World War I: The government took a more active
role in the economy as the country mobilized for war.
Different federal agencies handled such decisions as
what to produce, how much, how to distribute food and
supplies, how to handle transportation problems, and how
to handle labor disputes. The government also
began to directly supervise telephone and telegraph
business, as well as other public utilities. The
1917 War Revenue Act provided funding for the war
through increased taxes and the sale of war bond.
After the war the economy took a slight downturn as
wartime production of materials slowed to a peacetime
environment. But, shortly after, America
experienced strong economic prosperity. Between
1923 and 1929 the U.S. economy was in a boom period.
Gross National Product increased 40%, inflation rose
little, and per capita income increased by more than
30%, which gave Americans tremendous buying power.
But, in 1929 the stock market crashed, and America's
economy entered the Great Depression.
The Stock Market Crash of 1929 is considered the
beginning of the Great Depression. The crash came
as a result of too many investors buying stock on the
margin, which means purchasing a stock for only paying a
small percent of the actual price. Buying on the
margin allows an investor to purchase more stock, which
they intend to pay off with the profits from a later
sale of the stock. In the Crash of 1929, investors
could not pay for the stock they had bought on the
margin. This caused many people and businesses to
go bankrupt, and resulted in the widespread failure of
banks. While the stock market crash was a cause of
the depression, other factors contributed as well.
Causes of the
- Widespread unemployment in such industries
as railroads, textiles, and coal.
- Less consumption of consumer goods than what
- Worldwide reduction in the prices of farm
- Unequal distribution of wealth which made
economy dependent on small percentage of people.
- Weak banking structure that resulted in more
than 7,000 banks failing.
- Weak international economy due to high
tariffs and high foreign debt.
- No government regulation on stock market
speculation. No enforcement of antitrust laws.
Tax policy that favored the rich.
Early Response to
the Great Depression
President Herbert Hoover was the first to
have to respond to the depression. He did so by
instituting a number of programs aimed at getting the
economy on track. In 1932, he started the
Reconstruction Finance Corporation to help bail out
railroads, mortgage companies, and banks about to go
bankrupt. He also used government money for building
projects to get people back to work.
Unfortunately, most of his programs failed and
the country sunk deeper into financial ruin.
Franklin Delano Roosevelt was elected president
in 1932. His biggest task was to restart
the American economy and restore faith back in the
economic system. His program was called the New
Deal and had three parts.
Conservation Corp (CCC): Provided work
to over 2.5 million men doing nature conservation
Administration (PWA): Used government
money for construction projects, which in turn
created jobs. Ran from 1933-1939.
Progress Administration (WPA): Another
government sponsored work program. This one
ran from 1935-1943 and included not only
construction jobs and public works, but also
offered work to musicians, writers, and artists.
Housing Administration (FHA): Created
to insure mortgages at a 10% interest rate for 20
or 30 years.
Valley Authority (TVA): Created in
1933, the TVA provided jobs, inexpensive
electricity, and protection from floods throughout
large parts of the south.
Second Agricultural Acts (AAA): Aimed
at controlling production to keep prices at
reasonable levels, the government paid farmers to
destroy crops and animals to limit production.
Declared unconstitutional in 1936, the 2nd AAA was
written to do mostly the same thing.
Glass-Steagall Banking Act (1933): Created the
Federal Deposit Insurance Corporation (FDIC)
which guaranteed deposits up to $5,000.
Exchange Act (1934): Created the Securities
and Exchange Commission (SEC) which could
regulate stock exchanges and investment advisors.
They could pursue legal action against fraudulent
Security Act (1935): Provides for old
age insurance, unemployment insurance, also helped
the infirm, elderly, and dependent children.
Funds were provided though a tax on employers and
World War II
World War II stimulated the economy by providing
jobs in the defense industry. Millions were
put to work building planes, tanks, and other military
equipment. Most of the workforce was composed of
women as men went off to fight. By war's
end, the United States has the strongest economy
in the world and was entering a period of prosperity.
After the war, America entered another period of
prosperity. It is commonly called the Baby Boom
due to the amount of
children born between the years of 1945 and
1960. Upon returning from the war, military
were greeted with the Servicemen's Readjustment Act,
also know as the G.I. Bill, which provided
millions of dollars in benefits to pay for college, home
loans, medical treatment, and business loans.
The Baby Boom radically increased the U.S.'s
population. As a result, more schools,
homes, highways, and just about every
other consumer product was made and sold, further
stimulating the economy. Americans moved away from the
cities into newly constructed neighborhoods called
suburbs. This was made possible due to the
growth of automobile sales, which in turn
stimulated highway growth, such as the Eisenhower
Interstate Highway System.