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Friday, May 15, 2020

Roaring Twenties

From Wikipedia, the free encyclopedia

Roaring Twenties
Part of the Interwar period
Baker Charleston.jpg
Josephine Baker performing the Charleston
Date1920s
LocationMainly the United States (Equivalents and effects in the greater Western world)
Also known asAnnées folles in France
Golden Twenties in Germany
ParticipantsSocial movements
First-wave feminism
Harlem Renaissance
Jazz Age
Progressive Era
OutcomeEnding events
Wall Street Crash of 1929
Repeal of Prohibition in the United States

The Roaring Twenties (sometimes stylized as the Roarin’ Twenties) refers to the decade of the 1920s in Western society and Western culture. It was a period of economic prosperity with a distinctive cultural edge in the United States and Europe, particularly in major cities such as Berlin, Chicago, London, Los Angeles, New York City, Paris, and Sydney. In France, the decade was known as the "années folles" ('crazy years'), emphasizing the era's social, artistic and cultural dynamism. Jazz blossomed, the flapper redefined the modern look for British and American women, and Art Deco peaked. In the wake of the patriotism of World War I, President Warren G. Harding "brought back normalcy" to the politics of the United States. This period saw the large-scale development and use of automobiles, telephones, movies, radio, and electrical appliances being installed in the lives of millions of Westerners. Aviation soon became a business. Nations saw rapid industrial and economic growth, accelerated consumer demand, and introduced significantly new changes in lifestyle and culture. The media, funded by the new industry of mass-market advertising driving consumer demand, focused on celebrities, especially sports heroes and movie stars, as cities rooted for their home teams and filled the new palatial cinemas and gigantic sports stadiums. In many major democratic states, women won the right to vote. The right to vote had a huge impact on society.

The social and cultural features known as the Roaring Twenties began in leading metropolitan centers and spread widely in the aftermath of World War I. The United States gained dominance in world finance. Thus, when Germany could no longer afford to pay World War I reparations to the United Kingdom, France, and the other Allied powers, the United States came up with the Dawes Plan, named after banker and later 30th Vice President Charles G. Dawes. Wall Street invested heavily in Germany, which paid its reparations to countries that, in turn, used the dollars to pay off their war debts to Washington. By the middle of the decade, prosperity was widespread, with the second half of the decade known, especially in Germany, as the "Golden Twenties".

The spirit of the Roaring Twenties was marked by a general feeling of novelty associated with modernity and a break with tradition. Everything seemed to be feasible through modern technology. New technologies, especially automobiles, moving pictures, and radio, brought "modernity" to a large part of the population. Formal decorative frills were shed in favor of practicality in both daily life and architecture. At the same time, jazz and dancing rose in popularity, in opposition to the mood of World War I. As such, the period often is referred to as the Jazz Age.

The Wall Street Crash of 1929 ended the era, as the Great Depression brought years of hardship worldwide.

Economy

Chart 1: USA GDP annual pattern and long-term trend, 1920–1940, in billions of constant dollars
 
The Roaring Twenties was a decade of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending, a boom in construction, and the rapid growth of consumer goods such as automobiles and electricity in North America and Europe and a few other developed countries such as Australia. The economy of the United States, which had successfully transitioned from a wartime economy to a peacetime economy, boomed and provided loans for a European boom as well. Some sectors stagnated, especially farming and coal mining. The US became the richest country in the world per capita and since the late-19th century had been the largest in total GDP. Its industry was based on mass production, and its society acculturated into consumerism. European economies, by contrast, had a more difficult postwar readjustment and did not begin to flourish until about 1924.

At first, the end of wartime production caused a brief but deep recession, the post–World War I recession of 1919–20. Quickly, however, the economies of the U.S. and Canada rebounded as returning soldiers re-entered the labor force and munitions factories were retooled to produce consumer goods.

New products and technologies

Mass production made technology affordable to the middle class. The automotive industry, the film industry, the radio industry, and the chemical industry took off during the 1920s.

Automobiles

Before World War I, cars were a luxury good. In the 1920s, mass-produced vehicles became commonplace in the US and Canada. By 1927, the Ford Motor Company discontinued the Ford Model T after selling 15 million units of that model. It had been in continuous production from October 1908 to May 1927. The company planned to replace the old model with a newer one, the Ford Model A. The decision was a reaction to competition. Due to the commercial success of the Model T, Ford had dominated the automotive market from the mid-1910s to the early-1920s. In the mid-1920s, Ford's dominance eroded as its competitors had caught up with Ford's mass production system. They began to surpass Ford in some areas, offering models with more powerful engines, new convenience features, and styling.

Only about 300,000 vehicles were registered in 1918 in all of Canada, but by 1929, there were 1.9 million. By 1929, the United States had just under 27,000,000 motor vehicles registered. Automobile parts were being manufactured in Ontario, near Detroit, Michigan. The automotive industry's influence on other segments of the economy were widespread, jump starting industries such as steel production, highway building, motels, service stations, car dealerships, and new housing outside the urban core. 

Ford opened factories around the world and proved a strong competitor in most markets for its low-cost, easy-maintenance vehicles. General Motors, to a lesser degree, followed. European competitors avoided the low-price market and concentrated on more expensive vehicles for upscale consumers.

Radio

Radio became the first mass broadcasting medium. Radios were expensive, but their mode of entertainment proved revolutionary. Radio advertising became a platform for mass marketing. Its economic importance led to the mass culture that has dominated society since this period. During the "Golden Age of Radio", radio programming was as varied as the television programming of the 21st century. The 1927 establishment of the Federal Radio Commission introduced a new era of regulation.

In 1925, electrical recording, one of the greater advances in sound recording, became available with commercially issued gramophone records.

Cinema

The cinema boomed, producing a new form of entertainment that virtually ended the old vaudeville theatrical genre. Watching a film was cheap and accessible; crowds surged into new downtown movie palaces and neighborhood theaters. Since the early 1910s, lower-priced cinema successfully competed with vaudeville. Many vaudeville performers and other theatrical personalities were recruited by the film industry, lured by greater salaries and less arduous working conditions. The introduction of the sound film at the end of the decade of the 1920s eliminated vaudeville's last major advantage. Vaudeville was in sharp financial decline. The prestigious Orpheum Circuit, a chain of vaudeville and movie theaters, was absorbed by a new film studio.
Sound movies
In 1923, inventor Lee de Forest at Phonofilm released a number of short films with sound. Meanwhile, inventor Theodore Case developed the Movietone sound system and sold the rights to the film studio, Fox Film. In 1926, the Vitaphone sound system was introduced. The feature film Don Juan (1926) was the first feature-length film to use the Vitaphone sound system with a synchronized musical score and sound effects, though it had no spoken dialogue. The film was released by the film studio Warner Bros. In October 1927, the sound film The Jazz Singer (1927) turned out to be a smash box-office success. It was innovative for its use of sound. Produced with the Vitaphone system, most of the film does not contain live-recorded audio, relying on a score and effects. When the movie's star, Al Jolson, sings, however, the film shifts to sound recorded on the set, including both his musical performances and two scenes with ad-libbed speech—one of Jolson's character, Jakie Rabinowitz (Jack Robin), addressing a cabaret audience; the other an exchange between him and his mother. The "natural" sounds of the settings were also audible. The film's profits were proof enough to the film industry that the technology was worth investing in.

