Capitalism in the USA

in the 1920s
Unit 2.1
PG. 44 - 57
Capitalism in the USA in the 1920s

• Capitalism developed in the 19th century as a

result of industrialisation.
• By the early 20th century, the USA was the
leading capitalist nation
• The booming American economy in the 1920s
seemed to show the benefits and successes
of capitalism
Capitalism in the USA in the 1920s

• But underlying problems led to an economic

crisis in 1929 which many people interpreted
as the final collapse of the capitalist system,
which was something the Marxists had said
would happen.
What is capitalism?

• Capitalism is an economic system based on

private ownership and individual wealth.
• It was given a boost with the development of
industrialisation in Britain during the Industrial
Revolution.
• People with capital used it to build factories,
buy machinery and start-up businesses.
What is capitalism?

• They used the profits that they made to

invest in more businesses and to produce
more goods and services
• This resulted in an increase of wealth of the
individuals at the top, and also led to the
creation of more jobs.
• This in turn led to economic growth and the
development of new technology.
What is capitalism?

• Capitalism was based on the idea of the free

market of free enterprise, which encouraged
competition between individuals and
companies without interference from the
government.
• Critics of capitalism believed that it resulted in
workers being exploited, because it was their
labour which produced profits for investors.
What is capitalism?

• They believed that the government should be

involved by passing laws to protect workers, (such
as setting a minimum wage and hours of work per
week, and abolishing child labour).
• They also pointed out that it led to great inequality
in society between those who had capital and were
wealthy, and those who did not and were poorer.
• This inequality also applied to employers and
workers
What is capitalism?

• Capitalism also developed in other countries

in Europe in the 19th century as they became
industrialised.
• In the US industrial capitalism grew rapidly in
the late 19th century, especially in the large
cities of the north, such as New York and
Chicago
Key features of capitalism

• Private ownership of resources

• Profits go to individuals, but individuals also carry the
cost if their businesses fail.
• Little government interference in the economy
• Free market economy based on competition between
individuals and companies
• Opportunities to make money
• But uneven distribution of wealth. Great gap between
rich and poor
Key features of capitalism

• Emphasis on private services, e.g medical,

education.
• Wide variety of goods and services are available to those
who can afford them. People have more choice
• Belief that competition is healthy and leads to
economic growth
• Possibility of success, or fear of failure, pushes
people to work hard to excel and invent new ways
of doing things
Key features of capitalism

• Freedom from government control and the

rights of the individual are seen as more
important than equality.
The American Dream

• Many people saw the US as the land of

opportunity, a place where anyone, wherever they
came from or whatever their background, could
make a success of their lives.
• Millions of immigrants poured into America from all
over the world, especially from Europe.
• They came because jobs were available, wages
were higher, there were more opportunities to set
up their own businesses or make a fortune.
The American Dream

• They came in search of what was known as

the American dream
• Both the immigrants and many of those born
in the USA believed that, with qualities like
ambition, self-reliance and hard work, they
would be able to make this dream a reality
The American Dream

• Herbert Hoover, the president of the USA from

1929 – 1933,was just one example of many
people who had gone from rags to riches
• He had started off as a poor orphan, but by
the age of 40 he had made a fortune.
• He believed in rugged individualism – The
ideas that people could succeed through their
own efforts and hard work
The capitalist boom of the 1920s

• The 1920s were a time of economic boom in

the USA – a time of extraordinary economic
growth.
• The foundations of this boom were Aerica’s
raw materials (especially coal, iron and oil0,
its skilled labour force and a growing market
for manufactured goods.
The capitalist boom of the 1920s

• Another factor which assisted the boom was

the economic policy of the Republican Party
which was in power during the 1920s
• The party was supported by many leaders of
big business
The capitalist boom of the 1920s

• The Republicans believed that there should be;

• As little government interference in the economy
as possible
• High customs duties on imported goods
• Low taxes: so that people would have more
money to buy goods, and to encourage the
wealthy to invest more in industry
• Weak trade unions, so that workers did not have
the power to demand higher wages.
The capitalist boom of the 1920s

• During the 1920s, new technologies were to

produce a range of consumer goods.
• These new products became the foundation of the
economic boom.
• The most dramatic growth was in the motor
industry, where Henry Ford introduced the moving
assembly line to speed up production.
• The price of cars dropped and so more people could
afford to buy them.
The capitalist boom of the 1920s

• The most famous of all was the Model T Ford, or Tin

Lizzie.
• The growth of car sales created millions of jobs in the
motor industry itself and also in other related
industries, such as iron, steel, rubber and glass
manufacturing.
• It also led to the building of highways, petrol stations,
hotels and restaurants as people began to travel to
parts of the country which had not been easy to get to
before.
The capitalist boom of the 1920s

