terms 1 and 2 grade 11 topic 2 capitalism in the usa 1900

TERMS 1 AND 2 GRADE 11 Topic 2 Capitalism in the

USA 1900 to 1940STUDY NOTES

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How did the Great Depression in the USA bring about a crisis of capitalism?

Background and focus Having looked at socialism in the previous topic, we now investigate capitalism as it developed in the USA. We consider the crisis of capitalism that occurred as a result of the Great Depression. At the time of conception, Roosevelt’s New Deal was criticised by some for bringing in socialism.. Could Roosevelt’s form of state intervention to create jobs, as well as the welfare system he set up, be considered socialist reform, and did he thereby undermine the capitalist system in the USA?



The Nature of Capitalism in the USA

• Entrepreneurial and competitive • Rugged individualism

• Free market• Minimal state control over business (laissez-faire)• No price or wage controls

• Economy should self-regulate• Concerns about increasing number of immigrants

> numbers restricted by Immigration Act



The Nature of Capitalism in the USA

• 1920’s – Abundant raw materials, skilled labour, growing market for consumer goods

• WW1 had boosted economy (supplying food and weapons to Britain and France 1914+ & lending them money)

• Entered WW1 in 1917: economic mobilisation; increased demand for labour therefore higher employment and wages > positive effect on labour unions

• USA helped end WW1 > Republican government (reduced interference in business)

• 1923 Calvin Coolidge: President, removed Government controls

• Economic boom due to expansion of industry



The American dream of individual possibilities

• Immigrants attracted by “rags to riches” stories

• Immigrants optimistic that through entrepreneurship and hard work they could succeed and be happy

• Hopes of experiencing religious freedom• Reality: Inequalities of race, class, ethnicity



Capitalist Boom of the 1920s

STRENGTHS IN US ECONOMY:• Laissez-faire policies encouraged expansion• Rapid industrial growth – mass consumer goods,

motorisation, electricity, entertainment especially films

• Rapid expansion of stock market• Expansion of advertising industry• Mechanisation of agriculture• Enormous wealth for some• Strong economy meant America could lend money

to other nations (debtor nation) & receive interest payments = further economic growth



Capitalist Boom of the 1920s

WEAKNESSES IN US ECONOMY:• Laissez faire policy > monopolies > price fixing and depressed wages• Decline in coal industry (miners’ jobs) due to use of oil and natural gas• Isolationism from rest of world stifled international trade• Unregulated banking and buying on the margin• Overproduction – wages did not keep up with production of consumer

goods)• Consumerism > hire purchase and credit• Agricultural overproduction – farm laborer's and owners suffering• African Americans underpaid and threatened by Klu Klux Klan• Wealth disproportionately held by a few rich families• US banks lent unwisely; invested too heavily in stocks > lost investors’ $$• Depression > Europe, meant foreign countries could not repay loans to

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Republican Impact on US

Economy - 1920’s• Increase in child labour• Increase in female employment

• Harsh action against striking labour unions• Government powers limited• Tax deductions favoured the rich > new

inventions > increased wealth of the rich

• High import tariffs put in place to protect American producers

• Agriculture suffered (surplus of wheat and cotton > loss of income and jobs)



Impact of Technology US Economy – 1920’s

• New technologies meant more consumer goods > economic boom

• Assembly line production (mass - production of cars; Model T Ford)

• Buy now and pay later systems• Stock market speculation• Cars became more affordable therefore production

increased• More cars > more mobility > more vacationers >

more roads > more petrol stations, hotels, restaurants, houses

• Motion pictures, radios, telephones transformed society

• More machines > loss of jobs for many workers > poverty



Impact of Stock Exchange US Economy 1920’s

• Stock market craze: share values increasing

• Many made fortune speculating and using credit to buy shares (buying on the margin) and then selling the shares to repay the loan and keeping the profit (trading on the margin)

• When share prices fell this was disastrous, investors lost hugely



USA Society in the 1920s• Roaring Twenties: wild parties and jazz, more leisure time and more

money

• Women allowed to vote from 1920 – progressive women had new-found confidence, more political power

• Divorce-rate doubled

• Women’s liberation organisations grew (working for equal gender status)

• Racial tension (discrimination, riots, ghettos, increased crime)

• Prejudice to immigrants

• Prohibition – ban on alcohol to improve behaviour of society

• Bootlegging (making/importing alcohol illegally > increase in violent crime)

• Gangsterism – bribing, revenge killing (gun battles)

