America in 1920s: Time of Financial Prosperity and the Wall Street Stock Crash
The statement is inaccurate because America during the 1920s experienced extraordinary economic growth and prosperity. Massive advances in technology along with an increasing demand for consumer goods created huge profits for businesses, making this a time of financial prosperity and rapid economic growth. People believed this 'boom' would last forever. This led to multiple acts of irresponsible behavior resulting in the 1929 Wall Street stock crash which had significant social and economic impacts in American society.
The “boom” in economic activity in America led to irresponsible behavior. A boom is a time of incredible economic expansion, during which there is an increase in the Gross Domestic Product (GDP), as well as productivity-increasing business sales and profits creating lots of employment. It is evident, America gained an enormous amount of money from World War 1 (WW1), providing the Allies with the supplies needed to win the war, therefore, the American economy experienced significant growth after WW1. The electricity industry experiences a massive boom as with the continuous development of factories, the demand for a cheap and efficient source of power dramatically increased. Electricity encouraged the production of new consumer goods such as refrigerators, vacuum cleaners, radios, and washing machines making daily activities more convenient. Hire purchase and credit arrangements were set up to help Americans purchase these new goods. This meant those people who could not afford to buy products right away could take home and use these items whilst paying for them in small installments. This resulted in massive consumer spending and a decline in savings leading to irresponsible behavior as there were no systems in place to regulate this activity.
An estimated eight out of every ten radios were bought on credit and because America was a capitalist society the role of government did not include ensuring that people could afford to pay the installments of these products. The motor car industry grew immensely during the “ boom years” as a result of the moving assembly line introduced by Henry Ford. This is a system used in factories during which the job of making a car is broken down into smaller simple jobs completed in a sequence quickly by an unskilled person. This allowed cars to be mass-produced cheaply and the prices of cars dropped as a result. The price of the car in 1909 was $1200 by 1928 the average price of a car was $295 and with systems of credit in place, an item which people probably dreamed of having was now accessible to them. More cars were produced creating millions of jobs in industries such as rubber, leather, glass, and steel. Cars led to the building of highways, restaurants, motels, and petrol stations as people began to travel and this created more jobs. Before the “boom” 11.7% of Americans were unemployed however, by 1923 that number decreased to only 2.4% of the country’s population, and this indicates that, a vast majority of people had an income to spend recklessly.
Advertising during the boom years created the desire to be comfortable and encouraged consumers to “buy now and pay later”. This promoted reckless spending amongst consumers which is irresponsible. Americans lived extravagant lifestyles beginning the need to fit in, if your neighbors had a radio, vacuum cleaner, or a fridge you wanted to get one as well, increasing the demand for these products. The republican government kept taxes low so people had more money to spend meaning they bought more goods keeping the “boom” and this careless behavior going. The “boom” increased access to things people didn’t need and lived without for many years, washing machines and cars make life easier but are not essential for survival. The availability of products we don’t need but everybody has, so we too desire these items, led to reckless spending causing people to behave irresponsibly. With businesses selling more of their goods, share prices rose dramatically and the system of easy credit had reached the stock market in the form of buying on margin. Buying stocks on margin refers to people borrowing money to buy a share rather than saving up money to buy a share. Americans would pay 10% of the value of the share and could borrow the rest of the money from the bank. This is irresponsible behavior as there was no regulation of margin accounts and this practice provided ordinary Americans in particular those who could not afford to, a way of accumulating shares, which is fine if share prices continue to rise however when share prices decrease you end up losing much more money than you invested and in great debt. The irresponsible behavior caused by the boom had serious consequences.
The irresponsible behavior created many problems in America leading to the collapse of the Wall Street stock market. The advances in technology and mass production techniques developed during the “boom” led to an enormous amount of consumer goods being overproduced. The demand for these products was unable to meet the rate of production and many businesses battled to sell all the goods produced by their factories. This caused a decline in profits and contributed to the drop in share prices leading to the collapse of the Wall Street stock exchange. The economic system in America created an unequal distribution of wealth and this advanced reasons for the Wall Street stock crash. An estimated 5% of Americans owned 1/3 of the country’s wealth, and 60% of Americans were poor indicating that not all Americans could afford to buy the new consumer goods. It is clear, due to the decline in the demand for goods business sales dropped so factories were forced to decrease production, workers lost their jobs and investors no longer had confidence in the stock market and rushed to sell their shares leading to the stock market crash.
