causes of the great crash

• Despite the devastation caused to European nations during the Great War, America escaped virtually unscathed
• During the war, America was relied upon to supply goods to countries unable to provide for themselves
• US Agriculture experienced a boom supplying wheat and other necessary foodstuffs for the European market
• American businesses shifted from consumer to war production, supplying the war machines fighting it out in Europe
• Even after the war ended Europe took time to recover. US businesses happily exploited their position and continued to sell American goods abroad, raising revenues and profits and adding to the market for employment at home
• Return to Normalcy

  Republican presidential candidate Warren Harding's election campaign slogan, meaning the refocusing of attention away from the problems of the rest of the world in favour of improved living standards for Americans at home
• Isolationism

  The refocusing of attention away from the problems of the rest of the world in favour of improved living standards for Americans at home
• Rugged Individualism

  A doctrine of self-reliance that rewarded risk-takers and left the rest to fend for themselves
• Warren Harding, the first of the Republican's three presidents of the '20s appointed many dubious characters who mired his administration in scandal
• Calvin Coolidge

  Harding's Vice President, and successor to the Oval Office following Harding's untimely death, was welcomed by businessmen for his hands-off approach to the economy
• Herbert Hoover succeeded Coolidge with America riding high on the crest of what many believed was the crest of the greatest ever economic boom
• Hoover's campaign proclaimed the end of poverty in the US with the slogan 'A chicken in every pot, a car in every backyard'
• Republican governments' policies

  • Generally rewarded those who were prepared to invest their own money in the US economy
  • Tax cuts generally favoured the wealthy, but also created greater margins by which to fulfil the great political doctrine of the day, 'trickle down economics'
  • High tariffs ensured foreign competition was much reduced and American production encouraged
• Reversing Progressive Era policy, business combinations were once again permitted, encouraging economies of scale and ever-greater profit margins
• Mass production

  A new method of production introduced following on from Principles of Scientific Management, a 1911 study by Frederick Wilmslow Taylor, aimed to improve worker productivity by maximising output
• Henry Ford famously made use of the Assembly Line method, cutting the time to produce a Model T from 12+ hours in 1908 to just 903 seconds in 1914
• The assembly line not only reduced time, it raised productivity thereby lowering prices and opening up new markets for products among those who previously could only dream of owning such items
• Consumer society

  People wanted, and could increasingly afford, to own the innovations and goods that now came within their reach
• With disposable income to spend and such labour saving devices such as electric washing machines, irons and vacuum cleaners in the home, the search for leisure pursuits encouraged the growth of the movie industry, radio, sports leagues and exploring new places
• Advertising exploited this new life style, employing its dark arts to encourage people to want it all, and need it now
• Credit

  The method by which people could invest in the lifestyle they saw advertised, even when they could not afford it on the understanding that employment permitted the debt to be paid eventually
• Companies encouraged their own workers to buy the very goods they helped assemble, granting preferential terms
• The US economy was able to outgrow even its capacity to afford the extraordinary profit margins
• Isolationism bred a certain degree of intolerance of 'otherness' which led to cuts in immigration, reducing the number of potential workers and, more importantly, consumers of the ever-increasing volume of goods for sale
• The tariffs that Republican presidents were so fond of proclaiming protected American goods from unfair foreign competition brought reprisals from those same foreign competitors
• The early 1920s witnessed the beginning of a depression in agriculture that only grew over time
• Returning soldiers wanted their jobs back after the war
• Factories making guns needed to return to making more peaceful products, which there might be less demand for
• The huge orders from Britain and France stopped as their own industries slowly returned to peacetime production
• European agriculture slowly recovered and then demand for American grain dropped sharply → farm incomes & investments in agriculture fell
• Unemployment rose to 12%, causing real hardship
• GNP dropped by 10% in 1919
• Prices overall fell by nearly 40% between 1920 and 1921, due to overproduction and a lack of overseas orders, and partly as the Federal Reserve Bank pushed interest rates up to 7%
• Higher interest rates made borrowing more expensive → slowing down economic growth, reduce consumer spending, and increase the cost of mortgages and other loans for individuals and businesses. It can also lead to lower investment and potentially impact the stock market negatively as consumers became reluctant to invest
• President Woodrow Wilson was heavily involved in his struggle to 'win' the peace and to create the League of Nations. He was also seriously ill for much of the time until he left office in 1921
• The new Republican President, Warren Harding, had little understanding of economics and even less desire to intervene in the economy
• Before the First World War, much of the American economy was driven by the expansion and demands of 'heavy industry' - for example, steel, coal, rail and oil and the system that financed it
• New businesses rose to rival the traditional industries in importance to the economy, such as electricity and automobile production, with a much greater focus on the individual consumer
• Automobile manufacture possibly did most to change the face of industry in the US. The internal combustion engine had been invented before 1900 in Europe, but it was in early 20th-century America that the automobile became a nation-changing innovation
• Henry Ford revolutionised both the manufacture and price of the automobile