The Roaring Twenties (HOM 33-A)

hello everybody welcome to history of money professor barth here history professor at arizona state university all right we've got a big lecture today i'm looking forward to it it's going to be good lecture 33 part a we're going to take a look at the roaring 20s a period of spectacular economic growth prosperity and cultural achievement we'll touch on all of it part b we'll take a look at herbert hoover in the first years of that great depression and in part c we'll take a look at the epic epic epic presidential election of 1932 between fdr and herbert hoover all right so after world war one hundreds of thousands of soldiers american soldiers young men return home to a fairly dire economic situation um auto production uh housing consumer goods are all in very short supply immediately after the war the cost of living living has doubled across the board there have been significant rise increase in prices and and the market was just unable to to immediately absorb all of these new these veterans back into the workforce and it was a time of of declining business activity following immediately following the war and then there were other just really big social problems you had a red scare regarding uh role of communist groups in the united states you had race riots such as in chicago in 1919 and elsewhere in the spanish flu epidemic which killed 675 000 americans in uh today's numbers that would be you know uh over two million americans dead uh from a a pandemic so very very severe and targeted mostly young adults and just pretty bleak times here's the uh money supply you'll see the growth during world war one beginning in 1914 1915 quite a significant increase in m2 m2 as the money supply includes cash coin uh checking accounts other uh non-interest bearing deposit accounts and this is a graph that will follow today and and as well as in lecture 34 you see quite a growth in a money supply there well in early 1920 this then translates into a deflationary economy in uh early 1920 into spring of 1920 a very sharp contraction the stock market falls significantly actually it falls by 47 percent the dow jones from its previous peak well because with the inflation immediately after war you see the dow jones went up quite a bit but now severe decline in stock market extreme deflation in one year in 18 fall in prices that ended up having a quite a severe impact auto production was down 60 percent in this roughly 18 month period industrial production in general was down 30 percent unemployment reached about 10 percent um lots of bankruptcies and even businesses that survived bankruptcies lost as much as three quarters of their uh of their profits the federal reserve responds to this crisis by hiking interest rates in fact actually the hike in interest rates was in large measure of response to the inflation that had taken place during world war one and immediately following the end of the war the new york fed quite significantly raises the discount rate and quite quickly this is what's responsible for the deflation so it's severe the system is gutted prices fall interest rates rise it's difficult to borrow money for a period and yet recovery followed shortly after and see this graph here this is the dow jones look at that went up quite a bit by mid to late 1922 we're close to to where we were at the peak and that was in a fl an inflationary economy there in 1919 so the systems are covered by 1922. it's fairly rapid recovery for this reason not many people remember the uh the depression of 1920 1921. federal reserve by the way ended up slashing interest rates bringing them back down to those previous low levels but for period you had these high interest rates that that put a stop to the inflation the president of the united states was a republican warren g harding and warren g harding was pro business la say fair in in bent he was supporter a supporter of reducing the income tax and in fact the income tax was substantially reduced under harding's administration for the top bracket it was uh the the top bracket the the income tax was right the rate was lowered from 77 to 24 that's a huge cut rate cut and then for lower incomes the income tax was basically done away with for for most americans they paid only a very very tiny level of income tax much much smaller than what we paid today reduced federal spending and then protective tariffs republicans in the 1920s were were supporters of protective tariff to protect agricultural goods within the united states but also industrial goods the secretary of the treasury during harding's administration coolidge's administration and then hoover's administration was a man named andrew mellon andrew millen andrew mellon was a banker and investor in a number of different industries and mellon was a big free market lasse fair pro-business advocate big advocate of low low taxes he mellon argued that lower taxes will lead to rapid economic growth lead to fresh capital investment this is a program that mellon endorses mellon also supports a protective tariff as opposed to an income tax with a protective tariff you're taxing foreign production with an income tax you're taxing domestic production and so melon supports a protective tariff as an alternative source of revenue to the income tax mellon also supported the fed's decision to cut rates in 1921 through 1922 to provide credit to capital markets and what proceeds after the depression of 1920 and 1921 is a period that historians label the roaring 20s the roaring 20s the economy grew over the course of the roaring twenties by 42 percent and gross gross national product rose on average about five percent a year the united states during the 1920s produced almost half of the world's industrial output and became the wealthiest country in