3. USA, 1918-1968
5 essays to learn BUT only
1 to write in the exam
Issue 3
An Evaluation Of The Reasons For The Economic
Crisis 1929-33:
Factor 1: Republican Governments
Policies
Factor 2: Overproduction &
Under-consumption
Factor 3: Weaknesses Of The
Banking System
Factor 4: International Economic
Problems
Factor 5: Wall Street Crash
AIMS OF
ESSAY:
To Be Able To
Discuss the
factors which
contributed to
the economic
(financial) crisis
in American
between 1929 &
1933
Aims Paragraph 1:
• To Understand What Is Meant By The
Overproduction & Under-consumption Of
Goods
• To Explain How Republican Policies (Lack Of
Regulation & Lack Of Taxation) Ensured The
Boom Of The 1920s Would Never Last
Have The Background Knowledge & Argument To Write
Your Second Paragraph For Essay 3 on the Factors
Which Contributed To The Economic Crisis
PLAN FOR PARAGRAPH
Over Production & Under Consumption
1. Start with an Opening Argument e.g. state there is a link
between the isolated factor & the question
2. Put in Knowledge – Details of mass production with
example e.g. Ford
3. Put in Analysis – Explain why the boom would never last
4. Knowledge – Give details of the other reason why the
boom couldn’t last
5. Analysis – Explain what this resulted in & the effect it
had
6. Evaluation – make an evaluation, how important was this
factor?
Read Through Paragraph 2 On Handout
1. OVERPRODUCTION OF GOODS
Changing Times
The American economy was
changing during the 1920s and
output increased by a staggering
50%!
The “New Era” used massproduction methods (moving
assembly line) to produce huge
amounts of goods could be made
at a fraction of the cost
because they were made by
unskilled labour & costs were cut
through bulk buying
This meant many good for the
first time were accessible to the
whole nation not only the
wealthy!
Many Americans thought they had
entered a new era of prosperity due
to the availability of work that they
accepted new offers of CREDIT in
order to buy what they could not
afford out of their pocket… uh oh
New Goods
New electrical goods & cars were sold in their
millions:
• Henry Ford’s reliable Model T (“tin Lizzie”)
appeared in 1908 & by 1929 more than 23 million
were produced!
• The car industry stimulated other industries as
well such as steel, rubber & petrol
• It also resulted in the expansion of roads creating
jobs – 10,000 miles worth per year!
• By 1923 there were over 500 stations and 3 million
radios in action
• Other goods such as hand cameras, wristwatches,
cigarette lighters, vacuum cleaners, refrigerators
and washing machines were other examples of
mass-produced goods which flooded the market
Overproduction
However by 1929 mass production had
peaked and the market for these goods was
saturated (there was not the need for
them):
1. Those who could afford the goods had
already bought them so the market was
flooded with items which could not be
sold
2. The poor, many of whom who were not
earning enough to buy item out right and
had bought the items on credit, were
unwilling to take out more of a loan to
buy goods they didn’t really need
Thousands of goods were being stock-piled
in warehouses as nobody wanted them businesses went bust as people were not
buying their goods!
This meant there was a surplus
of goods which led to a fall in
prices and a fall in companies
profits
Companies had to cut costs and
did this by letting workers go
which resulted in huge
unemployment
2. Under Consumption
Also Known As The ‘Saturation Of Market’
Wealth Inequality
The wealthy were favored throughout the 1920s by the
tax policies of the republican administrations
These cuts had no impact on the poor as they weren't
earning enough to be paying tax in the first place
Prosperity not being fairly shared across the USA as
the top 5% of the population owned 33% of the
nation’s wealth
This which meant that the bottom 40% of the
population received only 12.5% of the nation's wealth
71% of the population were earning less than a decent
comfort wage of $2,500 annually - the minimum
thought necessary for decent comfort but definitely
not enough to be buying the latest models
Under Consumption
This also meant that a large percentage
of the population could not afford the
goods that were being produced
throughout the 1920s
The problem here is that there are only
so many hoovers rich families could own
Therefore domestic demand did not
keep up with production
This resulted in a fall of prices and a fall
in company profits. To cut costs,
companies let workers go resulting in
high unemployment and a Depression in
the 1930s
SUM UP:
Overproduction & Under-consumption
New mass-production methods and mechanisation meant
that production of consumer goods had expanded
enormously
Cars, radios and other electrical goods had flooded the
market and more was being made than people could buy
By 1929 those who could afford consumer goods had
already bought them
Throughout the 1920’s business had benefited from low tax
policies. The result of this was that the bottom 40% of the
population received only 12.5% of the nation’s wealth
In contrast, the top 5% owned 33% of the nation’s wealth
Therefore, domestic demand never kept up with production
Background Questions
Q1. How much (%) did economic output increase in the 1920s?
Q2. What is an example of mass production methods?
Q3. Why does mass production cut costs?
Q4. What did mass production mean for the average American?
Q5. What offers were the poor given to buy these goods that they could not
afford?
Q6. Which other industries were stimulated from the motor industry?
Q7. Which other goods became available cheaper due to mass production
Q8. What does it mean if a market is ‘saturated’?
Q9. What were the 2 reasons for the saturated market?
Q10. What result occurred from goods not being sold?
Q11. Why were the poor not taxed like the rich?
Q12. What evidence is there that prosperity was not evenly shared?
Q13. How can over-production/under consumption be explained in its most
simple form?
PLAN FOR PARAGRAPH
Over Production & Under Consumption
1. Start with an Opening Argument e.g. state there is a link
between the isolated factor & the question
2. Put in Knowledge – details of mass production, with
example
3. Put in Analysis – explain why the boom would never last
4. Knowledge – give details of the other reason why the
boom couldn’t last
5. Analysis – explain what this resulted in & the effect it
had
6. Evaluation – make an evaluation, how important was this
factor?
OPENING ARGUMENT
It can be argued that the economic crisis
was caused by overproduction and under
consumption (also known as the saturation
of the market)
Over Production & Under Consumption
KNOWLEDGE 1
ARGUMENT 1
• Explain mass production
made goods more
accessible to Americans
(cheaper)
• It can be argued that
the economic crisis was
caused by too many
goods flooding the
market…
• Example - Henry Ford’s
car; vacuum cleaners
• …which eventually
became saturated as
those who could afford
them already had them
Over Production & Under Consumption
KNOWLEDGE 2
ARGUMENT 2
(as we already know…)
• Tax policies of the
Republican governments
favoured the wealthy
• It can be argued that
the economic crisis was
caused by the
prosperity of the 1920s
not being equally
shared across society…
• Example of inequality
• This resulted in surplus
goods as the poor
couldn’t afford them
• … which led to under
consumption &
eventually losses in jobs
EVALUATION:
Therefore, although the Republicans lack of
regulation did result in a great deal of wealth
in the short term, the unstable job market;
over-production of goods & the lack of tax to
redistribute the wealth meant that the
American economy was never going to continue
to boom and risking the stability of economy