In 1928, the film studios Famous Players-Lasky (later known as Paramount Pictures), First National Pictures, Metro-Goldwyn-Mayer, and Universal Studios signed an agreement with Electrical Research Products Inc. (ERPI) for the conversion of production facilities and theaters for sound film. Initially, all ERPI-wired theaters were made Vitaphone-compatible; most were equipped to project Movietone reels as well. Also in 1928, Radio Corporation of America (RCA) marketed a new sound system, the RCA Photophone system. RCA offered the rights to its system to the subsidiary RKO Pictures. Warner Bros. continued releasing a few films with live dialogue, though only in a few scenes. It finally released Lights of New York (1928), the first all-talking full-length feature film. The animated short film Dinner Time (1928) by the Van Beuren Studios was among the first animated sound films. It was followed a few months later by the animated short film Steamboat Willie (1928), the first sound film by the Walt Disney Animation Studios. It was the first commercially successful animated short film and introduced the character Mickey Mouse. Steamboat Willie was the first cartoon to feature a fully post-produced soundtrack, which distinguished it from earlier sound cartoons. It became the most popular cartoon of its day.

For much of 1928, Warner Bros. was the only studio to release talking features. It profited from its innovative films at the box office. Other studios quickened the pace of their conversion to the new technology and started producing their own sound films and talking films. In February 1929, sixteen months after The Jazz Singer, Columbia Pictures became the eighth and last major studio to release a talking feature. In May 1929, Warner Bros. released On with the Show! (1929), the first all-color, all-talking feature film. Soon silent film production ceased. The last totally silent feature produced in the US for general distribution was The Poor Millionaire, released by Biltmore Pictures in April 1930. Four other silent features, all low-budget Westerns, were also released in early 1930.

Aviation

The 1920s saw milestones in aviation that seized the world's attention. In 1927, Charles Lindbergh rose to fame with the first solo nonstop transatlantic flight. He took off from Roosevelt Field in New York and landed at Paris–Le Bourget Airport. It took Lindbergh 33.5 hours to cross the Atlantic Ocean. His aircraft, the Spirit of St. Louis, was a custom-built, single engine, single-seat monoplane. It was designed by aeronautical engineer Donald A. Hall. In Britain, Amy Johnson (1903–1941) was the first woman to fly alone from Britain to Australia. Flying solo or with her husband, Jim Mollison, she set numerous long-distance records during the 1930s.

Television

The 1920s saw several inventors advance work on television, but programs did not reach the public until the eve of World War II, and few people saw any television before the late-1940s.

In July 1928, John Logie Baird demonstrated the world's first color transmission, using scanning discs at the transmitting and receiving ends with three spirals of apertures, each spiral with a filter of a different primary color; and three light sources at the receiving end, with a commutator to alternate their illumination. That same year he also demonstrated stereoscopic television.

In 1927, Baird transmitted a long-distance television signal over 438 miles (705 km) of telephone line between London and Glasgow; Baird transmitted the world's first long-distance television pictures to the Central Hotel at Glasgow Central Station. Baird then set up the Baird Television Development Company Ltd, which in 1928 made the first transatlantic television transmission, from London to Hartsdale, New York and the first television programme for the BBC.

Medicine

For decades biologists had been at work on the medicine that became penicillin. In 1928, Scottish biologist Alexander Fleming discovered a substance that killed a number of disease-causing bacteria. In 1929, he named the new substance penicillin. His publications were largely ignored at first, but it became a significant antibiotic in the 1930s. In 1930, Cecil George Paine, a pathologist at Sheffield Royal Infirmary, used penicillin to treat sycosis barbae, eruptions in beard follicles, but was unsuccessful. Moving to ophthalmia neonatorum, a gonococcal infection in infants, he achieved the first recorded cure with penicillin, on November 25, 1930. He then cured four additional patients (one adult and three infants) of eye infections, but failed to cure a fifth.

New infrastructure

The automobile's dominance led to a new psychology celebrating mobility. Cars and trucks needed road construction, new bridges, and regular highway maintenance, largely funded by local and state government through taxes on gasoline. Farmers were early adopters as they used their pickups to haul people, supplies and animals. New industries were spun off—to make tires and glass and refine fuel, and to service and repair cars and trucks by the millions. New car dealers were franchised by the car makers and became prime movers in the local business community. Tourism gained an enormous boost, with hotels, restaurants and curio shops proliferating.

Electrification, having slowed during the war, progressed greatly as more of the US and Canada was added to the electrical grid. Industries switched from coal power to electricity. At the same time, new power plants were constructed. In America, electricity production almost quadrupled.

Telephone lines also were being strung across the continent. Indoor plumbing and modern sewer systems were installed for the first time in many houses. 

Urbanization reached a milestone in the 1920 census, that showed slightly more Americans lived in urban areas towns and cities of 2,500 or more people than in small towns or rural areas. However, the nation was fascinated with its great metropolitan centers that contained about 15% of the population. New York and Chicago vied in building skyscrapers, and New York pulled ahead with the Empire State Building. The basic pattern of the modern white-collar job was set during the late-19th century, but it now became the norm for life in large and medium cities. Typewriters, filing cabinets, and telephones brought unmarried women into clerical jobs. In Canada, by the end of the decade one in five workers was a woman. Interest in finding jobs in the now ever-growing manufacturing sector in U.S. cities became widespread among rural Americans.

Society

Suffrage

With some exceptions, many countries expanded women's voting rights in representative and direct democracies across the world such as the United States, Canada, Great Britain and most major European countries in 1917–1921, as well as India. This influenced many governments and elections by increasing the number of voters. Politicians responded by focusing more on issues of concern to women, especially peace, public health, education, and the status of children. On the whole, women voted much like men, except they were more interested in peace.

Lost Generation

The Lost Generation was composed of young people who came out of World War I disillusioned and cynical about the world. The term usually refers to American literary notables who lived in Paris at the time. Famous members included Ernest Hemingway, F. Scott Fitzgerald, and Gertrude Stein. These authors, some of them expatriates, wrote novels and short stories expressing their resentment towards the materialism and individualism rampant during this era.

In the United Kingdom, the bright young things were young aristocrats and socialites who threw fancy dress parties, went on elaborate treasure hunts, were seen in all the trendy venues, and were well covered by the gossip columns of the London tabloids.

Social criticism

Climax of the new architectural style: the Chrysler Building in New York City was built after the European wave of Art Deco reached the United States.

As the average American in the 1920s became more enamored of wealth and everyday luxuries, some began satirizing the hypocrisy and greed they observed. Of these social critics, Sinclair Lewis was the most popular. His popular 1920 novel Main Street satirized the dull and ignorant lives of the residents of a Midwestern town. He followed with Babbitt, about a middle-aged businessman who rebels against his dull life and family, only to realize that the younger generation is as hypocritical as his own. Lewis satirized religion with Elmer Gantry, which followed a con man who teams with an evangelist to sell religion to a small town.

Other social critics included Sherwood Anderson, Edith Wharton, and H.L. Mencken. Anderson published a collection of short stories titled Winesburg, Ohio, which studied the dynamics of a small town. Wharton mocked the fads of the new era through her novels, such as Twilight Sleep (1927). Mencken criticized narrow American tastes and culture in essays and articles.

Art Deco

Art Deco was the style of design and architecture that marked the era. Originating in Europe, it spread to the rest of western Europe and North America towards the mid-1920s.

In the U.S., one of the more remarkable buildings featuring this style was constructed as the tallest building of the time: the Chrysler Building. The forms of art deco were pure and geometric, though the artists often drew inspiration from nature. In the beginning, lines were curved, though rectilinear designs would later become more and more popular.

Expressionism and surrealism

Painting in North America during the 1920s developed in a different direction from that of Europe. In Europe, the 1920s were the era of expressionism and later surrealism. As Man Ray stated in 1920 after the publication of a unique issue of New York Dada: "Dada cannot live in New York".

Cinema

Felix the Cat, a popular cartoon character of the decade, exhibits his famous pace.
 
At the beginning of the decade, films were silent and colorless. In 1922, the first all-color feature, The Toll of the Sea, was released. In 1926, Warner Bros. released Don Juan, the first feature with sound effects and music. In 1927, Warner released The Jazz Singer, the first sound feature to include limited talking sequences. 