the world some economic historians estimate that america during this period may have possessed up to 40 percent of the world's total wealth there were construction booms skyscrapers constructed in cities wages rose unemployment fell below four percent and and remained at below four percent through most of the decade average income rose from almost said almost sixty five hundred dollars per person per year to over eight thousand dollars per person so that the us became the the richest country in the world per capita as well the automobile industry was famously thriving in the 1920s henry ford quadrupled his productivity at ford auto plants and in the 1920s was able to sell the model t for less than 300 think about that less than 300 so that by 1929 there were 26 million automobiles in the united states out of a population of about 100 million people okay so pretty pretty remarkable there and of course henry ford mastered the the assembly line and his theory was hey let's make the model t affordable enough so that my own workers can can buy a model t consumer goods just across the board electricity refrigeration here's some advertisements for general electric refrigerator electric refrigeration frigidaire sorts of consumer goods in this period and of course culturally which i already alluded to the film industry silent movie theaters zorro radio radio takes off in the 1920s and becomes a cultural phenomenon radio programs and music news gather your family around and listen to a program professional sports which you could listen to on the radio there's babe ruth professional sports takeoff in the 1920s become a major attraction aviation this is the uh the decade in which uh charles lindbergh jr flew a uh the first transatlantic solo flight dance clubs dance halls new forms of dress the jazz age all right an optimistic time in short in american history speak easy bars despite prohibition of alcohol telephone lines in new york city new york city there's a photograph of new york in the 1920s look at all those skyscrapers quite an impressive sight and so much activity is happening happening there of course this is the site of the new york stock exchange this is one of my favorite photos from the period construction worker what a what an exciting time to be an american new york fed of course the most powerful the federal reserve banks headquartered in new york and there is the new york federal reserve building remains the building main building for the new york fed today and and actually in the mid-1920s the federal reserve was went on a uh public relations campaign to pitch a federal reserve as a very positive institution that was promoting growth in the american economy uh and all the the following posters you'll see were created in the mid-1920s and banks would feature these posters to bolster confidence in their banking system or in that particular bank this one for example says the federal reserve system is the keystone of america's financial structure this bank as a member contributes to national stability the foundation of the federal reserve system is a cooperation in the community of interest of the nation's bank this bank as a member shares in the strength and the protection which federal supervision affords the federal reserve system is a reservoir of funds which are instantly available when danger threatens american business this bank as a member offers interested service and unquestioned strength this is all before 1929 the pillars which support the nation's business are banks which belong to the federal reserve system and then this last one these 12 federal reserve banks their branches and their 9 700 member banks formed the strongest banking unit in the world this bank as a member brings its depositors this complete protection so there you have it very impressive calvin coolidge became president in 1923. warren g harding had a fatal heart attack and coolidge took over and then ran for re-election in 1924 lastly fair guy even more so than warren g harding known as silent couch who didn't really say much didn't have much interest in uh intervening not a uh a man who who sought to uh to flex executive muscle in the white house and uh andrew millen exerts a lot of influence in the in the coolidge white house in fact under calvin coolidge the uh the national debt was cut in half well under harding and coolidge the national debt was cut in half it was 33 billion dollars in 1919 by 1929 the national debt was only 16 billion dollars then in 1927 with the endorsement of andrew mellon coolidge and the republican congress lowered income taxes even further so that only the wealthiest 2 of americans paid any income tax at all and even that rate was lowered from the previous levels 98 of americans paid zero income tax zero federal income taxes and so you know again continuing that prosperity through the 1920s there's andrew mellon on the cover of time magazine in 1923 a popular treasury secretary before 1929. look at that there's the dow jones index went down of course in 1920 and 21 but now it's it's doing quite well by 1928 by the start of 1928 it is already you know more than double what it was at the start of 1922. so if you had invested money in the stock market and held on to it and then sold in 1928 you doubled your doubled your money not bad well what's the new york fed doing during this period because you'll remember before the establishment of the fomc in 1933 and especially in as a as composed in 1935 each federal reserve bank basically conducted its own independent monetary policy and of course the new york fed is right there in new york and it had strong ties to the new york stock exchange well throughout the 1920s low interest rates and you see it there you know on occasion an increase and and then a fall increase and then