The rise and fall of the American economy, 1910-29
Why did this prosperity come to a sudden end in 1929?
Longer term reasons for the end of prosperity
- Overproduction in industry - By the end of the 1920s there were too many consumer goods [Consumer goods: Goods used on a daily basis in the home eg vacuum cleaner, fridge and radio. ] unsold in the USA. The supply was bigger than the demand.
- Overproduction in agriculture - As farming techniques improved, farmers started producing too much food. There was less demand from European for food from America because they could grow their own crops. An abundance of crops led to falling prices and thousands of farmers became unemployed after having to sell their farms.
- Commerce - By the end of the 1920s, America tried to sell its surplus goods to European countries. But, in response to the Fordney-McCumber Tariff Act [Fordney-McCumber Tariff Act: Taxes were imposed on goods from abroad in order to encourage people to buy American goods. ], European countries had imposed a tax on American goods. So American goods were too expensive to buy in Europe and, as a result, there wasn't much trade between America and European countries.
- Property prices - House prices increased a great deal in the early 1920s. But after 1926, house prices fell leaving a number of Americans owning houses that were worth less money than what they had paid for them.
- Falling demand for goods - It should be remembered that not everyone was rich in America in the 1920s. A lot of the country's poorer people bought goods on credit and as a result, a great deal of them owed money to shops and large companies. Many of these companies subsenquently went into financial difficulties as the poor failed to pay their debts.
- Too many small banks - The financial sector was not very tightly regulated. There were no large banks in America, but rather an abundance of small banks. These small banks did not have the financial resources to cope with the rush for money when the Wall Street Crash [Wall Street Crash: Economic downturn on the stock market in 1929. ] happened. A number of banks had to close leaving thousands of customers with no money at all.
Short term reasons for the end of prosperity
- The Stock Market - Throughout the 1920s the prices of shares [Shares: Financial stakes in a company or business. ] had increased to unrealistic levels. People continued to buy shares as they were making huge profits from them. By 1929 over 20 million people had invested in shares.
- Over speculation - As it was easy to borrow money, some people would buy shares on the margin ['On the margin': People borrowing money in order to be able to buy shares. ] - ie, borrowing money to buy shares and then holding on to them until they were worth more than the debt. Then they would sell the shares, pay off the original debt and make a profit.
- Loss of confidence and a sudden fall in prices - The Wall Street Crash.
Why did the Wall Street Crash happen in 1929?
- Can you state six reasons for the Wall Street Crash?
- Can you also state the reasons for the economic boom?
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