Transcript WWI and Over-Production - Mr. Longacre`s US History Website

WWI and Over-Production
1) The First World War completely devastated Europe. Entire cities
were destroyed, farmlands were marred by trenches and
artillery craters, and close to nine million young men had been
killed in the fighting. The European economy lay in ruin, but the
extremely punitive war reparations in the Treaty of Versailles
made recovery and reconstruction nearly impossible for
Germany and Austria.
WWI and OverProduction
2) Across the Atlantic, the
untouched American
homeland experienced
unprecedented economic
growth in the wake of
the Great War. American
industries profited
greatly during the war
years by providing
billions in supplies to the
Allied powers.
WWI and OverProduction
3) American mobilization for
war in 1917 only increased
demands on industry and
the military draft
eliminated American
unemployment. The war
dramatically reversed the
financial position of the
United States from a
debtor nation to a world
creditor.
WWI and Over-Production
4) The U.S. Treasury loaned the
Allied nations billions of
dollars for their war efforts.
Ironically, much of this
borrowed money returned to
American hands when Allied
powers like Britain and
France purchased war
supplies and armaments from
U.S. industries. This
arrangement only continued
into the 1920s as European
countries sought U.S. loans in
order to rebuild their wartorn economies.
WWI and Over-Production
5) American agriculture boomed in response to massive
European demand for essential foodstuffs during and
after the War. American industrial and agricultural
production had drastically increased in order to meet
the demand overseas.
WWI and Over-Production
6) However, a large surplus began to accumulate as the
European economies recovered during the mid 1920s and
foreign demand for American products substantially
decreased. The demands of war led to alarming levels of
over-production that eventually caused prices to plummet.
WWI and Over-Production
7) American farms were
producing crops at a much
higher rate than the
population could consume
them. Agricultural surpluses
caused a rapid decline in
prices and many American
farmers found it difficult to
accept their sudden change in
circumstances. Depressed
prices were so damaging that
one in four American farms
failed during the 1920s.
WWI and Over-Production
8) Agricultural over-production was the first sign that
the American economy was headed for disaster.
However, outrageous stock prices continued to soar
on Wall Street and the nation turned a blind-eye to
the dire omens from the heartland.
Stock Market Crash
1) The First World War may
have brought unmatched
devastation to Europe, but
it also generated
unparalleled economic
growth in the United
States and greatly elevated
its position in world
affairs. The postwar era
led to such unmatched
prosperity that the
ensuing decade became
known as the “Roaring
Twenties.”
Stock Market Crash
2) Such rapid economic growth was
reflected in the seemingly
limitless rise of the U.S. Stock
Market. The initial increase in
stock prices was the result of
Europe’s dependency on U.S.
exports during the postwar era.
These soaring profits led many
Americans to invest in stocks in
order to gain a share of the
prosperity. However, this only
inflated stock values and further
contributed to the booming
market.
Stock Market Crash
3) The continued soar of stock prices almost guaranteed an
instantaneous return on investment. With little to no risk,
many Americans rushed to invest every penny in the
markets. Banks only further fueled this frenzy by
dramatically easing their credit restrictions and loaning
practices.
Stock Market Crash
4) Rational investment gave way to
risky speculation as many even
began to purchase stocks with
borrowed money. This type of
risky speculation is known as
“buying on margin.” Under this
arrangement, the investor only
paid for a fraction of the
investment and borrowed the
rest from a stock broker. A
significant rise in stock price
enabled them to quickly repay
their loans and glean future
profits, but a decline in prices
often left them with an
unpayable debt.
Stock Market Crash
5) Margin buying became a standard practice as the stock market
continued to soar during the Roaring Twenties. Stockbrokers
and lenders allowed many investors to purchase stocks with as
little as a 10% down-payment. Easy credit created a frenzy of
speculation that bloated the market with inflated stock values
that were destined to fall.
Stock Market Crash
6) The economic bubble finally burst and the stock market
crashed on “Black Tuesday,” October 29th, 1929. The initial
fall of stock prices led to a massive selloff that caused them
to plummet in value. In a little over two months, the stock
market had lost over $40 billion dollars in value (more than
the total cost of World War I to the United States).
Stock Market Crash
7) Some investors lost their lifesavings, many defaulted on
their loans, and thousands of
banks failed because they
loaned out excessive amounts
of money during the boom.
The “Great Depression” would
be the most severe and
prolonged economic crisis the
world had ever seen. By 1933,
an astounding 25% of the U.S.
workforce was unemployed.
Economic Protectionism
1) The crash of the U.S.
Stock Market and the
collapse of credit not
only destroyed the U.S.
economy, but it halted
the international debt
cycle that fueled the
European recovery from
World War I as well. This
caused the economic
crisis to spread across
the globe.
Economic Protectionism
2) As the Depression evolved into a global economic
crisis, many industrialized nations resorted to
protectionist trade measures as a means to shield
their economies from ruin. Many issued tariff taxes
on imported goods in order to protect their domestic
industries from foreign competition.
Economic Protectionism
3) The 1929 Stock Market Crash
led many American
businesses to pressure the
government to raise the tariff
tax in order to help U.S.
industries recover from the
economic depression. As a
result, the 1930 HawleySmoot tariff passed by the
U.S. Congress was one of the
highest tariff rates in history.
Economic Protectionism
4) This inevitably led many European nations to raise
their own tariffs in order to protect their own
domestic industries. These protectionist measures
crippled world trade and caused the prices of
imports and exports to collapse across the globe.
Economic Protectionism
5) Surpluses generated from
over-production also caused
prices to collapse across the
globe. Such low prices made it
extremely difficult for
businesses to generate profits.
Salaries shrank, hours were
reduced, and many workers
were laid off. Goods may have
been inexpensive, but
ironically, many people could
still not afford them because
of the loss of wealth and
personal income.