fall by the way i forgot to mention the one sector that struggled in the 1920s in the u.s was farming agriculture agriculture didn't do so well in the 1920s and so that was one of the big exceptions to this general prosperity you know it's fairly low interest rates throughout the period we'll get to this rise soon um well where do those low where does that new currency and credit go it goes into the banking system much of that new money and credit was funneled into the new york stock exchange and the fact is actually that these banks member banks commercial banks were actually loaning more money for investments in real estate and the stock market than they were for actual commercial enterprises and so much of this new credit and currency is going to straight into the stock market and particularly with with with the fact that you had buying on margin in the 1920s buying on margin this phenomenon of of buying securities or buying stocks with borrowed money okay borrowing money buying stocks on credit and and betting that a rise in the price of that that stock and then a quick sale will allow you to make a a a very quick and and easy profit and so especially in 1927 and 1928 what we know today with hindsight a stock market bubble arises and look at the m2 graph here money supply 1921 that's quite an increase in the money supply all right not as steep as world war one but pretty darn close so the money supply is expanding m2 is expanding throughout the 1920s and much that money is is going into the stock market and other speculative investments yeah look at that 1928 is when the stock market really took off you know you could argue that this period here this was natural stock market growth right because there were natural reasons for why the us economy was expanding it wasn't just all speculative but in but especially in 1928 a speculative mania takes over the new york stock exchange and and you see this huge spike as more and more ordinary investors begin to get into the game and again many of them are buying stocks on credit on margin but by you know late 1928 this is a thriving economy um many people do not see any and in sight really we've got a federal reserve right the federal reserve is there to prevent us from having another panic of 1907 or another panic of 1893 remember those pr posters for the federal reserve a reservoir of funds in times of emergency so all is well and good most americans believe now there are some people in 1928 who are raising red flags right or identifying red flags in the economy but most americans they don't see a depression coming around the corner at all herbert hoover who was secretary of commerce under harding and coolidge runs as a republican in 1928 and wins a landslide election against democrat al smith who was a roman catholic and and who was running primarily on repealing prohibition most americans are very very pleased with how the republicans are doing in the 1920s and republicans have no problem at all winning reelection al smith just carries the deep south because the deep south is going to vote democrat no matter what um i didn't mention this but warren g harding actually reversed president woodrow wilson's policy of excluding african americans from the white house and from federal employment harding reverses that and also was first president to really speak out against lynching in the south 1920s african americans primarily voted republican it was the party of lincoln democrats with a party of woodrow wilson the south the kkk etc and so era of republican dominance in the 1920s hoover at the rnc convention in 1928 says the following notoriously we shall soon with the help of god be in sight of the day when poverty will be banished from this nation president hoover august 1928 i'm going to go more into hoover's background and part b of of this video we'll take a look at who was hoover where did he get his ideas from and uh this hoover's story is quite an interesting one as is as is fdrs which we'll explore in part c yeah look at that wow that that is quite spectacular again we see in hindsight the bubble it's very very difficult to identify a bubble in the present moment because people don't want to be bearish they want to be bullish they want to they like that optimism and hoover brought the optimism hoover had a self-confidence about him that was infectious in 1928 but there are warning signs and the fed sees those the fed in early in the first half of 1928 begins hiking up interest rates right kind of they see things overheating okay it's clear that things are overheating a bit i mean look at that stock market and so the fed begins to apply breaks to things and then stops toward the end of 1928 and early 1929 kind of stalls a bit and then in mint 29 begins raising rates again right some critics of the fed identify this as one of the reasons why the economy crashed my personal opinion is no it's it was something that the fed needed to do because the economy was overheating and interest rates were too low i'm giving my personal view there by the way on the subject of the great depression if you didn't know this most of you do there are many many different opinions among economic historians about why it happened and why was so prolonged we'll go into some of those alternative theories about the great depression in a in another video but in any event next for part b at the next lecture we'll take a look at herbert hoover in the first years of the great depression see you for part b

Channel: Professor Barth

Views: 3,507

Keywords: Roaring 20s, 1920s, Return to Normalcy, 1920-21, Great Depression, New York Stock Exchange, Dow Jones, index, Henry Ford, Jazz Age, speakeasies, silent film, baseball, sports, Babe Ruth

Id: tWUDc1FyeUs

Length: 24min 42sec (1482 seconds)

Published: Sat Nov 21 2020