• Other new inventions also became available, such

as telephones, radios, refrigerators, vacuum
cleaners and washing machines.
• Office work changed dramatically when electric
typewriters and telephone switchboards were
invented.
• The building of skyscrapers became possible after
the invention of the passenger lift.
The capitalist boom of the 1920s

• Advertising became more important to encourage

consumers to Buy now and pay later instead of saving up
until they could afford the new goods.
• It had been estimated that six out of every ten cars, and
eight out of every ten radios, were bought on credit.
• The practice of easy credit increased the demand for
goods, and so the industrial boom continued.
• The 1920s saw the start of mass media, with
newspapers, radios and the first sound films, known as
talking pictures
The capitalist boom of the 1920s

• Advertising appealed to what people wanted, or to their

fears or insecurities.
• This often resulted in people buying whatever they
wanted, instead of simply what they needed.
• Advertisers learnt how to control public taste and
influence consumer spending.
• There was also a boom in share prices.
• Many investors made fortunes by buying shares in
companies and then selling them later at a higher price.
The capitalist boom of the 1920s

• For much of the 1920s it seemed that nothing could

go wrong, as company profits and share prices
continued to rise.
• The system of easy credit was extended to the
stock market too.
• Investors could buy shares by paying only 10% of
the value of the share, and owning the rest to
banks, who were eager to lend money in the
booming economic conditions
Weaknesses in the US economy
There were some fundamental problems:
• An uneven distribution of wealth
• Not all Americans could afford to buy the consumer goods
being produced by factories.
• Millions lived in poverty, so demand began to drop,
factories decreased production and workers began to lose
their jobs.
• Problems in agriculture
• The First World War had been a boom time for American
farmers, with a high demand for their produce from Europe
• But after the war demand dropped.
Weaknesses in the US economy
There were some fundamental problems:
• Problems in agriculture
• The First World War had been a boom time for American
farmers, with a high demand for their produce from
Europe
• But after the war demand dropped.
• This created huge surpluses which, in turn caused a
sharp drop in food prices, and farmers could not make
enough money to live on.
• As a result, thousands of farmers left the land and
millions of farm workers were out of work and desperate.
Weaknesses in the US economy
There were some fundamental problems:
• Problems in trade
• The American government had a policy of protective
tariffs to protect local industry from cheaper imports.
• This policy, which had been introduced to assist the
American economy, had the opposite effect.
• It stopped the free flow of trade between the USA and
the rest of the world.
Weaknesses in the US economy
There were some fundamental problems:
• Unsound business practices (the role of credit)
• There were features of American business practice that
were unsound.
• For example, people could get credit too easily, which
meant that many of them owed lots of money.
• There were also no proper controls over who banks lent
money to
• There was no protection for the millions of ordinary people
who had bought shares or put money in banks.
• The government’s policy was to allow business to sort itself
out without interference
Weaknesses in the US economy
There were some fundamental problems:
• The stock exchange
• People were borrowing money to buy shares,
hoping to sell them at a profit.
• This system worked as long as share prices
continued to rise and there were people willing to
buy them
• The prices of shares got higher and higher, and
people were paying more for them than they were
actually worth.
Weaknesses in the US economy
There were some fundamental problems:
• None of these seemed to be problems while the
economy was booming, but once things started to
go wrong, they led to the collapse of the stock
market and the American economy.
American society in the 1920s

• By the 1920s, the USA had the highest standard of

living in the world, and to many middle-class
Americans, it seemed that this prosperity would last
forever.
• The 1920s are often called the Roaring Twenties
because it was a time when many conservative
social customs changed and people seemed to be
determined to enjoy life.
• It was the decade when mass entertainment began.
American society in the 1920s

• The radio became an affordable household item, by

the end of the decade almost half of American
homes owned one.
• The film industry, centered in Hollywood, also
experienced a boom.
• The 1920s were also called the Jazz Age, because
jazz and blues, which up to then had been played
mainly in black communities, became popular
forms of music
The position of women in 1920

• Since the First World War more women had been

employed in factories and offices and this gave
them greater independence, especially after they
won the right to vote in 1920.
• Many middle-class women in the 1920s adopted
new fashions and social behaviour and led more
independent lives
• But for many rural and working-class American
women there was no real change or greater equality
Discrimination in the 1920

• The 1920s were also a time of continuing poverty and

inequality for minority groups.
• African Americans and Native Americans (American
Indians) did not experience the same benefits of the
economic boom although there were limited improvements
• Hundreds of thousands of African Americans moved from
the rural southern states to the cities of the north, such as
New York, Chicago and Detroit, where they had a better
chance of finding good jobs in industry and a better
education.
Discrimination in the 1920

• There was a small but growing black middle class

that started a black capitalist movement,
encouraging black people to set up their own
businesses.
• However, living and working conditions for the vast
majority remained poor and they suffered from
various forms of discrimination.
• In 1924 Native Americans were granted American
citizenship and the right to vote for the first time.
Discrimination in the 1920