The public went wild for sound films, and movie studios converted to sound almost overnight. In 1928, Warner released Lights of New York, the first all-talking feature film. In the same year, the first sound cartoon, Dinner Time, was released. Warner ended the decade by unveiling On with the Show in 1929, the first all-color, all-talking feature film. 

Cartoon shorts were popular in movie theaters during this time. In the late 1920s, Walt Disney emerged. Mickey Mouse made his debut in Steamboat Willie on November 18, 1928, at the Colony Theater in New York City. Mickey was featured in more than 120 cartoon shorts, the Mickey Mouse Club, and other specials. This started Disney and led to creation of other characters going into the 1930s. Oswald, a character created by Disney, before Mickey, in 1927, was contracted by Universal for distribution purposes, and starred in a series of shorts between 1927 and 1928. Disney lost the rights to the character, but in 2006, regained the rights to Oswald. He was the first Disney character to be merchandised.

Harlem

African-American literary and artistic culture developed rapidly during the 1920s under the banner of the "Harlem Renaissance". In 1921, the Black Swan Corporation was founded. At its height, it issued 10 recordings per month. All-African American musicals also started in 1921. In 1923, the Harlem Renaissance Basketball Club was founded by Bob Douglas. During the late-1920s, and especially in the 1930s, the basketball team became known as the best in the world. 

The first issue of Opportunity was published. The African American playwright Willis Richardson debuted his play The Chip Woman's Fortune at the Frazee Theatre (also known as the Wallacks theatre). Notable African American authors such as Langston Hughes and Zora Neale Hurston began to achieve a level of national public recognition during the 1920s.

Jazz Age

The 1920s brought new styles of music into the mainstream of culture in avant-garde cities. Jazz became the most popular form of music for youth. Historian Kathy J. Ogren wrote that, by the 1920s, jazz had become the "dominant influence on America's popular music generally"  Scott DeVeaux argues that a standard history of jazz has emerged such that: "After an obligatory nod to African origins and ragtime antecedents, the music is shown to move through a succession of styles or periods: New Orleans jazz up through the 1920s, swing in the 1930s, bebop in the 1940s, cool jazz and hard bop in the 1950s, free jazz and fusion in the 1960s.... There is substantial agreement on the defining features of each style, the pantheon of great innovators, and the canon of recorded masterpieces."

The pantheon of performers and singers from the 1920s include Louis Armstrong, Duke Ellington, Sidney Bechet, Jelly Roll Morton, Joe "King" Oliver, James P. Johnson, Fletcher Henderson, Frankie Trumbauer, Paul Whiteman, Bix Beiderbecke, Adelaide Hall and Bing Crosby. The development of urban and city blues also began in the 1920s with performers such as Bessie Smith and Ma Rainey. In the latter part of the decade, early forms of country music were pioneered by Jimmie Rodgers, The Carter Family, Uncle Dave Macon, Vernon Dalhart, and Charlie Poole.

Dance

Dance clubs became enormously popular in the 1920s. Their popularity peaked in the late 1920s and reached into the early 1930s. Dance music came to dominate all forms of popular music by the late 1920s. Classical pieces, operettas, folk music, etc., were all transformed into popular dancing melodies to satiate the public craze for dancing. For example, many of the songs from the 1929 Technicolor musical operetta "The Rogue Song" (starring the Metropolitan Opera star Lawrence Tibbett) were rearranged and released as dancing music and became popular dance club hits in 1929.

Dance clubs across the U.S.-sponsored dancing contests, where dancers invented, tried and competed with new moves. Professionals began to hone their skills in tap dance and other dances of the era throughout the stage circuit across the United States. With the advent of talking pictures (sound film), musicals became all the rage and film studios flooded the box office with extravagant and lavish musical films. The representative was the musical Gold Diggers of Broadway, which became the highest-grossing film of the decade. Harlem played a key role in the development of dance styles. Several entertainment venues attracted people of all races. The Cotton Club featured black performers and catered to a white clientele, while the Savoy Ballroom catered to a mostly black clientele. Some religious moralists preached against "Satan in the dance hall" but had little impact.

The most popular dances throughout the decade were the foxtrot, waltz, and American tango. From the early 1920s, however, a variety of eccentric novelty dances were developed. The first of these were the Breakaway and Charleston. Both were based on African American musical styles and beats, including the widely popular blues. The Charleston's popularity exploded after its feature in two 1922 Broadway shows. A brief Black Bottom craze, originating from the Apollo Theater, swept dance halls from 1926 to 1927, replacing the Charleston in popularity. By 1927, the Lindy Hop, a dance based on Breakaway and Charleston and integrating elements of tap, became the dominant social dance. Developed in the Savoy Ballroom, it was set to stride piano ragtime jazz. The Lindy Hop later evolved into other Swing dances. These dances, nonetheless, never became mainstream, and the overwhelming majority of people in Western Europe and the U.S. continued to dance the foxtrot, waltz, and tango throughout the decade.

The dance craze had a large influence on popular music. Large numbers of recordings labeled as foxtrot, tango, and waltz were produced and gave rise to a generation of performers who became famous as recording artists or radio artists. Top vocalists included Nick Lucas, Adelaide Hall, Scrappy Lambert, Frank Munn, Lewis James, Chester Gaylord, Gene Austin, James Melton, Franklyn Baur, Johnny Marvin, Annette Hanshaw, Helen Kane, Vaughn De Leath, and Ruth Etting. Leading dance orchestra leaders included Bob Haring, Harry Horlick, Louis Katzman, Leo Reisman, Victor Arden, Phil Ohman, George Olsen, Ted Lewis, Abe Lyman, Ben Selvin, Nat Shilkret, Fred Waring, and Paul Whiteman.

Attire

Paris set the fashion trends for Europe and North America. The fashion for women was all about getting loose. Women wore dresses all day, everyday. Day dresses had a drop waist, which was a sash or belt around the low waist or hip and a skirt that hung anywhere from the ankle on up to the knee, never above. Daywear had sleeves (long to mid-bicep) and a skirt that was straight, pleaded, hank hem, or tired. Jewelry was less conspicuous. Hair was often bobbed, giving a boyish look.

For men in white collar jobs, business suits were the day to day attire. Striped, plaid, or windowpane suits came in dark gray, blue, and brown in the winter and ivory, white, tan, and pastels in the summer. Shirts were white and neckties were essential.


Immortalized in movies and magazine covers, young women's fashions of the 1920s set both a trend and social statement, a breaking-off from the rigid Victorian way of life. These young, rebellious, middle-class women, labeled 'flappers' by older generations, did away with the corset and donned slinky knee-length dresses, which exposed their legs and arms. The hairstyle of the decade was a chin-length bob, which had several popular variations. Cosmetics, which until the 1920s were not typically accepted in American society because of their association with prostitution, became extremely popular.

In the 1920s, new magazines appealed to young German women with a sensuous image and advertisements for the appropriate clothes and accessories they would want to purchase. The glossy pages of Die Dame and Das Blatt der Hausfrau displayed the "Neue Frauen," "New Girl" – what Americans called the flapper. She was young and fashionable, financially independent, and was an eager consumer of the latest fashions. The magazines kept her up to date on styles, clothes, designers, arts, sports, and modern technology such as automobiles and telephones.

Sexuality of women during the 1920s

The 1920s was a period of social revolution, coming out of World War I, society changed as inhibitions faded and youth demanded new experiences and more freedom from old controls. Chaperones faded in importance as "anything goes" became a slogan for youth taking control of their subculture. A new woman was born—a "flapper" who danced, drank, smoked and voted. This new woman cut her hair, wore make-up, and partied. She was known for being giddy and taking risks. Women gained the right to vote in most countries. New careers opened for single women in offices and schools, with salaries that helped them to be more independent. With their desire for freedom and independence came change in fashion. One of the more dramatic post-war changes in fashion was the woman's silhouette; the dress length went from floor length to ankle and knee length, becoming more bold and seductive. The new dress code emphasized youth: Corsets were left behind and clothing was looser, with more natural lines. The hourglass figure was not popular anymore, whereas a slimmer, boyish body type was considered appealing. The flappers were known for this and for their high spirits, flirtation, and recklessness when it came to the search for fun and thrills.