• Prohibition ended 1933



Wall Street Crash of 1929 - Causes

• 24 Oct 1929 tumble in share prices on NYSE and panic selling

• 29 Oct 1929 Black Tuesday : millions forced to declare bankruptcy

IMMEDIATE CAUSES

• Government failed to regulate Stock Exchange > crazy speculative behaviour

• Few controls over borrowing and lending

• Banks repossessed homes, couldn’t sell them, so banks lost money

• Banks had also speculated on the stock market and made losses there

• Banks faced financial ruin



Wall Street Crash of 1929 -Causes

• OTHER CAUSES• Profiteering meant workers could not pay for goods >

overproduction > losses because excess goods did not sell for a profit

• Businesses and factories collapsed• Lack of government intervention > monopolies and

high prices• Little collective bargaining power to protect workers’

wages

• High tariffs discouraged foreign trade• Fewer agricultural products demanded after WW1 >

surplus of agricultural products > lowered prices > farmers left farms and laborer's unemployed



Wall Street Crash of 1929 –Economic Impact

Economic Impact of Great Depression

• By 1933 national income had declined by 50% and 25% of labour force unemployed

• Small and big investors as well as banks forced into collapse

• Spiral effect: unemployment > less consumption > further unemployment

• No social welfare infrastructure• Reduced exports > decline in international

trade > further loss of income



Wall Street Crash of 1929 –Social Impact

• Misery caused by unemployment• No aid for unemployed – unemployed were homeless

• Shanty towns and bin pickers• Breadlines and soup kitchen queues• Food riots in Oklahoma and Arkansas

• Dramatic increase in suicide rate• Poverty carried stigma of laziness and dishonesty• Family expected to provide relief

• Private charities collapsed and government took limited responsibility under President Hoover (too little, too late)



Election of Roosevelt• Hoover loses election in 1932

• Democrat Franklin Delano Roosevelt (FDR) elected, promising “New Deal” policies, worked with Brains Trust (small group of advisers)

• New Deal focused on Relief (for the needy), Recovery (of the economy) and Reform (of the economic system – banks and stock market)

• Rejected socialism but realised need for some government intervention to restore prosperity and reduce inequality

• 15 new pieces of legislation by Congress in 1st 100 days of office (FDR)



Analysis of the New Deal

FIRST NEW DEAL 1933-1935 (Relief, recovery, reform)

• FDR given powers to fast-track legislation

• Aimed to calm fears of US population

• Banking: emergency Banking Relief Act (only banks found to be financially sound were allowed to reopen). Government guaranteed deposits of small investors restoring confidence & reduced hoarding

• Relief: Soup kitchens and temporary housing provided, administered by The Federal Emergency Relief Administration




FIRST NEW DEAL 1933-1935

Recovery Programmes:• Civil Works Administration (CWA): job creation• Civilian Conservation Corps (CCC): thousands of men

to work on conservation projects (national parks, forests and public lands)

• Agricultural Adjustment Act (AAA): subsidized farmers to reduce production and destroy crops and livestock. Reduced supply > increased demand > better prices. Drought also reduced crops (1932-1935).

• Tennessee Valley Authority (TVA): paid workers to plant and irrigate forests and build hydro-electric schemes. Criticized for being socialistic.




FIRST NEW DEAL 1933-1935

Reform of capitalist system:

• Reforms to social security system

• National Industry Recovery Act (NIRA) – codes of fair practice for industries

• Public Works Administration (PWA): job creation (buildings, highways, flood control)

• National Recovery Administration (NRA): codes of fair competitive practice, more jobs, defining labour standards, raising wages and setting max working hours

• Blue Eagle symbol represented those who were part of the NRA system

• NRA controversial and declared unconstitutional. In 1935



Analysis of the New DealSECOND NEW DEAL 1935 -1936 (tackling mass unemployment)• Works Progress Administration (WPA):

employed 3 Million+ people to build public buildings, hospitals, schools, airports, bridges, highways, parks

• Social Security Act of 1935 – pension and unemployment benefits

• Homes and loans > evicted sharecroppers• “Soak the rich” tax used to pay for benefits

• National Labour Relations Act of 1935 –permission to trade unions for collective bargaining



Opposition to the New Deal

• Opposition from wealthy & conservative: resented paying social security contributions and extra tax and power of unions. Republicans feared high government spending, increased taxes and bureaucracy

• Criticism from the left: Huey Long argued for redistribution of wealth and nationwide minimum wage. American Communists saw FDR as a dictator. Catholic priest (Charles Coughlin) disappointed at slow rate of reform.

