The Economy of the 20's and 30's - The Highs, the Lows, and everything in between


During the 1920's and 30's, the economy saw some of the most devistating, as well as some of the most encouraging, times. The Dow Jones, our nation's stock market that runs our economy, fluctuated more than ever, bringing both prosperity and depression. The history of this goes back to the early 1920's, during some of the most prosperous times in the United States. Many new inventions were seen, including the automobile, which led to better roadways and expanded suburbs. The radio was also invented, and became a network connection between all who listened. Innovations in home heating and lighting were also made, and telephone communications were largely expanded. Many people experimented with new recreational activities, like movies and professional sports; anything that made people happy, and allowed them to enjoy themselves. The 20's were a prosperous time; however, times were about to change, and not for the better.
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Broadway, 1929

The most important factor of the Great Depression's start was the Dow Jones Industrial Average. The DJIA is an investment system that includes 30 different companies, mostly producers of industrial and consumer goods. These companies are divided up into stocks and sold to whoever wants to buy them. When someone buys stock, they own that much of the company. When they sell their stocks, their goal is to make profit by selling what they own of the company to someone else. The DJIA accounts for about 24% of the investing oppurtunities in the US, and when it crashed back in October 1929, all that investment was destroyed - a main cause for depression in the 30's.
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Newspaper from shortly after the October 1929 crash

The stock market crash of 1929 is perhaps one of the most memorable moments in United States History. Finances in the 20's were based almost entirely on debt - inflation was everywhere, and most figured that if they could take out a loan for something, they didn't have to worry about paying it back. The prices of everything dropped dramatically after World War I, due to the recovering economies of European countries. People would buy and buy and buy, and the economy grew and grew and grew. But something can only grow so large. When the idea of buying using credit became popular, the idea of buying on the margin also came about. Buying on the margin was the concept of paying 10% for something, but not needing to have the money for the rest of it at the time of purchase, kind of like a down payment. People figured, 'hey, the stock market just keeps going up and up, so I'll buy these stocks that I only have 10% of the money for, and then when i sell them, I'll make a huge profit and pay back what I originally couldn't pay'. Well, as good a plan as that sounded to be, it wasn't very beneficial for the economy.
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Chart showing the dramatic losses suffered by the DJIA from 1929 to 1932

After the stock market crashed in 1929, within the next two years, stocks had lost almost 80% of their value. Many of the stocks were owned by people who had bought them on the margin, and now that prices were getting lower, not higher, they couldn't afford to sell them and not make enough money to pay what they owed. Banks had loaned out so much money to so many people, that when they tried to collect that money after the crash (banks needed their money too), no one could pay them. There was an absence of money in the economy that was just now being recognized. Many banks failed during this time, seeing almost $140 billion vanish right before their eyes. The 1930's quickly became some of the most dreadful, horrible years in US history. Unemployment soared from just 3.5% in the 20's to over 25% in the early 30's. President Herbert Hoover believed that the best thing to do was to leave everything the way it was and wait for things to fix themselves, but people weren't anxious to believe that he was telling the truth. Franklin D. Roosevelt ended up winning in the next election, and had a very opposite view from Hoover. He believed that the best thing to do was to pump money into the economy; create jobs for anyone who needed them. Even raking leaves was considered a job, and people got payed for it. Whatever the government could do to bolster the economy, they did it. Many efforts, however, were in vain, seeing that the economy didn't really get back on track until World War II.

Price Comparisons:

Item Name
model T car
12 eggs
ladies frock
loaf of bread
1 lb. bacon
men's shirt
women's coat
pen
Before Crash
$290
$0.50
$5.00
$0.25
$0.45
$1.00
$14.00
$3.00
After Crash
$640
$0.18
$5.75
$0.08
$0.38
$2.50
$16.00
$3.35

Relief Programs

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The lives of a relief-funded family


Set up by President Franklin D. Roosevelt, relief programs were meant to increase employment and aid industry and agriculture during the 1930's. Relief payments were government financial aid given to the unemployed. Direct relief was literally a direct payment to the unemployed - just money. The government worked through the Federal Emergency Relief Administration, founded in 1933. In 1935, federal grants to aid state and local governments was about $1.7 billion, and about 1/6 of American families were receiving federal aid - about $6.50 a week.
There was also an indirect sort of relief payment, and that was government-created jobs. Also called relief programs, these jobs were created for the sole purpose of creating higher employment. Agencies such as the Public Works Administration and the Civil Works Administration employed people to do things like build roads and buildings, take care of national parks, and improve harbors. These jobs may not have been paid particularly well, but they were employment, none the less.
Food Stamps were a type of relief that didn't occur until the late 1930's. Approximately 20 million people, from 1939 to 1943, could receive blue stamps from the government that could be redeemed for certain surplus foods. Orange stamps could be purchases for $1, and came with a free 50 cent blue stamp. This program ended in 1943 when its causes, wide-spread unemployment and unmarketable food surpluses, were deemed over by the government, but was revived again in the 60's and is still around today.