US Economy: Roaring Twenties, Crash, and New Deal Recovery

Posted on Apr 4, 2025 in Economy

The Roaring Twenties in the United States

The twenty years leading up to the 1920s in the United States underwent an impulse for new industries and the development of new energy sources:

  • New Industries: Automobile, electrical manufacturing, domestic electronics, chemistry, and aeronautics.
  • New Energy Sources: Electricity and oil.

The automobile industry was the symbol of the new times. Mass production also emerged. The development of electric motors and internal combustion facilitated the mechanization of most tasks. Taylorism was also imposed. The result of all this was increased production without increasing the volume of manpower, and the lowering of prices by reducing production costs and increasing output. A major innovation was the development of advertising and new systems of purchases in installments. Mass consumption began to develop. Business concentration was another important feature. In the United States, big business groups were created by merging and regrouping enterprises.

Limits and Disequilibria of Expansion

Several factors limited this expansion:

  • A continuing crisis in traditional sectors (coal, textiles, etc.) compared to new industries (electricity, oil, etc.) which monopolized most of the investment.
  • A decline in the consumption capacity of the population. Falling farm incomes, indebtedness of farmers, and high unemployment led large population groups to consume little.
  • World trade also stagnated due to the recession in consumption and the imposition of customs fees on imports.
  • Instability of the international monetary system was another important obstacle.
  • There was also a decline in capital investment in productive activities.

The 1929 Stock Market Crash

Causes of the Crash

  • The crisis of traditional industrial sectors.
  • The industrial expansion was already experiencing the consequences of decreasing purchasing power of wages and falling incomes by 1927.
  • The construction sector entered a crisis due to market saturation.

The Great Depression

The stock market collapse caused:

  • The destruction of savings and a drastic reduction of consumption, credit, and investment.
  • Banks collapsed because people withdrew their savings and many loans were left unpaid.
  • The cessation of demand and investment resulted in an industrial crisis and very high unemployment rates.
  • The richest country in the world did not have a system to help the unemployed, who fell into misery.
  • The agrarian crisis was intensified by the collapse of prices and the purchasing power of farmers. Poverty in rural areas was even greater than in cities.

Social Consequences of the Crisis

  • In the industrialized world in 1932, there were nearly 30 million unemployed, of whom 12 million were in the United States, over 6 million in Germany, and over 2 million in the United Kingdom.
  • Poverty, hunger, and fear spread, especially among workers and peasants.
  • The feeling of injustice against the powerful and the economic system invaded capitalist societies, triggering strikes, demonstrations, and hunger marches.
  • The fear of the so-called ‘Red Menace’ led to strong government repression of political groups and the appearance of the extreme right, whose main objective was to prevent a revolution.

Economic Policy Responses to the Depression

The New Deal in the United States

In the United States, Democrat Franklin D. Roosevelt came to the presidency in 1933 during the most severe phase of the depression: a drastic drop in demand, the collapse of investment, production, and prices, and a very high number of unemployed. The result was the New Deal, which included:

  • Launching a program to overhaul the banking system.
  • Beginning a program of heavy investment in public works to relaunch the economy and create jobs.
  • Attempting to reduce agricultural production to raise prices and recover farmers’ income.
  • Favoring big companies by eliminating competition, increasing prices, and stimulating investment.
  • Forcing businesses to accept social improvements such as fixing a minimum wage and limiting working hours.
  • Setting up old-age pensions and widow’s benefits, which laid the foundations of the welfare state.