You are on page 1of 9

THE USA 1919-1939

1. Searching for the old good days.


The rash of post-war fears – bombs, Bolsheviks, riots, and strikes – made many
Americans yearn for the “good old days”. The nation was tired of their preacher-
President Wilson. They wondered whether the US should try to settle the problems of
turbulent old Europe and during the next years turned “inward” and got rather
isolationist again.
The nation even went dry when in 1919 the Eighteenth Amendment was
ratified by three-fourths of the states. The sale of beer, wine and distilled liquors was
to stop in January 1920. The Amendment was due partly to wartime concern of
conserving the grain, partly to desire to curb drinking of workers. Yet many
Americans had no intention of giving up drinking and the prohibition could not be
enforced and the trade with liquor became source of wealth and power for gangsters.
a) Warren G. Harding (Republican): 1920 – 1923
A little-known former Senator, Harding had few enemies within the party but was not
capable to be a powerful President. He appointed many of his old friends in the
administration, who spent more time playing cards together than planning the national
welfare and came to be called the “Ohio gang”. Their corruption would make the
weak Harding a synonym for incompetence.
In his inaugural address he declared that he wanted nothing to do with the Old
World and the League of Nations. The US ignored the Versailles Treaty and signed a
separate peace with Germany on July 2, 1921. On the contrary, the Pacific had
always been a matter of prior interest to the US and during the Washington Naval
Conference of 1922 an agreement was reached that any issue that seemed likely to
disturb the peace of the Far East would be sent to a joint conference.
Harding’s domestic program reduced the top level of taxes on the wealthy from
the wartime 65 % to 25 % in 1924 and even lower later. Congress also cut taxes for
middle- and lower-income people, which the administration had not asked for.
The merry-go-round of the wartime debts ($ 9 billion) was inevitable – in order
to pay its reparations Germany had to borrow from the US, so Great Britain and
France were paying their debts again with American money.
Soon after being informed for the illegal activities of his friends Harding was
taken ill and died on Aug.2, 1923.
b) Calvin Coolidge (Republican): 1923 – 1928
The former Vice-President had a character that was very different from the one
of his predecessor – his immobile face even inspired many jokes. But like Harding, he
was anxious not to trouble business with government rules. His best known utterance
was:” The business of America is business.” Regulation, he believed, would make it
less profitable.
In the election of 1924 both the Republicans and the Democrats would suffer
from the division between the city and the country and were accused of being turned
their backs to the rural problems. Most American preferred to “keep cool with
Coolidge”, and two women were elected governors of their states (Texas and
Wyoming).
His administration influenced the Supreme Court, which did little to curb
monopolies – companies all across the land merged to create larger units. In many
industries a few big firms were setting prices through trade associations. And the
country prospered; most Americans were doing better; the price of stock shares was
going up rapidly. The economic picture looked promising. Only farmers were
growing poorer – it seemed that the more they produced, the less they were paid for
their crops. The President vetoed every attempt of the congress to grant them aid.
“Farmers have never made money,” Coolidge said.
c) Herbert Hoover (Republican): 1928 – 1932
Coolidge did not run for the second term and his Secretary of Commerce won
the election of 1928. Obviously, most Americans were still Republican. And then the
Great Depression started.

2. Life
in the Jazz Age.
During the 1920s the United States seemed a land of miracles. Never before
were factories making so many new things. Never before had the daily life of a nation
been so quickly transformed. Industries were trying to produce more and more
consumer goods and to satisfy American public.
At the opening of the 1900s the automobile was such an oddity that in Vermont
the law required a driver to send someone an eighth of a mile ahead with a red flag.
By 1918 there were nearly 7 million cars on the road. With their spread came the
building of new highways. Now Americans no longer had to live and work close
together and soon the first shopping centre was built in Kansas City in 1922.
Commuters appeared.
Americans were making the highest wages in history and working shorter hours.
The money they spent each year for education was more than the money spent by all
the rest of the world put together. High school education was basically free unlike
most European countries.
A great new force was added to the steam power – electricity, and it drove the
new modern factories, which took on an astonishingly different look. A new kind of
moving workbench was introduced. A mechanic - Henry Ford, who opened his own
car plant in 1914, updated the assembly line. Due to his electric-powered conveyor
the time it took to put together a model T dropped from 14 hours to 93 minutes.
Advertising was not an invention of the 1920s but now it thrived. By 1929
more than $3 billion a year were spent for advertising. Even more important in selling
goods was buying on credit. “Buy now, pay later,” the ads screamed. By 1928
Americans owed more than $1 billion for their automobiles.
Movies industry flourished. In 1929 one hundred million tickets were being sold
every week, and the movies could actually talk. Radio became a nationwide obsession
as well. By 1929 the annual turnout of radio sets numbered 4 million. Additionally,
phonograph record production by 1921 had reached 100 million a year and a new
“black” music was sweeping the land – jazz, blues and ragtime.
For the first time in modern history did huge crowds gather to watch sporting
events – up to the amazing figure of 50 000 spectators.
The climax of national pride and excitement came on May 21, 1927. That night
the handsome Charles A. Lindbergh landed in Paris succeeding in the first solo non-
stop flight from New York to Paris in 33 ½ hours.