Coco Chanel was one of the more enigmatic fashion figures of the 1920s. She was recognized for her avant-garde designs; her clothing was a mixture of wearable, comfortable, and elegant. She was the one to introduce a different aesthetic into fashion, especially a different sense for what was feminine, and based her design on new ethics; she designed for an active woman, one that could feel at ease in her dress. Chanel's primary goal was to empower freedom. She was the pioneer for women wearing pants and for the little black dress, which were signs of a more independent lifestyle.

The changing role of women

Map of local U.S. suffrage laws just prior to passing of the 19th Amendment
Dark blue = full women's suffrage
Bright red = no women's suffrage

Most British historians depict the 1920s as an era of domesticity for women with little feminist progress, apart from full suffrage which came in 1928. On the contrary, argues Alison Light, literary sources reveal that many British women enjoyed:
... the buoyant sense of excitement and release which animates so many of the more broadly cultural activities which different groups of women enjoyed in this period. What new kinds of social and personal opportunity, for example, were offered by the changing cultures of sport and entertainment ... by new patterns of domestic life ... new forms of a household appliance, new attitudes to housework?
With the passage of the 19th Amendment in 1920, that gave women the right to vote, American feminists attained the political equality they had been waiting for. A generational gap began to form between the "new" women of the 1920s and the previous generation. Prior to the 19th Amendment, feminists commonly thought women could not pursue both a career and a family successfully, believing one would inherently inhibit the development of the other. This mentality began to change in the 1920s, as more women began to desire not only successful careers of their own, but also families. The "new" woman was less invested in social service than the Progressive generations, and in tune with the consumerist spirit of the era, she was eager to compete and to find personal fulfillment. Higher education was rapidly expanding for women. Linda Eisenmann claims, "New collegiate opportunities for women profoundly redefined womanhood by challenging the Victorian belief that men's and women's social roles were rooted in biology."

Advertising agencies exploited the new status of women, for example in publishing automobile ads in women's magazines, at a time when the vast majority of purchasers and drivers were men. The new ads promoted new freedoms for affluent women while also suggesting the outer limits of the new freedoms. Automobiles were more than practical devices. They were also highly visible symbols of affluence, mobility, and modernity. The ads, wrote Einav Rabinovitch-Fox, "offered women a visual vocabulary to imagine their new social and political roles as citizens and to play an active role in shaping their identity as modern women".

Significant changes in the lives of working women occurred in the 1920s. World War I had temporarily allowed women to enter into industries such as chemical, automobile, and iron and steel manufacturing, which were once deemed inappropriate work for women. Black women, who had been historically closed out of factory jobs, began to find a place in industry during World War I by accepting lower wages and replacing the lost immigrant labor and in heavy work. Yet, like other women during World War I, their success was only temporary; most black women were also pushed out of their factory jobs after the war. In 1920, 75% of the black female labor force consisted of agricultural laborers, domestic servants, and laundry workers.

Equal Rights envoys of the National Woman's Party, 1927
 
Legislation passed at the beginning of the 20th century mandated a minimum wage and forced many factories to shorten their workdays. This shifted the focus in the 1920s to job performance to meet demand. Factories encouraged workers to produce more quickly and efficiently with speedups and bonus systems, increasing the pressure on factory workers. Despite the strain on women in the factories, the booming economy of the 1920s meant more opportunities even for the lower classes. Many young girls from working-class backgrounds did not need to help support their families as prior generations did and were often encouraged to seek work or receive vocational training which would result in social mobility.

The achievement of suffrage led to feminists refocusing their efforts towards other goals. Groups such as the National Women's Party continued the political fight, proposing the Equal Rights Amendment in 1923 and working to remove laws that used sex to discriminate against women, but many women shifted their focus from politics to challenge traditional definitions of womanhood. 

Young women, especially, began staking claim to their own bodies and took part in a sexual liberation of their generation. Many of the ideas that fueled this change in sexual thought were already floating around New York intellectual circles prior to World War I, with the writings of Sigmund Freud, Havelock Ellis and Ellen Key. There, thinkers claimed that sex was not only central to the human experience, but also that women were sexual beings with human impulses and desires, and restraining these impulses was self-destructive. By the 1920s, these ideas had permeated the mainstream.

In the 1920s, the co-ed emerged, as women began attending large state colleges and universities. Women entered into the mainstream middle class experience but took on a gendered role within society. Women typically took classes such as home economics, "Husband and Wife", "Motherhood" and "The Family as an Economic Unit". In an increasingly conservative postwar era, a young woman commonly would attend college with the intention of finding a suitable husband. Fueled by ideas of sexual liberation, dating underwent major changes on college campuses. With the advent of the automobile, courtship occurred in a much more private setting. "Petting", sexual relations without intercourse, became the social norm for a portion of college students.

Despite women's increased knowledge of pleasure and sex, the decade of unfettered capitalism that was the 1920s gave birth to the "feminine mystique". With this formulation, all women wanted to marry, all good women stayed at home with their children, cooking and cleaning, and the best women did the aforementioned and in addition, exercised their purchasing power freely and as frequently as possible to better their families and their homes.

Liberalism in Europe

The Allied victory in the First World War seems to mark the triumph of liberalism, not just in the Allied countries themselves, but also in Germany and in the new states of Eastern Europe, as well as Japan. Authoritarian militarism as typified by Germany had been defeated and discredited. Historian Martin Blinkhorn argues that the liberal themes were ascendant in terms of "cultural pluralism, religious and ethnic toleration, national self-determination, free-market economics, representative and responsible government, free trade, unionism, and the peaceful settlement of international disputes through a new body, the League of Nations". However, as early as 1917, the emerging liberal order was being challenged by the new communist movement taking inspiration from the Russian Revolution. Communist revolts were beaten back everywhere else, but they did succeed in Russia.

Homosexuality

Speed Langworthy's sheet music poking fun at the masculine traits many women adopted during the 1920s

Homosexuality became much more visible and somewhat more acceptable. London, New York, Paris, Rome, and Berlin were important centers of the new ethic. Historian Jason Crouthamel argues that in Germany, the First World War promoted homosexual emancipation because it provided an ideal of comradeship which redefined homosexuality and masculinity. The many gay rights groups in Weimar Germany favored a militarised rhetoric with a vision of a spiritually and politically emancipated hypermasculine gay man who fought to legitimize "friendship" and secure civil rights. Ramsey explores several variations. On the left, the Wissenschaftlich-humanitäres Komitee (Scientific-Humanitarian Committee; WhK) reasserted the traditional view that homosexuals were an effeminate "third sex" whose sexual ambiguity and nonconformity was biologically determined. The radical nationalist Gemeinschaft der Eigenen (Community of the Self-Owned) proudly proclaimed homosexuality as heir to the manly German and classical Greek traditions of homoerotic male bonding, which enhanced the arts and glorified relationships with young men. The politically centrist Bund für Menschenrecht (League for Human Rights) engaged in a struggle for human rights, advising gays to live in accordance with the mores of middle-class German respectability.

Humor was used to assist in acceptability. One popular American song, "Masculine Women, Feminine Men", was released in 1926 and recorded by numerous artists of the day; it included these lyrics:
Masculine women, Feminine men
Which is the rooster, which is the hen?
It's hard to tell 'em apart today! And, say!
Sister is busy learning to shave,
Brother just loves his permanent wave,
It's hard to tell 'em apart today! Hey, hey!
Girls were girls and boys were boys when I was a tot,
Now we don't know who is who, or even what's what!
Knickers and trousers, baggy and wide,
Nobody knows who's walking inside,
Those masculine women and feminine men!
The relative liberalism of the decade is demonstrated by the fact that the actor William Haines, regularly named in newspapers and magazines as the #1 male box-office draw, openly lived in a gay relationship with his partner, Jimmie Shields. Other popular gay actors/actresses of the decade included Alla Nazimova and Ramón Novarro. In 1927, Mae West wrote a play about homosexuality called The Drag, and alluded to the work of Karl Heinrich Ulrichs. It was a box-office success. West regarded talking about sex as a basic human rights issue, and was also an early advocate of gay rights.

