Transcript Problems with American Capitalism

CAPITALISM IN PRACTICE
• Pure capitalism in its
traditional form
encountered problems
• Some of these
problems, as well as
solutions to these
problems, will be what
we examine then next
few days.
• The subsequent
changes that capitalism
encountered further
developed the idea of a
mixed economy.
Problems with American Capitalism
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The ideas of individualism and
economic Darwinism were
carried to extremes in the
United States prior to the
Depression
A small number of men, such as
J. D. Rockefeller and J. P.
Morgan, were becoming
extremely wealthy. This small
group of men monopolized the
wealth and economic power in
the United Sates. They were
able to control large sections of
the economy because of their
shrewd business dealings.
• The accumulation of
wealth by a few, such
as Rockefeller and
Morgan, meant poverty
for many
STOCK PRICES
- 1929 -
• People who had been rich
before the stock crash in
1929 were left penniless with
the coming of the
Depression.
• The strongest did not always
survive.
• Some of the ideas that had
formed the backbone of
capitalism were being
questioned.
• People needed help, and
many people started to look
to the government to provide
that help.
The Business Cycle
• One of the major
problems capitalist
nations must constantly
deal with is an
economic event known
as the business cycle.
• This means that the
economy will go
through periods of
boom (good times) and
bust (bad times).
• In the United States
there was a boom
during the 1920s.
Boom
Period of Economic
Expansion
Overall GNP
GNP: gross national
product, the total value
of all goods and
services produced in a
country in one year. It
is hoped a steady
moderate increase will
occur in a given year.
Period of Economic
Decline
Period of
economic
decline
Bust (Depression)
Bust (depression)
• The decade of the 1920s
was referred to as the
roaring twenties.
• The economy was doing
well; people were spending
money and they were happy.
• But the stock market crash of
1929 signaled an end to the
boom.
• The business cycle had
encountered a major
problem for which it did not
seem to have answers.
PROSPERITY
Share Share prices fall PANIC!
- PANIC!
Less
Trade
Less Money for Banks
Many Factories Close
High Unemployment
Less Spending Power Power
More Factories Close
Even More Unemployment
DEPRESSION
"BOOM" Characteristics
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full employment
high inflation
high investment
high demand
"BUST" Characteristics
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high unemployment
low inflation
low investment
low demand
• Unemployment during the
Depression shot up to
unbelievably high rates.
• 1929: % of U.S. unemployed
was 3.2%
• 1932: % of U.S. unemployed
was 23.6%
• The result of this extremely
high rate of unemployment
was an unhappy and
desperate population
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The American president at the
time of the Depression, Herbert
Hoover, had offered very little
government aid
He instead had hoped that the
traditional capitalist economic
system would revive itself
without too much help.
Hoover did not want to spend
too much money helping the
economy because he wanted a
balanced budget.
Interest rates were raised to
discourage investment rather
than lowered to encourage
spending and investment.
Roosevelt and the New Deal
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In 1932 the American people
elected a president who was
offering the electors and the nation
a New Deal.
His name was Franklin D.
Roosevelt.
He was elected because they were
prepared to try anything to break
out of the Depression.
Roosevelt began immediately and
over the first one hundred days in
office he set up a number of
alphabet agencies.
These agencies were going to be
used to put people back to work.
He felt that by using capital work
projects to employ people the
economy would grow strong and
the flow of money would begin
again.