The problems in agriculture created an extreme weakness in the American economy leading to the Wall Street crash because as technology improved farmers were able to increase the supply of food they produced. However, the demand for produce began to decrease and was no longer able to match the supply. After the First World War, the demand for crops from Europe also decreased as farmers in Europe began to produce their own food. This led to farmers over producing causing a massive drop in food prices. Farmers could not make enough money to pay their debt and became unemployed after being evicted of selling their farms, and this created problems in the American economy.
The problems in trade also led to the Wall Street crash as the Republican government introduced high trade tariffs to force Americans to buy locally produced products other countries retaliated and did the same, which stopped the flow of trade between America and other parts of the world. It is clear with mass production techniques being used in factories the demand for goods was unable to meet the supply. A solution to this problem could have been to export these products however, this was not an option because exports could not have been done cheaply with the high tariffs in place. The surplus grain could not be sold overseas either worsening the problems in America's economy and leading to the Wall Street crash. Foreign debt weakened Americas economy because European countries did not have the money to pay back the loans they received from America during their war as they were relying on reparations from Germany that was not able to pay. This meant America lost out on a huge source of income and European countries were unable to purchase American goods.
Another reason for the collapse of the Wall Street stock market was the unsound business practices taking place during the “boom”. Americans could get credit far to easily and with the majority of the population struggling to make a living this was the only they could acquire goods and live extravagant lifestyles. As a result, people owed large amounts of money to shops or banks. There was no proper controls over who credit was granted to and many businesses suffered financial difficulties when people were unable to pay their debts. The banks were also eager to lend out money during this time of financial prosperity and again there were no controls over whom the banks lent money to. There was no protection for those who had deposited their money in the bank and this resulted in a loss of confidence in the banking system, and many people rushed to withdraw their savings in the leading to the collapse of the Wall Street stock market. The stock exchange caused an extreme weakness in the American economy leading to the Wall Street crash when the system of “buying on margin” began to go wrong.
Before the Wall Street crash investing in the stock market was seen as a way of accumulating great wealth. More people began borrowing money to purchase shares during the boom. This system of buying on margin is fine as long as confidence in the economy is high and there are people willing to buy shares so that their value increases. However, when people began to lose faith that their money would grow with the stock market. This resulted in an excess of shares which were worthless. America was a capitalist society so there was a lack of government intervention in the economy. This is an extreme weakness in the American economy as this means there was a lack of regulation over economic activity during the “boom”, so the inefficiency of the credit system, the stock market, extravagant lifestyles, overproduction and problems in agriculture were not addressed and this is why the Wall Street stock market collapsed. These problems in the American economy resulted in a loss of confidence causing the collapse of the Wall Street stock market.
The Wall Street stock market collapsed after investors lost confidence. Wall Street is where the New York Stock Exchange is located. The underlying problems in the American economy created a lack of confidence as investors were aware of the dramatic decrease in the economy. Investor Roger Babson predicted that “ Sooner or later, a crash is coming, and it may be terrific”. Some investors lost faith that their money would grow with the stock market, they began to sell off their shares and share prices dropped dramatically. It is evident that the practice of buying on margin relies on share prices to be high, in order for Americans to repay their loans. So, on the 29th of October 1929, a day often referred to as Black Tuesday, terrified investors, worried about their ability to settle their debt with the continuous decline in share prices, and tried desperately to sell their shares. An estimated 16 410 030 shares were traded on the New York Stock Exchange that day. This created an excess of shares, and because the demand for shares dropped, prices fell even further and shares became worthless. Those who bought on margin were unable to repay their loans to the bank, and banks began to collapse. Millions of people who had deposited their life savings the bank lost them. Millions of investors lost wealth, an estimated 10-15 billion dollars were lost during the day of the collapse of the Wall Street stock market, we're unable to repay loans and were forced to declare bankruptcy. As a result of businesses closing down, workers lost their jobs. This was the beginning of a terrible economic depression. The Wall Street crash had negative affects on American society.