• Unfortunately conditions for most Native Americans

who lived on special reservations, were poor
• The reservations were on or near their traditional
land, but far from economic centres.
Prohibition in the 1920s

• A serious social problem during the 1920s was the

increase in crime after the introduction of
Prohibition in 1919.
• The Prohibition law made it illegal to make or sell
alcohol.
• This resulted in a black market for alcohol which
was smuggled into the country or manufactured
illegally.
Prohibition in the 1920s

• The illegal alcohol business was dominated by gangs,

mainly the Mafia.
• Mafia bosses, such as AL Capone in Chicago, made huge
profits, and crime became big business
• The gangsters avoided arrest by bribing police and
judges.
• Prohibition was an impossible law to enforce, and
competition between gangs led to an increase in
violence and crime, which continued after Prohibition
ended in the early 1930s
Xenophobia, racism and the Red Scare

• Immigrants had helped to create the economic

boom in the USA, providing labour for industry and
markets for manufactured goods.
• But in the 1920s many Americans became
suspicious of immigrants, because many of them
were suspected of being communists.
• This was a trend known as the Red Scare.
• Immigrants were treated with suspicion and
resentment
Xenophobia, racism and the Red Scare

• Thousands were arrested and deported.

• After the successful Bolshevik Revolution in Russia,
many Americans feared that the spread of
communism would threaten the capitalist system.
• There was also a general distrust and fear of
foreigners (xenophobia).
• Another sign of intolerance in the 1920s was the
growth of the Ku Klux Klan
Xenophobia, racism and the Red Scare

• This was a violently racist organisation which had

been formed after the American Civil War to
terrorize African Americans, who had been freed
from slavery during that war.
• It now also attacked Jews, Catholics, and socialists,
using violence and terror against its victims.
• By 1928 it had five million members and was
suspected of having a strong influence in
government circles.
The wall street crash (1929)

• Wall street is where the New York Stock Echange is

situated.
• During the economic boom years of the 1920s,
shares prices had risen steadily
• Many people had made huge fortunes by buying
and selling shares at a profit.
• Many ordinary people had put their life savings into
shares
The wall street crash (1929)

• In October 1929, however , all this changed.

• Investors began to question whether the shares
were really worth the prices being asked.
• Some investors no longer felt that their money was
safe and would grow with the stock market, and
they started to sell large numbers of shares to try
to get their money back.
• Then on 29 October there was a rush as frightened
investors tried desperately to sell their shares.
The wall street crash (1929)

• This created an excess of shares where demand was

shrinking, resulting in shares becoming much cheaper.
• In a single day, the value of shares dropped by $8 000
Million.
• Those who had not sold their shares, now owned
shares with almost no value.
• The boom had come to a sudden and dramatic end.
• The collapse of the stock market led in turn to the
economic collapse known as the Great Depression
The wall street crash (1929)

• The USA was totally unprepared for this collapse of

the most important institutions in the capitalist
system
• And there was no government structures to cope
with the crisis
The economic and social impact of the
Crash
• Unemployment
• As factories closed, the number of unemployed grew
rapidly.
• There was no social security or unemployment insurance
for those who had lost their jobs
• Unemployed people waited in breadlines for free food
from charity organisations.
The economic and social impact of the
Crash
• Homelessness
• The unemployed were unable to pay mortgage bonds or
rent and were evicted from their homes
• Many ended up homeless, living on the streets or in
shanty towns.
• About two million people travelled from place to place on
railway goods trains, looking for work.
The economic and social impact of the
Crash
• The collapse of businesses, banks and industry
• Many factories and businesses, affected by the drop in
demand for goods, retrenched workers, reduces wages, or
closed down
• Share prices continued to fall, until they were worth, on
overage, only one-fifth of their pre crash value.
• The banking system collapsed as investors rushed to their
banks and withdrew all their savings, often standing in
queues overnight.
• Over 11 000 banks closed down, leading to a loss of
confidence in the whole banking system
The economic and social impact of the
Crash
• Agriculture
• The problems which American farmers had been facing in
the 1920s got worse, as good prices dripped even further.
• The development of a Dust Bowl in the early 1930s turned
the situation into a crisis
• Poor farming methods and drought turned vast areas of the
country into a desert when strong winds blew the topsoil
away.
• Farms were abandoned as thousands of ruined farmers and
evicted tenant farmers migrated westwards, to look for work
in California
The government’s failure to cope with
the crisis
• The government introduced some relief measures, but
they were not big enough or imaginative enough to
solve the problems.
• Dissatisfaction with the government began to grow.
• There were strikes and demonstrations in several cities.
• In 1932 a large group of demonstrators, mainly First
World War veterans, held a protest march in the capital,
Washing DC, demanding that the government pay them
a promised bonus
The government’s failure to cope with
the crisis
• Instead, the government accused them of being
criminals and communists and used the army to
break up the demonstration.
• As a result, people lost confidence in the
government, and in the capitalist system as a
whole.