3. *The coming of the Great Depression.

When Americans elected Herbert Hoover President in 1928, the mood of the general
public was one of optimism and confidence in the United States economy. Most
people believed that national prosperity would continue indefinitely. However, the
weekly salary of the average American worker was between $17 and $22, but that's
not important: the optimism was there.

a) "Bull Market"
For five years prior to 1929, rising prices typified the stock market, which was the so
called "bull market" and was due to many reasons.

The stock dividends were rising. New investors entering the market, many who
viewed it as an easy way to get rich quick, helped inflate stock prices. There were no
effective legal guidelines on buying and selling stock. Free from such limitations,
corporations began printing up more and more common stock. Many investors in the
stock market practiced "buying on margin" that is, buying stock on credit. Confident
that a given stock's value would rise, an investor put a down payment on the stock,
expecting in a few months to pay off the balance of their initial investment while
reaping a hefty profit. This investment strategy turned the stock market into a
speculative pyramid game, in which most of the money invested in the market didn't
actually exist. Banks made money more readily available at lower interest rates as
easy credit to more and more people.

From 1925 on, industry was over-producing. In anticipation of eventually selling


the surplus, business leaders funneled their profits right back into industry. They
invested in factories and new machinery, and hired more workers, which, in turn,
fueled even greater overproduction. This increased production gave the companies an
aura of financial soundness, which encouraged Americans to buy more stock. Thus
industrial productivity in the US rose by 50% over the 1920s.

The Psychology of Consumption fed the optimism of investors and gave them
unquestioning faith in prosperity. When the Crash did come, it was even more
devastating because of this unquestioned faith.

Despite rising wages overall, income distribution was unequal. Gaps in income had
actually increased since the 1890s. The 1% of the population at the very top of the
pyramid had incomes 650% greater than those 11% of Americans at the bottom of the
pyramid. In 1929, two hundred of the biggest corporations controlled 50% of the
nation's corporate wealth. This concentration of corporate wealth meant that if just a
few companies went under after the Crash, the whole economy would suffer.

b) The Crash

In September of 1929, stock prices began to fluctuate, but market analysts dismissed
this as temporary. What many of these analysts did not realize--or refused to admit--
however, was that stock prices were totally out of proportion to actual profits. Sales
of goods and the construction of factories were falling rapidly while stock values
continued to climb. Still, very few were worried; they still accepted Adam Smith's
"self-adjusting economy" as dogma and believed the problems would correct
themselves.

On October 29, 1929, the "Black Tuesday," was the beginning of the Great Crash.
On this day, people began dumping their stocks as quickly as they could. Sell orders
inundated market exchanges and the bull market suddenly shifted to a bear market.
The "Black Tuesday" was the single most devastating financial day in the history of
the New York Stock Exchange. Within the first few hours the stock market was open,
prices collapsed and wiped out all the financial gains of the previous year. Since
most Americans viewed the stock market as the chief indicator of the health of the
American economy, the Great Crash shattered public confidence. Between October
29 and November 13, the day when stock prices hit their lowest point, over $30
billion disappeared from the American economy. This amount was comparable to
the total amount of money that the federal government had spent to fight the First
World War.

c) The Depression

So, as not to alarm the public, President Hoover chose his words carefully when he
discussed the state of the economy in 1929. American economists and politicians had
referred to previous economic downturns as "Panics," such as the "Panic of 1873" and
the "Panic of 1893." Hoover, however, called this latest downturn a "Depression"
rather than a "Panic," and the name stuck.

