The Roaring Twenties: Economic Boom and the 1929 Crisis
The Roaring Twenties: Economic Growth
The end of World War I ushered in a period of reconstruction, opening a decade of growth and economic dynamism. The British economy, based on older industries such as textiles and steel, experienced a decline. However, falling prices of raw materials and food provided some advantages. The war led to dramatic development for the U.S. economy, making the United States the leading world power.
The Engine of Economic Development: Industry
Industrial growth occurred mainly in new, dynamic sectors. The most spectacular growth occurred in the automotive industry, especially in the United States. This growth spurred other sectors such as steel, oil extraction, etc. Other leading industrial sectors included electricity, chemistry, and aeronautics. Although coal remained a primary energy source, its production increased only slightly due to the utilization of new energy sources: oil and electricity.
Intensification of Production
Forms of industrial production, as well as business structure, showed prominent changes during this period. As a result of applying organization of work in factories, this phenomenon became known as Taylorism in Western countries. This new production system was based on eliminating downtime in production chains and maximizing automation through assembly lines, timing, and specialization of labor. Taylor’s methods became widespread in the automobile industry. This new system immediately provoked a large increase in productivity. Employers increased their profits, and consumers could access cheaper goods. New forms of production increased concentration.
The Causes of the Crisis: Unbalanced Economic Growth
Amidst the prosperity of the twenties, some signs of weakness emerged, instrumental in triggering the 1929 crisis. The First World War provoked a rise in agricultural prices, but the crisis of 1920-1921 marked the beginning of a period of falling prices and farm incomes. This phenomenon was more severe in the U.S. Farmers attempted to stem the fall of their income by increasing production and yields, which meant a greater supply and a continuous decrease in prices.
Monetary Difficulties
Financial and monetary problems were apparent. A new phenomenon in the history of capitalism emerged: inflation. Higher prices resulted from the need to rebuild countries and meet the expenses needed to support the many victims. European countries called for credits from the U.S., which became the most important international creditor. Only the dollar was convertible into gold, becoming the international currency. The remaining currencies entered a process of depreciation, resulting in a low value of the currency. The collapse of the monetary system was exemplified by the great inflation in Central European countries, especially Germany.
The Crisis of 1929: The Stock Market Crash
Since 1925, stock prices in the New York stock market continually rose, accumulating extraordinary gains. Easy access to credit to buy stocks and real activity of firms would not stop growing. The beginnings of problems were evident well before 1929. Since 1925, the values of commodities were falling, the UK’s economic difficulties were evident, and German industrial production was stagnant since 1927. On Thursday, October 24th, a great number of shares went on sale, resulting in a fall in prices. Black Thursday signaled the end of the process of rising values and was the immediate trigger of the crisis of 1929.
The Crisis Extends to All Sectors
The stock-exchange crisis spread to other sectors of the economy, seriously affecting them all. The stock market bankruptcy soon became a financial crisis as banks were caught between investors who could not repay loans. Many banks could not cope with this situation, leading to the ruin of the financial sector. The crisis spread to the productive economy, and factories were forced to close, resulting in a situation of overproduction.