Profound hostility did not abate in more remote areas such as western Canada. With the return of a conservative mood in the 1930s, the public grew intolerant of homosexuality, and gay actors were forced to choose between retiring or agreeing to hide their sexuality even in Hollywood.

Psychoanalysis

Vienna psychiatrist Sigmund Freud (1856–1939) played a major role in Psychoanalysis, which impacted avant-garde thinking, especially in the humanities and artistic fields. Historian Roy Porter wrote:
He advanced challenging theoretical concepts such as unconscious mental states and their repression, infantile sexuality and the symbolic meaning of dreams and hysterical symptoms, and he prized the investigative techniques of free association and dream interpretation, to methods for overcoming resistance and uncovering hidden unconscious wishes.
Other influential proponents of psychoanalysis included Alfred Adler (1870–1937), Karen Horney (1885–1952), and Helene Deutsch (1884–1982). Adler argued that a neurotic individual would overcompensate by manifesting aggression. Porter notes that Adler's views became part of "an American commitment to social stability based on individual adjustment and adaptation to healthy, social forms".

Culture

Immigration restrictions

The United States became more anti-immigration in policy. The Immigration Act of 1924 limited immigration to a fraction proportionate to that ethnic group in the United States in 1890. The goal was to freeze the pattern of European ethnic composition, and to exclude almost all Asians. Hispanics were not restricted.

Australia, New Zealand and Canada also sharply restricted or ended Asian immigration. In Canada, the Chinese Immigration Act of 1923 prevented almost all immigration from Asia. Other laws curbed immigration from Southern and Eastern Europe.

Prohibition

During the late 19th and early 20th centuries the Progressive movement gradually caused local communities in many parts of Western Europe and North America to tighten restrictions of vice activities, particularly gambling, alcohol, and narcotics (though splinters of this same movement were also involved in racial segregation in the U.S.). This movement gained its strongest traction in the U.S. and its crowning achievement was the passage of the Eighteenth Amendment to the U.S. Constitution and the associated Volstead Act which made illegal the manufacture, import and sale of beer, wine and hard liquor (though drinking was technically not illegal). The laws were specifically promoted by evangelical Protestant churches and the Anti-Saloon League to reduce drunkenness, petty crime, wife abuse, corrupt saloon-politics, and (in 1918), Germanic influences. The KKK was an active supporter in rural areas, but cities generally left enforcement to a small number of federal officials. The various restrictions on alcohol and gambling were widely unpopular leading to rampant and flagrant violations of the law, and consequently to a rapid rise of organized crime around the nation (as typified by Chicago's Al Capone). In Canada, prohibition ended much earlier than in the U.S., and barely took effect at all in the province of Quebec, which led to Montreal's becoming a tourist destination for legal alcohol consumption. The continuation of legal alcohol production in Canada soon led to a new industry in smuggling liquor into the U.S.

Rise of the speakeasy


Speakeasies were illegal bars selling beer and liquor after paying off local police and government officials. They became popular in major cities and helped fund large-scale gangsters operations such as those of Lucky Luciano, Al Capone, Meyer Lansky, Bugs Moran, Moe Dalitz, Joseph Ardizzone, and Sam Maceo. They operated with connections to organized crime and liquor smuggling. While the U.S. Federal Government agents raided such establishments and arrested many of the small figures and smugglers, they rarely managed to get the big bosses; the business of running speakeasies was so lucrative that such establishments continued to flourish throughout the nation. In major cities, speakeasies could often be elaborate, offering food, live bands, and floor shows. Police were notoriously bribed by speakeasy operators to either leave them alone or at least give them advance notice of any planned raid.

Literature

The Roaring Twenties was a period of literary creativity, and works of several notable authors appeared during the period. D. H. Lawrence's novel Lady Chatterley's Lover was a scandal at the time because of its explicit descriptions of sex. Books that take the 1920s as their subject include:
The 1920s also saw the widespread popularity of the pulp magazine. Printed on cheap pulp paper, these magazines provided affordable entertainment to the masses and quickly became one of the most popular forms of media during the decade. Many prominent writers of the 20th century would get their start writing for pulps, including F. Scott Fitzgerald, Dashiell Hammett and H.P. Lovecraft. Pulp fiction magazines would last in popularity until the 1950s.

Solo flight across the Atlantic

Charles Lindbergh gained sudden great international fame as the first pilot to fly solo and non-stop across the Atlantic Ocean, flying from Roosevelt Airfield (Nassau County, Long Island), New York to Paris on May 20–21, 1927. He had a single-engine airplane, the "Spirit of St. Louis", which had been designed by Donald Hall and custom built by Ryan Airlines of San Diego, California. His flight took 33.5 hours. The president of France bestowed on him the French Legion of Honor and, on his arrival back in the United States, a fleet of warships and aircraft escorted him to Washington, D.C., where President Calvin Coolidge awarded him the Distinguished Flying Cross.

Sports

The Roaring Twenties was the breakout decade for sports across the modern world. Citizens from all parts of the country flocked to see the top athletes of the day compete in arenas and stadia. Their exploits were loudly and highly praised in the new "gee whiz" style of sports journalism that was emerging; champions of this style of writing included the legendary writers Grantland Rice and Damon Runyon in the U.S. Sports literature presented a new form of heroism departing from the traditional models of masculinity.

High school and junior high school students were offered to play sports that they hadn't been able to play in the past. Several sports, such as golf, that had previously been unavailable to the middle-class finally became available. Also, a notable motorsports feat was accomplished in Roaring Twenties as driver Henry Seagrave, driving his car the Golden Arrow, reaches at the time in 1929 a record speed of 231.44  mph.

Olympics

Following the 1922 Latin American Games in Rio de Janeiro, IOC officials toured the region, helping countries establish national Olympic committees and prepare for future competition. In some countries, such as Brazil, sporting and political rivalries hindered progress as opposing factions battled for control of the international sport. The 1924 Olympic Games in Paris and the 1928 games in Amsterdam saw greatly increased participation from Latin American athletes.

Sports journalism, modernity, and nationalism excited Egypt. Egyptians of all classes were captivated by news of the Egyptian national soccer team's performance in international competitions. Success or failure in the Olympics of 1924 and 1928 was more than a betting opportunity but became an index of Egyptian independence and a desire to be seen as modern by Europe. Egyptians also saw these competitions as a way to distinguish themselves from the traditionalism of the rest of Africa.

Balkans

The Greek government of Eleftherios Venizelos initiated a number of programs involving physical education in the public schools and raised the profile of sports competition. Other Balkan nations also became more involved in sports and participated in several precursors of the Balkan Games, competing sometimes with Western European teams. The Balkan Games, first held in Athens in 1929 as an experiment, proved a sporting and a diplomatic success. From the beginning, the games, held in Greece through 1933, sought to improve relations among Greece, Turkey, Bulgaria, Yugoslavia, Romania, and Albania. As a political and diplomatic event, the games worked in conjunction with an annual Balkan Conference, which resolved issues between these often-feuding nations. The results were quite successful; officials from all countries routinely praised the games' athletes and organizers. During a period of persistent and systematic efforts to create rapprochement and unity in the region, this series of athletic meetings played a key role.