Of course, America was not alone in the Great Depression; it struck all the
industrialized nations of the world, including Germany, Britain, and France.
Moreover, Germany still had huge reparation payments to make to the Allies in the
aftermath of WWI. World War I had turned the United States from a debtor nation
into a creditor nation. But by the end of the 1920s, the United States controlled much
of the world's gold supply. Besides gold, which was increasingly in short supply,
countries could pay their debts in goods and services. However, protectionism and
high tariffs kept foreign goods out of the United States. The Hawley-Smoot Act
(1930) set the highest schedule of tariffs (import duties) to date. This protectionism
produced a negative effect on United States exports: if foreign countries couldn't pay
their debts, they had no money to buy American goods.

These perplexing economic problems in the United States exacerbated a host of


diverse problems, including:

• Unemployment and poverty (25% of the labour in 1932, 13 million in total).


The reality of long-term unemployment, the day-to-day despair, was dismal.
• Breakdown of families
• Soaring high school dropout rates (2 to 4 million).
• By the end of 1932 about 100 000 small businesses had collapsed because of
the crash of the financial system of the USA.

• Homelessness ( millions of migrant workers roamed the roads of the US)


• Organized protests (growing influence of trade unions)
• Around the country, the homeless built settlements of cardboard and tar-paper
shacks, called "Hoovervilles" in sardonic reference to President Hoover.
• The Great Depression hit farmers especially hard. Many had gone into debt to
buy machinery and land, and now could not make their payments. Low crop prices
wiped out potential profits. In addition to the usual challenges of agriculture, a great
drought took place in 1931 and 1932 in the Midwest and the South and turned much
of the trans-Mississippi West into a dust bowl. Nevertheless, if farmers couldn't
make a profit selling their products, at least they could still eat, so most stayed put. In
contrast to popular images of farmers leaving the land, the 1930s actually had the
lowest rate of migration from farms to cities. Yet, 25% of American farmers had lost
their lands by the end of 1932
• "The Bonus Expeditionary Force": A group of WWI veterans who had
been denied their pensions organized the first march on Washington in protest. In
1932, twenty thousand men set up a tent city, vowing to stay until they got their
money. President Hoover overreacted and sent in the army (led by future war heroes
Douglas MacArthur and Dwight D. Eisenhower) to break up this peaceful
demonstration.
• Escapism: One-third of Americans were below the poverty line, yet some
industries actually managed to make a profit at the beginning of the 1930s as the
public looked for a way to escape. If Americans couldn't find work, at least they
could go for a drive, have a cigarette, or go to a movie. Correspondingly, sales of oil,
gas, cigarettes, and movie tickets all went up.

The American public found the "Three B's" responsible for the Crash and the
Depression: Bankers, Brokers, and Businessmen

4. The New Deal

a) Hoover’s approach to dealing with the Depression

Most American economists and political leaders in 1929 still believed in laissez-faire
and the self-regulating economy. To help the economy along in its self-adjustment,
President Hoover asked businesses to voluntarily hold down production and
increase employment, but businesses couldn't keep up high employment for long
when they weren't selling goods. Hoover’s Reconstruction Finance Corporation
loaned money to corporations, banks, and the states in attempt to produce
employment.

There was a widespread belief that if the federal budget were balanced, the
economy would bounce back. To balance the budget demanded no further tax cuts
(although Hoover lowered taxes) and no increase in government spending, which was
disastrous in light of rising unemployment and falling prices. Another problem with
economic practices of the day was the commitment of the Hoover administration to
remain on the international gold standard. Many analysts implored Hoover to increase
the money supply and to devalue the dollar by printing paper money not backed by
gold, but the president refused.

b) Franklin Delano Roosevelt: the First New Deal

Franklin D. Roosevelt (1882-1945) was President of the United States from 1933 to
1945, the only President to be re-elected three times. As Governor of New York
(1929-1932), he ran for President by promising a "New Deal" for the American
people. Relief programs, measures to increase employment and to aid industrial
and agricultural recovery from the Great Depression, marked Roosevelt's time in
office. Americans who lived through the Depression had passionate feelings about
Roosevelt. He has been both venerated as a national savior and vilified as a socialist
who craved greater federal power.

For one, the two candidates disagreed on Prohibition, Roosevelt advocating a repeal
of the Eighteenth Amendment (which had outlawed the manufacture and sale of
alcohol since 1919). But Prohibition was small potatoes compared to the issue of
unemployment and the role of government in aiding the economy.

