as long as prices go up No laws/regulations The Great Depression Begins SM crash on Tuesday, October 29, 1929 – marked the beginning of the GD 16.4 million shares sold; $30 billion lost by November Bank Failures Investors default on loans bank reserves fall and savings lost Federal Reserve failed to loan $ to banks “Runs on banks” 9,000 out of 25,000 banks in nation close by 1933 Unemployment = 25% by 1933 Run on NYC Bank – American Union Bank closed on June 30, 1931 The Dust Bowl: Nature’s Cruel Blow President Herbert Hoover, 1929 - 1933 Quaker upbringing in Iowa and Oregon, orphaned at age 10 Stanford educated – successful mining engineer who worked internationally (China, London) Humanitarian hero of World War I (Belgium, Soviet Union, US) Hoover’s Philosophies Traditionally Republican = limited role for the government in the economy 1920s prosperity would return if the economy was left alone (laissez-faire) Did not support direct government aid to the American people Feared they would become dependent on the government; “rugged individualism” Encouraged volunteer efforts to combat the GD Voluntary wage freezes by businesses Private charities to fight homelessness and other needs Hoover’s Actions Public Works Projects Roads, dams, etc (Boulder Dam) Use government $ to fund private companies Provide jobs, but workers not paid by the government Reconstruction Finance Corporation Government loans for banks, RR’s, big businesses to keep them going and encourage expansion “Trickle-down” method higher wages and jobs Ultimately failed b/c states and businesses were unwilling to borrow $ Hoover’s Actions From bad to worse… The Bonus Army (1932) WWI vets marched to Washington DC to demand early payments of promised bonus ($500) Congress refused in June Hoover initially supported their presence, but then sent the US Army to forcefully evict protestors with guns and tear gas 100 veterans injured and Hoover’s reputation destroyed Hoover’s Assessment Despite failures, Hoover actually did more than any previous president Faced an unprecedented economic crisis Too principled and idealistic? When, if ever, should politicians compromise their principles? How much blame should be assigned to Hoover for the GD? “Hoovervilles”, “Hoover flags”, “Hoover blankets” Franklin and Eleanor Roosevelt A Political Power Couple Franklin and Eleanor Roosevelt Married in 1905 and had 6 children Franklin Roosevelt Early political career: NY State Senator, 1911 – 1913 Assistant Secretary of Navy, 1913 – 1919 NY Governor, 1928 – 1932 Contracted polio in 1921 – at age 39 The Election of 1932 Republican Herbert Hoover Limited federal intervention; stressed individual liberty Americans frustrated with lack of action Unemployment, bank and business failures at all time high Democrat Franklin D. Roosevelt “Take a method and try it. If it fails, try another. Just do something!” (pragmatist) Promised the American people a “New Deal” “Happy Days Are Here Again” Hope and confidence http://www.youtube.com/watch?v=iL0Qt7IF8Q4&feature=rela ted The Election of 1932 Roosevelt’s First “Hundred Days” March 9 – June 16, 1933 Reassure the American people “The only thing we have to fear is fear itself.” Began series of “fireside chats” on March 12 Address the Banking Crisis “Bank Holiday” for 4 days prevent more withdrawals Emergency Banking Relief Act Treasury Dept. inspected all banks Reopened banks that were sound Gave government loans to banks in need Roosevelt’s New Deal Key Principles Deficit spending: spending more $ than the government takes in increasing debt http://www.usdebtclock.org/ Keynesian Economics: Increase the demand for goods and the economy will grow Active federal government Key Goals Relief – give the people what they need NOW Recovery – put the economy on track for permanent improvement Reform – prevent another GD Key Question Was the New Deal working to radically change the current system OR was it working to save the current system? The New Deal - Relief FERA : direct relief payments (the “dole”) CCC, CWA, PWA: Employment programs in the 1st New Deal WPA and NYA: Employment programs in the 2nd New Deal HOLC: mortgage interest relief The New Deal - Recovery AAA Reduce overproduction stabilize prices NRA Gov. regulations on wages, prices, & production levels stabilize business competition Ruled unconstitutional in 1935 TVA and REA Raised standard of living for many rural Americans Government regulated utilities criticized as socialism The New Deal - Reform Banking Reform: FDIC and SEC Deposit insurance and stock market oversight Labor Reform: Wagner Act and Fair Labor Standards Act Labor Union Rights Max work hours = 44/week Minimum wage = 25 cents/hour Child labor restrictions The New Deal – Social Security Act Cornerstone of the New Deal (1935) Provisions? Retirement, Unemployment, Disability/dependent aid Reform? Unemployment “safety net” break the demand cycle early Tax funded retirement system Criticisms? Socialism – income redistribution Took $ out of consumers hands at a critical time “Roosevelt Recession” in 1936 Election of 1936 Election of 1936: Political Realignment “New Deal” Coalition Democratic “base” through the 1940s Rural farmers, middle class, labor unions, intellectual liberals, urban minorities Shift among African American voters Vote Democrat for the 1st time since Reconstruction New Deal Critics Radical Liberals – ND did not do enough Communist and Socialist Parties grew Sen. Huey Long (LA) – “Share Our Wealth” Conservatives – ND threatened capitalism Too much interference in business (NRA, Wagner Act, NLRB) Discouraged competition (TVA) Taxes and deficit spending Federal government = too big and active New Deal Critics Supreme Court NIRA and AAA declared unconstitutional in 1935-36 Court Packing Plan FDR appointed 6 new justices; SC = 15 members Retirement required at age 70 FDR can pick judges who favor his policies