• Opposition within the Democrats: Representatives of Southern States against viewing African Americans as political and social equals



Assessment of the New Deal

How did it strengthen USA capitalism?• Free market under threat but averted

revolution of hungry and jobless people• FDR restored confidence in liberal democracy• New Deal did not mean abandonment of

capitalist principles, it removed abuses of an unregulated economy

• New Deal brought back dignity to many Americans but did not end the Great Depression as 1937 government spending cuts > deep Depression once more



Assessment of the New Deal

How did it weaken USA capitalism?• Increased Americans’ expectations of federal

government to contribute to social welfare (contradicted belief of many capitalists)

• Rise of the corporate state : government took on a new role in business activities > business, government and labour working together

• Labour providing steady workforce• Government regulating and stabilising markets• Conservative capitalists saw this as socialistic



Legacy of the New Deal

• Improved lives of many Americans• Did not end Great Depression• Ignored African Americans who did not

qualify for unemployment benefits, minimum wages or farm subsidies

• African Americans denied the vote in many Southern states where segregation policies still applied



Outbreak of the Second World War (1939) and the economic

recovery of the USA

• Roosevelt Recession of 1937 due to cut back on New Deal reforms

• Mid 1930’s Hitler on aggressive path > WW2

• Roosevelt recognised USSR hoping to open up trade

• US Congress pushed for neutrality with three Acts• Prohibiting shipment of US weapons to any

countries at war• Prohibiting US loans to any countries at war• Forbidding US citizens to travel on ships

belonging to any countries at war• Did allow food sales to countries at war on ‘cash

and carry’ basis



Outbreak of the Second World War (1939) and the economic recovery of

the USA

• USA prepared for possible involvement in WW2: increased industrial production > increased employment > improved economy

• Provision of allies with war materials > more employment

• Drafting men into the army > more employment• 1941: USA entered WW2 fighting Japan and

Germany• Increased government spending > more prosperity



Impact of and responses to the crisis of capitalism in the USA &

in other parts of the world

• Effects of Great Depression had spread throughout the world

• Recalling of loans by USA led to bank failures in Europe

• Germany and Japan responded with militarist governments (they adopted pre WW2 regressive foreign policies)

• USA & Britain – government intervention in economy: developed welfare systems

• USSR escaped Depression due to Stalinist policy of Socialism in One Country (independent industrialisation)

• Countries that exported raw products to USA e.g. Latin America suffered due to increased farming efficiencies > oversupply > falling prices > losses



Impact of and responses to the crisis of capitalism in Germany

• At end of WW1 Germany had to pay for reparations to various European countries and for industrial reconstruction

• Germany borrowed heavily from US• When Great Depression hit, USA recalled loans >

German banks collapsed > businesses and industries collapsed > unemployment reached 30%

• Extremist parties gained support and Hitler came into power in 1933 with policy of Nazism

• Hitler developed massive work-creation system: jobs in work-programmes, para-military and armed forces

• Re-armament stimulated industrial growth > improved economy



Impact of and responses to the crisis of capitalism in Japan

• When Great Depression hit the USA it reduced Japan’s export earnings > loss of income for workers > unemployment crisis

• Japanese silk industry suffered due to competition of artificial silk manufacture in West

• Japan’s Finance Minister introduced deficit spending (of borrowed funds) and currency devaluation which made Japanese goods cheaper > more demand for Japanese products > more employment > more consumer spending > improved economy > more tax revenue

• Taxes went into munitions to militarize the country > military dictatorship by the time it entered WW2 in 1941



Impact of and responses to the crisis of capitalism in South Africa

• Gold exports increased as investors switched from share investments to gold

• Demand for minerals and agricultural products dropped > farmers unable to pay mortgages > bywoner families forced off the land

• Situation made worse by drought• Plight of Afrikaner families used to foster

Afrikaner nationalism > Nationalist Party came to power in 1948 > entrenchment of apartheid



Conclusion: The Cyclical Nature of Capitalism

• Typically, capitalism results in the boom-bust-boom cycle

• The boom happens when the economy improves due to increased spending made possible by credit given to the private sector

• Private commodities go up in price and the stock market index rises

• In the bust phase, there is a credit crunch and people have difficulty getting loans / credit

• Investment reduces and consumption falls > worsens economy

• Usually the economy starts to improve within a year, but during The Great Depression economy showed decline for three and a half years

• Effects made worse because of the preceding economic hardship of WW1 and the catastrophic inflation of the 1920’s

• Recovery took a decade for many countries



terms 1 and 2 grade 11 topic 2 capitalism in the usa 1900

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