On Election Day in 1932, 57.4% of the electorate voted for Roosevelt (or, perhaps
more accurately, cast their ballots against Hoover).
Roosevelt was most committed to being well-liked and to getting ahead. He was
charming and very successful in using radio to bring his message to the American
public, making him the first modern media President. FDR also understood his
own limitations as a man of ideas, so he chose well-qualified intellectuals and
business people for his staff. This so-called "Brain Trust" included such luminaries
as Labor Secretary Frances Perkins, who graduated from Mount Holyoke College in
1902 and was the first female cabinet member in United States history.

Like his distant cousin, Theodore Roosevelt, FDR knew what the public would and
would not accept. FDR was a pragmatic politician, not an intellectual or an idealist.
He culled his policies from the suggestions of members of his "Brain Trust," based on
which seemed most politically viable. One example of FDR's pragmatic use of the
presidency--and of the public's faith in their leader--was the National Bank Holiday.
By the time he came to office, 5,000 banks had failed and 47 of the 48 states had
declared "bank holidays," stopping some or all bank activity. Some liberal members
of Congress wanted FDR to nationalize the banks, but FDR had no intention of taking
such a radical step. Instead, he declared a "national bank holiday," closing all banks,
purportedly in order to give inspectors time to review their solvency. FDR declared
that only those banks in sound financial health, those which had passed inspection,
would be allowed to reopen. Most banks were only closed for ten days, so, of
course, only a very few were actually investigated. Nonetheless, when the banks
reopened, the American public entrusted them with their money once more, which
actually made the banks solvent. Merely by restoring public confidence in the
banking system of America, Roosevelt saved it at no cost to bankers or to the
government.

The First Hundred Days

At the beginning of his administration, Roosevelt convened Congress in a special


session and launched the New Deal with an avalanche of bills. Historians refer to this
period as the "Hundred Days." Roosevelt introduced a new notion of the presidency
whereby the president, not Congress, was the legislative leader. Most of the bills he
proposed set up new government agencies, called the "alphabet soup" agencies
because of their array of acronyms.

AAA (Agricultural Adjustment Act)--Designed to help American farmers by


stabilizing prices and limiting overproduction, the AAA initiated the first direct
subsidies to farmers who did not plant crops. The United States Supreme Court later
declared the AAA unconstitutional and an unnecessary invasion of private property
rights.

CCC (Civilian Conservation Corps)--A public works project, operated under the
control of the army, which was designed to promote environmental conservation
while getting young, unemployed men off city street corners. Recruits planted trees,
built wildlife shelters, stocked rivers and lakes with fish, and cleared beaches and
campgrounds. The CCC housed the young men in tents and barracks, gave them three
square meals a day, and paid them a small stipend. The army's experience in
managing and training large numbers of civilians would prove invaluable in WWII.
Wisconsin was a beneficiary of the CCC; one of the organizations many local
projects was trail construction at Devil's Lake State Park.

TVA (Tennessee Valley Authority)--One of the most ambitious and controversial


New Deal projects, the TVA proposed building dams and power plants along the
Tennessee River to bring electric power to rural areas in seven states. Although the
TVA provided many Americans with electricity for the first time and provided jobs to
thousands of unemployed construction workers, the program outraged many private
power companies.

NIRA (National Industrial Recovery Act)--The NIRA established the NRA


(National Recovery Administration) to stimulate production and competition by
having American industries set up a series of codes designed to regulate prices,
industrial output, and general trade practices. The federal government, in turn, would
agree to enforce these codes. In return for their cooperation, federal officials promised
to suspend anti-trust legislation. Section 7A of the NIRA recognized the rights of
labor to organize and to have collective bargaining with management. The NIRA was
the most controversial piece of legislation to come out of the Hundred Days and many
of its opponents charged it with being un-American, socialist, even communist, even
though it did not violate the sanctity of private property or alter the American wage
system. Whether radical or conservative, the NIRA ultimately failed. Within two
years, the Supreme Court declared the NIRA unconstitutional.

"The Broker State"

During his first two years in office, FDR promoted a new vision of the executive
branch; he viewed himself as an "honest broker" who would negotiate among
competing interests. The president would mediate conflicts while balancing the
interests of one group against another. Yet, the NIRA and AAA favored big business
and big agriculture.

b) The Second New Deal (1935-1937)

WPA stood for Works Progress (later "Projects") Administration, which


promoted both economic relief and reform. Required to choose projects that would
not compete with private business, the WPA paved streets and highways; built
bridges, airfields, and post offices; restored forests, and extended electrical power to
rural areas. Over its seven-year history, the WPA employed about 9 million
Americans. In addition to building the nation's infrastructure, the WPA funded
unemployed artists and authors to promote American culture. The efforts of the WPA
marked the first time that the federal government tried to support actively American
art and culture.