United States

The most popular American athlete of the 1920s was baseball player Babe Ruth. His characteristic home-run hitting heralded a new epoch in the history of the sport (the "Live-ball era"), and his high style of living fascinated the nation and made him one of the highest-profile figures of the decade. Fans were enthralled in 1927 when Ruth hit 60 home runs, setting a new single-season home run record that was not broken until 1961. Together with another up-and-coming star named Lou Gehrig, Ruth laid the foundation of future New York Yankees dynasties.

A former bar room brawler named Jack Dempsey, also known as The Manassa Mauler, won the world heavyweight boxing title and became the most celebrated pugilist of his time. Enrique Chaffardet the Venezuelan Featherweight World Champion was the most sought-after boxer in 1920s Brooklyn, New York City. College football captivated fans, with notables such as Red Grange, running back of the University of Illinois, and Knute Rockne who coached Notre Dame's football program to great success on the field and nationwide notoriety. Grange also played a role in the development of professional football in the mid-1920s by signing on with the NFL's Chicago Bears. Bill Tilden thoroughly dominated his competition in tennis, cementing his reputation as one of the greatest tennis players of all time. And Bobby Jones popularized golf with his spectacular successes on the links. Ruth, Dempsey, Grange, Tilden, and Jones are collectively referred to as the "Big Five" sporting icons of the Roaring Twenties.

Organized crime

The Balinese Room, famed Galveston, Texas, casino/nightclub opened in the 1920s by the Maceo crime syndicate
 
During the 19th century vices such as gambling, alcohol, and narcotics had been popular throughout the United States in spite of not always being technically legal. Enforcement against these vices had always been spotty. Indeed, most major cities established red-light districts to regulate gambling and prostitution despite the fact that these vices were typically illegal. However, with the rise of the Progressive Movement in the early 20th century, laws gradually became tighter with most gambling, alcohol, and narcotics outlawed by the 1920s. Because of widespread public opposition to these prohibitions, especially alcohol, a great economic opportunity was created for criminal enterprises. Organized crime blossomed during this era, particularly the American Mafia. So lucrative were these vices that some entire cities in the U.S. became illegal gaming centers with vice actually supported by the local governments. Notable examples include Miami, Florida, and Galveston, Texas.

Many of these criminal enterprises would long outlast the roaring twenties and ultimately were instrumental in establishing Las Vegas as a gambling center.

Culture of Weimar Germany

Bauhaus Dessau, built from 1925 to 1926 to a design by Walter Gropius
 
The Europahaus, one of the hundreds of cabarets in Weimar Berlin, 1931
 
Weimar culture was the flourishing of the arts and sciences that flourished in Germany during the Weimar Republic, from 1918 until Adolf Hitler's rise to power in 1933. 1920s Berlin was at the hectic center of the Weimar culture. Although not part of Germany, German-speaking Austria, and particularly Vienna, is often included as part of Weimar culture. Bauhaus was a German art school operational from 1919 to 1933 that combined crafts and the fine arts. Its goal of unifying art, craft, and technology became influential worldwide, especially in architecture.

Germany, and Berlin in particular, was fertile ground for intellectuals, artists, and innovators from many fields. The social environment was chaotic, and politics were passionate. German university faculties became universally open to Jewish scholars in 1918. Leading Jewish intellectuals on university faculties included physicist Albert Einstein; sociologists Karl Mannheim, Erich Fromm, Theodor Adorno, Max Horkheimer, and Herbert Marcuse; philosophers Ernst Cassirer and Edmund Husserl; sexologist Magnus Hirschfeld; political theorists Arthur Rosenberg and Gustav Meyer; and many others. Nine German citizens were awarded Nobel prizes during the Weimar Republic, five of whom were Jewish scientists, including two in medicine.

Sport took on a new importance as the human body became a focus that pointed away from the heated rhetoric of standard politics. The new emphasis reflected the search for freedom by young Germans alienated from rationalized work routines.

American politics

The 1920s saw dramatic innovations in American political campaign techniques, based especially on new advertising methods that had worked so well selling war bonds during the First World War. Governor James M. Cox of Ohio, the Democratic Party candidate, made a whirlwind campaign that took him to rallies, train station speeches, and formal addresses, reaching audiences totaling perhaps 2,000,000 people. It resembled the William Jennings Bryan campaign of 1896. By contrast, the Republican Party candidate Senator Warren G. Harding of Ohio relied upon a "Front Porch Campaign". It brought 600,000 voters to Marion, Ohio, where Harding spoke from his home. Republican campaign manager Will Hays spent some $8,100,000; nearly four times the money Cox's campaign spent. Hays used national advertising in a major way (with advice from adman Albert Lasker). The theme was Harding's own slogan "America First". Thus the Republican advertisement in Collier's Magazine for October 30, 1920, demanded, "Let's be done with wiggle and wobble." The image presented in the ads was nationalistic, using catchphrases like "absolute control of the United States by the United States," "Independence means independence, now as in 1776," "This country will remain American. Its next President will remain in our own country," and "We decided long ago that we objected to a foreign government of our people."

1920 was the first presidential campaign to be heavily covered by the press and to receive widespread newsreel coverage, and it was also the first modern campaign to use the power of Hollywood and Broadway stars who traveled to Marion for photo opportunities with Harding and his wife. Al Jolson, Lillian Russell, Douglas Fairbanks and Mary Pickford, were among the celebrities to make the pilgrimage. Business icons Thomas Edison, Henry Ford and Harvey Firestone also lent their cachet to the Front Porch Campaign. On election night, November 2, 1920, commercial radio broadcast coverage of election returns for the first time. Announcers at KDKA-AM in Pittsburgh, PA read telegraph ticker results over the air as they came in. This single station could be heard over most of the Eastern United States by the small percentage of the population that had radio receivers.

Calvin Coolidge was inaugurated as president after the sudden death of President Warren G. Harding in 1923; he was re-elected in 1924 in a landslide against a divided opposition. Coolidge made use of the new medium of radio and made radio history several times while president: his inauguration was the first presidential inauguration broadcast on radio; on 12 February 1924, he became the first American president to deliver a political speech on radio. Herbert Hoover was elected president in 1928.

Decline of labor unions

Unions grew very rapidly during the war but after a series of failed major strikes in steel, meatpacking and other industries, a long decade of decline weakened most unions and membership fell even as employment grew rapidly. Radical unionism virtually collapsed, in large part because of Federal repression during World War I by means of the Espionage Act of 1917 and the Sedition Act of 1918. The major unions supported the third party candidacy of Robert La Follette in 1924.

The 1920s marked a period of sharp decline for the labor movement. Union membership and activities fell sharply in the face of economic prosperity, a lack of leadership within the movement, and anti-union sentiments from both employers and the government. The unions were much less able to organize strikes. In 1919, more than 4,000,000 workers (or 21% of the labor force) participated in about 3,600 strikes. In contrast, 1929 witnessed about 289,000 workers (or 1.2% of the workforce) stage only 900 strikes. Unemployment rarely dipped below 5% in the 1920s and few workers faced real wage losses.

Progressivism in 1920s

The Progressive Era in the United States was a period of social activism and political reform that flourished from the 1890s to the 1920s. The politics of the 1920s was unfriendly toward the labor unions and liberal crusaders against business, so many if not all historians who emphasize those themes write off the decade. Urban cosmopolitan scholars recoiled at the moralism of prohibition and the intolerance of the nativists of the Ku Klux Klan (KKK), and denounced the era. Historian Richard Hofstadter, for example, in 1955 wrote that prohibition, "was a pseudo-reform, a pinched, parochial substitute for reform" that "was carried about America by the rural-evangelical virus". However, as Arthur S. Link emphasized, the progressives did not simply roll over and play dead. Link's argument for continuity through the 1920s stimulated a historiography that found Progressivism to be a potent force. Palmer, pointing to people like George Norris, say, "It is worth noting that progressivism, whilst temporarily losing the political initiative, remained popular in many western states and made its presence felt in Washington during both the Harding and Coolidge presidencies." Gerster and Cords argue that "Since progressivism was a 'spirit' or an 'enthusiasm' rather than an easily definable force with common goals, it seems more accurate to argue that it produced a climate for reform which lasted well into the 1920s, if not beyond." Even the Klan has been seen in a new light as numerous social historians reported that Klansmen were "ordinary white Protestants" primarily interested in purification of the system, which had long been a core progressive goal.

