Roaring '20s and the Great Depression: Economic Transition

1. “It is just as important that business keep out of government as that government keep out of business.”-Herbert Hoover

2. 9.01 Elaborate on the cycle of economic boom and bust in the 1920's and 1930's.

3. Warren G. Harding • 1865 – 1923 • 29th President (1921-3) • Elected on a campaign of a “Return to Normalcy” – a return to isolationism, less social reform, and increased economic growth • Harding was an honest man, but put too much trust in his friends and political allies, giving them positions in his cabinet • Died in office from a massive heart attack, possibly brought on by the stress of scandals

4. The Ohio Gang • Harding’s corrupt friends from back home came to be called the “Ohio Gang” • They abused their positions by accepting bribes, illegally selling government property • Harding was deeply embarrassed by the actions of his friends • Most notorious member was Secretary of the Interior Albert B.Fall

5. Teapot Dome Scandal • Sec. Fall had secretly leased federal lands to private oil companies in return for $300,000 in bribes • When the scandal broke, Fall became the first cabinet member to go to prison and Harding’s reputation was ruined

6. Calvin Coolidge • 1872 – 1933 • 30th President (1923-9) • Became President upon Harding’s death • Known as “Silent Cal” for his terse, serious manner • “The business of Americans is business”: Coolidge supported businesses and a laissez-faire economy

7. Economic Boom • Rise in the standard of living during the 1920s led to increased sales of consumer goods which in turn created more jobs • Mechanization of factories led to greater efficiency and a drop in prices for manufactured goods, further encouraging consumerism

8. Consumer Credit • For the first time, individuals began to regularly borrow money and go into debt to purchase consumer goods (cars, appliances, radios, etc.) because credit became easy to come by and carried no social stigma • Consumers began to use “installment plans” to buy expensive items

9. Growth of the Middle Class • As corporations began to expand and have specialized departments such as sales, marketing, accounting, engineering, and management, the number of people living at the middle-class level grew tremendously

10. Welfare Capitalism • Companies began allowing workers to buy shares of stock, participate in profit sharing, and receive benefits such as medical care and pensions • This led to increased spending among the working class

11. Farmers in Crisis • Technological advances such as tractors and pesticides led to both higher crop yields and increased debt for farmers • Increased crop yields led to a drop in crop prices • Government efforts to help farmers were repeatedly vetoed by Pres. Coolidge, who believed in laissez-faire

12. Election of 1928 • Coolidge decided to not run for re-election, instead supporting his Sec. of Commerce Herbert Hoover as the Republican nominee • Democrats ran NY Gov. Alfred E. Smith, the first Catholic to run for President • Hoover won in a landslide

13. Herbert Hoover • 1874 – 1964 • 31st President (1929-33) • Took office at a time of unparalleled prosperity and optimism, but by the end of his presidency, the US was at the bottom of its deepest economic depression in history

14. Stock Speculation • A long period of growth in the stock market (Bull Market) convinced millions of Americans to take a risk and invest in stocks • Investors began “buying on margin” – borrowing the money to buy stocks, believing those stocks would grow in value and allow them to easily repay the loans; but, if prices dropped, they panicked and sold quickly to avoid taking large losses

15. “Black Tuesday” • In late October, 1929 stock prices began to slip, triggering a mass sell-off as investors panicked • On Tuesday, Oct. 29 the bottom fell out – the market lost $15 billion in a single day • The market continued to plunge for the next 3 years and didn’t recover until after WWII – a period known as the “Great Depression”

16. Banking Collapse • Banks had made numerous loans to stock speculators and had also invested heavily themselves in the stock market • When the market collapsed, banks lost big and had to stop lending • With credit restricted, the economy went into a recession • Many banks could not absorb their losses and closed; people who had deposited their money in these banks lost everything – this caused further panic and people began to withdraw their money from banks

17. Factors leading to the Crash Stock market speculation Buying on Margin Mechanization Overproduction of consumer goods Excessive use of credit Weak farm economy Global economic problems.

18. Hawley-Smoot Tariff • Tariff Act of 1930 • Government passed the 2nd highest tariff in US history in an attempt to protect US industry, but the tariff badly hurt the sale of US goods overseas as foreign nations raised their tariffs against the US • This worsened the US economic situation

19. Rugged Individualism or Direct Relief? • US had long believed in “rugged individualism” – the idea that it was up to the individual to take care of himself • As the economy collapsed and unemployment soared, people began to support the idea of “direct relief” – the government should act to help those who could no longer help themselves

20. 9.01 Rugged Individualism or Direct Relief? • During an economic depression such as the great depression, should an individual rely on Rugged Individualism or Direct Relief to improve their situation. • Argue your answer and explain WHY • Must be at least a half page. Honors=3/4 page