The Wagner Act, known officially as the National Labor Relations Act, preserved
and strengthened Section 7A of the NIRA. It guaranteed workers the right to unionize
and the right to bargain collectively with management. For the first time, the federal
government recognized and protected labor unions.

The Social Security Act was initially drafted at the University of Wisconsin. This act
created a cooperative federal-state system to provide unemployment compensation
and old-age insurance. Workers who paid Social Security taxes out of their wages
would receive benefits upon retirement at age 65. Employee and employer
contributions would cover the costs of these benefits. On the one hand, Social
Security seemed a fairly radical piece of reform legislation, since the government
committed itself to provide help for the elderly. In reality, however, it was a fairly
conservative program, since workers and their employers, and not the government,
were footing the bill. In addition, the initial Social Security Act did not include
provisions for farm workers, domestic workers, employees of the restaurant and
service industries, or health-care providers. Still, the act was a milestone in American
history because it acknowledged the responsibility of society at large to take care of
the less fortunate.

The Wealth Tax Act increased taxes on the wealthy and created new and larger taxes
on excess business profits, inheritances, large gifts, and profits from the sale of
property. The act also put new restrictions on trusts and holding companies.

The Roosevelt Coalition

With big business turning against him, the President had to look for support
elsewhere. For the presidential campaign of 1936, Roosevelt built what was called the
"Roosevelt Coalition," a political bloc that remade modern politics. While
Republicans were still relying on their traditional base of political support (big
business, big farmers, and conservatives), Democrats broadened their constituency by
appealing to small farmers in the Midwest (but not all farmers!), urban political
bosses, ethnic blue collar workers, Jews, intellectuals, and African Americans. The
shift of African-American support to the Democratic Party, in particular,
demonstrates how FDR was transforming American politics. Up until 1936, most
blacks continued to celebrate the memory of Abraham Lincoln and emancipation, and
had voted for Republicans. In 1936, however, many of these voters changed political
allegiance and supported Roosevelt. The election of 1936, in fact, marked the
greatest electoral shift in American history. In 1932, Republicans had won 10 of the
12 largest United States cities. In 1936, the twelve largest cities voted
overwhelmingly Democratic.

The Roosevelt Recession

Having won the 1936 presidential election by the biggest margin up to that time, it
seemed that everything was going well for Roosevelt and the New Deal. In 1937, the
president, in fact, believed that the nation had recovered its economic health and he
tried to balance the federal budged by cutting back on New Deal programs.
Roosevelt, for example, reduced funding for the WPA by half. Such policies,
however, proved disastrous for the American economy. As a result of such cuts,
unemployment rose by 1.5 million by July 1937. With farm subsidies cut, farm
prices also fell, and by August an additional 4 million Americans were out of work.
The economy would not recover fully from the Roosevelt Recession until the United
States entered World War II. Roosevelt brought about the Recession of 1937 because
he refused to follow the advice of his economic aides and turned away from
Keynesian economics, which advocated vast government spending--even deficit
spending--in times of recession. Yet, even though he tried to balance the budget, it
was impossible this to be done successfully.

Lasting Impacts of the New Deal

The New Deal was not a revolution; it did not bring about radical change. Nor did it
end the Great Depression. It was as late as 1942, when the unemployment dropped to
4.7%, but it could be contributed to the impact of the US involvement in World War
II. The New Deal did, however, transform American society and alter the
relationship between government and business. For the first time, many Americans
expected the federal government to play a vital role in the nation's social welfare.
Another more enduring legacy of the New Deal was the rise of the "corporate
state." Prior to Roosevelt's time in office, big business had a virtual monopoly on
political power. Through the regulation of business activities the New Deal created
two new players at the political table: big labor and big government. New Deal
legislation and United States involvement in World War II, in fact, drew together,
more closely than ever before, business, government, and labor. Labor provided a
steady workforce and the government promised to instill predictability in the market
to avoid the dramatic highs and lows that had long plagued the nation's economy.
Under these terms, business made some concessions to labor and government.

*Works Cited:
http://us.history.wisc.edu/hist102/lectures/lecture20.html