Business progressivism

What historians have identified as "business progressivism", with its emphasis on efficiency and typified by Henry Ford and Herbert Hoover reached an apogee in the 1920s. Reynold M. Wik, for example, argues that Ford's "views on technology and the mechanization of rural America were generally enlightened, progressive, and often far ahead of his times."

Tindall stresses the continuing importance of the Progressive movement in the South in the 1920s involving increased democracy, efficient government, corporate regulation, social justice, and governmental public service. William Link finds political progressivism dominant in most of the South in the 1920s. Likewise it was influential in Midwest.

Historians of women and of youth emphasize the strength of the progressive impulse in the 1920s. Women consolidated their gains after the success of the suffrage movement, and moved into causes such as world peace, good government, maternal care (the Sheppard–Towner Act of 1921), and local support for education and public health. The work was not nearly as dramatic as the suffrage crusade, but women voted and operated quietly and effectively. Paul Fass, speaking of youth, wrote "Progressivism as an angle of vision, as an optimistic approach to social problems, was very much alive." The international influences which had sparked a great many reform ideas likewise continued into the 1920s, as American ideas of modernity began to influence Europe.

There is general agreement that the Progressive era was over by 1932, especially since a majority of the remaining progressives opposed the New Deal.

Canadian politics

Canadian politics were dominated federally by the Liberal Party of Canada under William Lyon Mackenzie King. The federal government spent most of the decade disengaged from the economy and focused on paying off the large debts amassed during the war and during the era of railway over expansion. After the booming wheat economy of the early part of the century, the prairie provinces were troubled by low wheat prices. This played an important role in the development of Canada's first highly successful third political party, the Progressive Party of Canada that won the second most seats in the 1921 national election. As well with the creation of the Balfour Declaration of 1926, Canada achieved with other British former colonies autonomy, forming the British Commonwealth.

End of the Roaring Twenties

Black Tuesday

The Dow Jones Industrial Stock Index had continued its upward move for weeks, and coupled with heightened speculative activities, it gave an illusion that the bull market of 1928 to 1929 would last forever. On October 29, 1929, also known as Black Tuesday, stock prices on Wall Street collapsed. The events in the United States added to a worldwide depression, later called the Great Depression, that put millions of people out of work around the world throughout the 1930s.

Repeal of Prohibition

The 21st Amendment, which repealed the 18th Amendment, was proposed on February 20, 1933. The choice to legalize alcohol was left up to the states, and many states quickly took this opportunity to allow alcohol. Prohibition was officially ended with the ratification of the Amendment on December 5, 1933.

Friedman's k-percent rule

From Wikipedia, the free encyclopedia
 
Friedman's k-percent rule is a monetary policy rule that the money supply should be increased by the central bank by a constant percentage rate every year, irrespective of business cycles. In A Monetary History of the United States, 1867–1960, monetarist economists Milton Friedman and Anna Schwartz attributed inflation to excess money supply generated by a central bank. It attributed deflationary spirals to the reverse effect of a failure of a central bank to support the money supply during a liquidity crunch. Friedman proposed a fixed monetary rule, called Friedman's k-percent rule, where the money supply would be calculated by known macroeconomic and financial factors, targeting a specific level or range of inflation.

Under this rule, there would be no leeway for the central reserve bank, as money supply increases could be determined "by a computer" and therefore business could anticipate all monetary policy decisions.

Definition

According to Friedman, "The stock of money [should be] increased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs" (Friedman, 1960). Friedman was of the view that the main policy to be avoided is countercyclical monetary policy, the standard Keynesian policy recommendation at the time. He believed giving governments any flexibility in setting money growth would lead to inflation and therefore, the central bank should follow an acyclical monetary policy and expand the money supply at a constant rate, equivalent to the rate of growth of real GDP.

Monetary policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment.

Framing the monetary policy is a very complicated and difficult task as balance has to be maintained between different economic variables. A tradeoff usually has to be made between these economic variables. Policymakers often make use of monetary rules like Friedman's k-percent rule or the Taylor rule to design more effective monetary policies.

Rules vs. discretion in monetary policies

Many economists have argued whether using preset rules in framing monetary policies is better than the discretion of the policy maker or not. The rules vs. discretion debate was the mainstream argument of monetary policy framing in the 1960s to the 1980s and there is still no single opinion on what is better. However, some economists like John B. Taylor are inclined towards using rules rather than discretion. Taylor said, "You do not prevent bailouts by giving the government more power to intervene in a discretionary manner. You prevent bailouts by requiring adequate capital based on simple, enforceable rules and by making it possible for failing firms to go through bankruptcy without causing disruption to the financial system and the economy," indicating a clear preference for rules rather than discretion in monetary policies.

Economists and policy makers strive to formulate monetary policies using Rules but allowing scope for discretion so as to adjust the policies appropriate to the current economic situation so as to make these policies more effective.

The Friedman's k-percent rule, however, does not allow any interference from central banks in framing the monetary policy, as Friedman believed that discretion would be counterproductive and could lead to increased levels of inflation instead of controlling it. The k-percent rule does not allow any discretion in framing of monetary policies and believes in strict adherence to the proposed rule. This has caused many economists to criticize Friedman's k-percent rule.

Modified k-percent rule

Some economists and policy makers have modified Friedman's k-percent rule and have developed other rules for framing monetary policy, using the k-percent rule as a base. Joachim Scheide, head of the Forecasting Center at the Kiel Institute for the World Economy in Germany, has modified the k-percent rule to make it more applicable in context of Germany's economy. He uses three new variables "nominal domestic demand," "central bank money," and "error term with the standard characteristics" to give a more suitable model.

The k-percent rule is considered a no feedback rule, which does not allow central banks to alter monetary policy to adjust to current economic situations; thus, it is not effective in the short term.

Criticism of the Federal Reserve

From Wikipedia, the free encyclopedia
 
The Federal Reserve System (also known as "the Fed") has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street Crash of 1929 arguing that it greatly exacerbated the Great Depression. More recent prominent critics include former Congressman Ron Paul.

Surveys of economists show overwhelming opposition to abolishing the Federal Reserve or undermining its independence. According to Princeton University economist Alan S. Blinder, "mountains of empirical evidence support the proposition that greater central bank independence produces not only less inflation but superior macroeconomic performance, e.g., lower and less volatile inflation with no more volatility in output."

Creation

An early version of the Federal Reserve Act was drafted in 1910 on Jekyll Island, Georgia, by Republican Senator Nelson Aldrich, chairman of the National Monetary Commission, and several Wall Street bankers. The final version, with provisions intended to improve public oversight and weaken the influence of the New York banking establishment, was drafted by Democratic Congressman Carter Glass of Virginia. The structure of the Fed was a compromise between the desire of the bankers for a central bank under their control and the desire of President Woodrow Wilson to create a decentralized structure under public control. The Federal Reserve Act was approved by Congress and signed by President Wilson in December 1913.

Inflation policy

In The Case Against the Fed, Murray Rothbard argued that, although a supposed core function of the Federal Reserve is to maintain a low level of inflation, its policies (like those of other central banks) have actually aggravated inflation. This occurs when the Fed creates too much fiat money backed by nothing. He called the Fed policy of money creation "legalized counterfeiting" and favored a return to the gold standard. He wrote:
[I]t is undeniable that, ever since the Fed was visited upon us in 1914, our inflations have been more intense, and our depressions far deeper, than ever before. There is only one way to eliminate chronic inflation, as well as the booms and busts brought by that system of inflationary credit: and that is to eliminate the counterfeiting that constitutes and creates that inflation. And the only way to do that is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard, to a monetary system where a market-produced metal, such as gold, serves as the standard money, and not paper tickets printed by the Federal Reserve.

