Interwar Years: USAThe Good and The Bad Times

The Good Times

In the United States:

Following WWI the United States entered a period of isolation.

Why did this happen?

This era of isolation became known as ‘The Roaring 20s.’

A time that saw dramatic changes emphasizing the period's social, artistic, and cultural dynamism.

Several inventions and discoveries, unprecedented industrial growth and accelerated consumer demand and aspirations, and significant changes in lifestyle.

1920’s

The 1920s

‘The Roaring Twenties’ is viewed as an era of

great economic prosperity driven by the

introduction of a wide array of new consumer

goods.

The North American and US economy transitioned

from a wartime economy to a peacetime

economy; the economy boomed!

It’s industry aligned to mass production and its

society pushed headfirst into consumerism.

Despite the wealth of many, millions of people

lived below the poverty line of US $2,000 per

year per family.

Brought cheap mass-produced vehicles (US

and Canada)

By 1927, Henry Ford had sold 15 million

Model Ts. Only about 300,000 vehicles

were registered in 1918 in all of Canada,

but by 1929, there were 1.9 million.

The auto industry's effects were

widespread, contributing to such disparate

economic pursuits as gas stations, motels,

and the oil industry.

Radios were affordable and revolutionary.

It was used for entertainment and

marketing.

The 1920s

In 1922, the Fordney-McCumber tariff (we’ll get to

this later) was passed. Allowed American businesses

to flourish by protecting them from foreign

competition.

Republican government favoured a laissez-faire

(hands off) approach. Income tax was cut, especially

the higher rate (from 73 to 25%)

The Revenue Acts of 1921, 1924, and 1926 led to

further and further cuts.

By 1924, the top tax rate fell to 46 percent (income over

$500,000). The top rate was just 25 percent (income over

$100,000) from 1925 to 1928, and then fell to 24 percent in

1929…..what are the consequences of this?

The 1920s

The tax cuts allowed the U.S.

economy to grow rapidly during the

mid- and late-1920s. W

Between 1922 and 1929, real gross

national product grew at an annual

average rate of 4.7 percent.

The unemployment rate fell from 6.7

percent to 3.2 percent.

The 1920s

By 1922 - 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, (the number of taxpayers in that group almost quadrupled).

During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell.

What does all of this mean?

The 1920s

The booming economy and widespread advertising, led to a shift in consumer attitudes. This encouraged greater spending through credit. This also extended to the stock market.

Lets talk about lending…….

A structural weakness in the US economy was the limited reserves of small and medium sized regional banking companies

The 1920s

Tariffs

Fordney McCumber

The Fordney McCumber tariff was created in 1922 with the idea of insulating American industry. Allowing it to grow while limiting outside competition.

Congress displayed a pro-business attitude in passing the tariff and in promoting foreign trade through providing huge loans to the postwar Allied governments who returned the favor by buying American goods and by cracking down on strikes

In the end, the tariff law raised the average American tariff rate to 38 percent.

Hawley Smoot

When the Stock Market crashed the Americans sought to protect industry and develop on own in a bid to recover.

The Hawley-Smoot tariff was passed on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.

In the United States 1,028 economists signed a petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half.

Can you see a problem developing here?

…BACK TO POLITICS…

Wilson’s Internationalism

Despite Wilson’s national campaign to gain support, the Democrat Wilson and his ideas of internationalism, fell to the Republican dominated Congress (Senate led by Henry Cabot Lodge) and their ideas of nationalism and isolationism.

Wilson’s national campaign led to ill health and a debilitating stroke in 1919- this weakened the campaign to gain internationalist support at home.

A very clear split emerged in the U.S that led to them not ratifying the Treaty of Versailles and subsequently joining the League of Nations.

Wilson’s Internationalism

The U.S showed the world very clearly that they had no intention of joining ‘world affairs’ following WWI.

Of the major nations involved they probably got away with the least amount of domestic consequences.

When the U.S. did not ratify the Treaty of Versailles, and subsequently did not join the League, the prospect of them leading the world disappeared.

The U.S. would focus heavily on their own domestic development

Wilson’s Internationalism

When the U.S. turned inward they adopted a policy of ‘isolationism’. This isolationism spawned from a nationalist mentality that drove the gov’t to think that Europe’s problems were not global problems, therefore there was no reason to be a part of them.

Unprecedented growth would carry the U.S. into the ‘roaring 20s’

Wilson’s Internationalism

The U.S. did get involved internationally-we have seen that they signed on to the Washington Conference, the Dawes Plan, and later the Kellogg-Briand Pact.

The world relied on their economy because it was so strong despite high tariffs.

In order to protect domestic industry the U.S. put in place the Fordney-McCumber tariff in 1922 and the Hawley-Smoot tariff in 1930.

US Do Not Join

Tariffs made it difficult to trade with the U.S and for countries that were suffering from WWI and in debt to the Americans life became hard.

Many countries responded in kind by raising tariffs on certain goods.

Despite the policies, stability found a way across the global economy for the latter part of the 20s. Only when the stock market crashed did things turn upside down.

The Bad Times

Stock Market Crash

It started on October 24 ("Black Thursday") and continued through October 29, 1929 ("Black Tuesday"), when share prices on the New York Stock Exchange (NYSE) collapsed

Reasons for the Collapse

The rising share prices encouraged more people to invest, as they hoped the shares would rise further, thus fueling further rises, and creating an economic bubble.

On October 24, 1929, speculation ended and panic selling set in. 12,894,650 shares were traded in the space of one day, as people desperately tried to dispose of their shares before they became worthless.

Reason for the Collapse

The banks which had lent heavily to fund share buying

found themselves saddled with debt, which caused

many banks to go bankrupt.

While millions of people lost their savings, businesses

lost their credit lines and customers, and were forced

to close, which caused massive unemployment.

The Smoot-Hawley Tariff Act applied tariffs to more

than 3,200 products.

The tariff rates were very high—averaging 60%.

Other countries responded by enacting their own tariffs

against U.S. goods in retaliation

The Great Depression

The Great Depression was a worldwide

economic downturn which started in 1929

Unemployment and homelessness soared.

Construction virtually halted in many

countries. Farmers and rural areas suffered

as prices for crops fell by 40-60%.

Many economists at the time argued that

the sharp decline in international trade

after 1930 helped to worsen the

depression, especially for countries

dependent on foreign trade.

The Great Depression

Most historians and economists assign

the American Smoot-Hawley Tariff Act

of 1930 part of the blame for

worsening the depression by reducing

international trade and causing

retaliation.

Foreign trade was a small part of

overall economic activity in the

United States; it was a much larger

factor in most other countries. The

average rate of duties on imports for

1921-1925 was 25.9% but under the

new tariff it jumped to 50% in 1931-

1935.