The collapse of the Wall Street stock market had significant social and economic impacts on America. After the crash people could no longer afford to purchase goods. Factories were forced to close down and this created massive unemployment. The number of unemployed Americans rose to a shocking 25% and there was no social security, which is assistance provided by the government for the 14 million Americans who lost their jobs. The level of unemployment was the highest amongst African-Americans and Latinos. These two racial groups also suffered racial violence from unemployed white people competing for the same jobs. Businesses closed, factories shut down and banks collapsed as the crash lead to financial difficulties for business owners and financiers. Both factories and businesses were severely affected by the decline in demand for goods. Share prices had dropped until they were completely worthless, car production had decreased by 80 percent, and building construction by 92 percent. More Americans were either retrenched, had their wages reduced or even lost their jobs as a result of their place of work closing down.
The banking system failed after the Wall Street crash as people rushed to withdraw their savings out of fear of losing them, over 11 000 banks closed. Americans who were unable to withdraw their savings lost them because the banks had invested their money in the stock market, those who took out loans from the bank were now in serious debt and Americans lost confidence in the banking system. The collapse of the Wall Street stock market led to massive homelessness as the unemployed who could not meet their rent and mortgage payments were evicted from their homes. The homeless slept in parks, subways, lived on the streets, wrapping themselves in newspapers to survive the cold or in shantytowns which are informal settlements made of waste material. These informal settlements were often referred to as “Hoovervilles” to mock president Hoover who was widely blamed for the suffering of the American people after the crash.
The problems in agriculture got worse after the collapse of the Wall Street stock market. Food prices dropped extremely low causing countless farmers to go bankrupt, losing their farms. The situation of farmers became a crisis with the spread of the Dust Bowls. Dustbowl is a term used to describe the vast area of Central America which became a desert during the 1930s. Food supplies were reduced as the land was no longer fertile as a result of the poor farming methods used and the drought which occurred. The Dust Bowl crisis severely harmed the agricultural production in America, farmers became desperate and moved westward to find work.
After the Wall Street crash, Americans lost their life savings and their jobs and struggled to buy food. It is evident that businesses were forced to decrease their supply to match the low demand. The decrease in the amount of food businesses stocked on their shelves resulted in food becoming scarce, meaning there was not enough food to feed the entire population of Americans. People in America were hungry, and breadlines and soup kitchens were established to provide some relief to the poor. However, 7 million Americans died of starvation. The Great Depression severely affected families in America. A large number of families broke up under the strain during the Great Depression. With men being the primary providers during the 1920s, many husbands and fathers felt it was their responsible to find work, to provide for their families. Therefore, lots of men were forced to leave their families and find a job. Some men became discouraged and abandoned their families completely during the Depression as they could not deal with the pressure of having to provide for their family whilst in financial ruins and this resulted in marriages breaking down. An estimated 1.5 million married women were living apart from their husbands during this time, because couples could not afford the fees of a divorce. Divorce rate therefore, declined during the Great Depression.
Marriage and birth rates too declined as couples were forced to delay weddings due to a lack of money and many couples decided not to start a family because having a child seemed unrealistic during a time when they could not even support themselves. The Great Depression had a serious psychological impact on Americans. People became so demotivated by the struggles created by the Great Depression that they lost the will to live. The suicide rate increased by 30% during the Great Depression. Children during the Great Depression became malnourished, underweight and eventually ill suffering from diseases such as rickets because they were unable to get the necessary vitamins and minerals need from food as it is evident that, families could not afford to buy food after the Wall Street crash and this resulted in food becoming scares. Parents neglected the health care of their children during the Great Depression because there was no money, and during this time America was a capitalist society therefore, the state was not obligated to provide health care, and children suffered as a result. In some families, older sons would run away to help their family as it would mean one less mouth to feed. The high levels of unemployment and the lower incomes meant that there was less money for schools. The schools in America were forced to reduce expenses. Many schools shortened the school year to just 6 months, bought fewer books and learning equipment, and children were required to bring their own school supplies, it is clear, that Americans could not afford to buy food, so expecting parents to afford school supplies was unrealistic, and due to the lack of material, some subjects could not be taught. It is clear children were not receiving a quality education during the Great Depression. The boom had come to a dramatic end and the new reality for the American people was called the Great Depression.
In conclusion, the statement is accurate because America during the 1920s experienced extraordinary economic growth and prosperity. Massive advances in technology along with an increasing demand for consumer goods created huge profits for businesses, making this a time of financial prosperity and rapid economic growth. People believed this 'boom' would last forever. This led to irresponsible behavior resulting in the 1929 Wall Street stock crash which had significant social and economic impacts in American society.