Effectiveness and policies

The Federal Reserve has been criticized as not meeting its goals of greater stability and low inflation. This has led to a number of proposed changes including advocacy of different policy rules or dramatic restructuring of the system itself.

Milton Friedman concluded that while governments do have a role in the monetary system he was critical of the Federal Reserve due to its poor performance and felt it should be abolished. Friedman believed that the Federal Reserve System should ultimately be replaced with a computer program. He favored a system that would automatically buy and sell securities in response to changes in the money supply. This proposal has become known as Friedman's k-percent rule.

Others have proposed NGDP targeting as an alternative rule to guide and improve central bank policy. Prominent supporters include Scott Sumner, David Beckworth, and Tyler Cowen.

Congress

Several members of Congress have criticized the Fed. Senator Robert Owen, whose name was on the Glass-Owen Federal Reserve Act, believed that the Fed was not performing as promised. He said:
The Federal Reserve Board was created to control, regulate and stabilize credit in the interest of all people. . . . The Federal Reserve Board is the most gigantic financial power in all the world. Instead of using this great power as the Federal Reserve Act intended that it should, the board . . . delegated this power to the banks.
Representative Louis T. McFadden, Chairman of the House Committee on Banking and Currency from 1920 to 1931, accused the Federal Reserve of deliberately causing the Great Depression. In several speeches made shortly after he lost the chairmanship of the committee, McFadden claimed that the Federal Reserve was run by Wall Street banks and their affiliated European banking houses. In one 1932 House speech (that has been criticized as bluster), he stated:
Mr. Chairman, we have in this country one of the most corrupt Institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks; . . . This evil institution has impoverished and ruined the people of the United States . . . through the corrupt practices of the moneyed vultures who control it.
Many members of Congress who have been involved in the House and Senate Banking and Currency Committees have been open critics of the Federal Reserve, including Chairmen Wright Patman, Henry Reuss, and Henry B. Gonzalez. Representative Ron Paul, Chairman of the Monetary Policy Subcommittee in 2011, is known as a staunch opponent of the Federal Reserve System. He routinely introduced bills to abolish the Federal Reserve System, three of which gained approval in the House but lost in the Senate.

Congressman Paul also introduced H.R. 459: Federal Reserve Transparency Act of 2011, This act required an audit of the Federal Reserve Board and the twelve regional banks, with particular attention to the valuation of its securities. His son, Senator Rand Paul, has introduced similar legislation in subsequent sessions of Congress.

Great Depression (1929)

Money supply decreased significantly between Black Tuesday and the Bank Holiday in March 1933 when there were massive bank runs across the United States
 
Crowd gathering on Wall Street after the 1929 crash.
 
Milton Friedman and Anna Schwartz stated that the Fed pursued an erroneously restrictive monetary policy, exacerbating the Great Depression. After the stock market crash in 1929, the Fed continued its contraction (decrease) of the money supply and refused to save banks that were struggling with bank runs. This mistake, critics charge, allowed what might have been a relatively mild recession to explode into catastrophe. Friedman and Schwartz believed that the depression was "a tragic testimonial to the importance of monetary forces." Before the establishment of the Federal Reserve, the banking system had dealt with periodic crises (such as in the Panic of 1907) by suspending the convertibility of deposits into currency. In 1907, the system nearly collapsed and there was an extraordinary intervention by an ad-hoc coalition assembled by J. P. Morgan. In the years 1910–1913, the bankers demanded a central bank to address this structural weakness. Friedman suggested that a similar intervention should have been followed during the banking panic at the end of 1930. This might have stopped the vicious circle of forced liquidation of assets at depressed prices, just as suspension of convertibility in 1893 and 1907 had quickly ended the liquidity crises at the time.

Essentially, in the monetarist view, the Great Depression was caused by the fall of the money supply. Friedman and Schwartz note that "[f]rom the cyclical peak in August 1929 to a cyclical trough in March 1933, the stock of money fell by over a third." The result was what Friedman calls "The Great Contraction"—a period of falling income, prices, and employment caused by the choking effects of a restricted money supply. The mechanism suggested by Friedman and Schwartz was that people wanted to hold more money than the Federal Reserve was supplying. People thus hoarded money by consuming less. This, in turn, caused a contraction in employment and production, since prices were not flexible enough to immediately fall. Friedman and Schwartz argued the Federal Reserve allowed the money supply to plummet because of ineptitude and poor leadership.

Many have since agreed with this theory, including Ben Bernanke, Chairman of the Federal Reserve from 2006 until 2014, who, in a speech honoring Friedman and Schwartz, said:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.
Friedman has said that ideally he would prefer to "abolish the Federal Reserve and replace it with a computer." He preferred a system that would increase the money supply at some fixed rate, and he thought that "leaving monetary and banking arrangements to the market would have produced a more satisfactory outcome than was actually achieved through government involvement".

In contrast to Friedman's argument that the Fed did too little to ease after the crisis, Murray Rothbard argued that the crisis was caused by the Fed being too loose in the 1920s in the book America's Great Depression.

Global financial crisis (2007–08)

Federal Funds Rate compared to U.S. Treasury interest rates
 
Some economists, such as John B. Taylor, have asserted that the Fed was responsible, at least partially, for the United States housing bubble which occurred prior to the 2007 recession. They claim that the Fed kept interest rates too low following the 2001 recession. The housing bubble then led to the credit crunch. Then-Chairman Alan Greenspan disputes this interpretation. He points out that the Fed's control over the long-term interest rates (to which critics refer) is only indirect. The Fed did raise the short-term interest rate over which it has control (i.e., the federal funds rate), but the long-term interest rate (which usually follows the former) did not increase.

The Federal Reserve's role as a supervisor and regulator has been criticized as being ineffective. Former U.S. Senator Chris Dodd, then-chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, remarked about the Fed's role in the 2007-2008 economic crisis, "We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure."

Republican and Tea Party criticism

During several recent elections, the Tea Party movement has made the Federal Reserve a major point of attack, which has been picked up by Republican candidates across the country. Former Congressman Ron Paul (R) of Texas and his son Senator Rand Paul (R) of Kentucky have long attacked the Fed, arguing that it is hurting the economy by devaluing the dollar. They argue that its monetary policies cause booms and busts when the Fed creates too much or too little fiat money. Ron Paul's book End the Fed repeatedly points out that the Fed engages in money creation "out of thin air." Former House Rep. Ron Paul argued that interest rates should be set by market forces, not by the Federal Reserve. Paul argues that the booms, bubbles and busts of the business cycle are caused by the Federal Reserve's actions.

In the book Paul argues that "the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy." David Andolfatto of the Federal Reserve Bank of St. Louis said the statement was "just plain false" and "stupid" while noting that legitimate arguments can be made against the Federal Reserve. University of Oregon economist Mark Thoma described it as an "absurd" statement which data does not support.

Surveys of economists show overwhelming opposition to abolishing the Federal Reserve or undermining its independence. According to Princeton University economist Alan S. Blinder, "mountains of empirical evidence support the proposition that greater central bank independence produces not only less inflation but superior macroeconomic performance, e.g., lower and less volatile inflation with no more volatility in output."

Private ownership or control

According to the Congressional Research Service:
Because the regional Federal Reserve Banks are privately owned, and most of their directors are chosen by their stockholders, it is common to hear assertions that control of the Fed is in the hands of an elite. In particular, it has been rumored that control is in the hands of a very few people holding "class A stock" in the Fed.
As explained, there is no stock in the system, only in each regional Bank. More important, individuals do not own stock in Federal Reserve Banks. The stock is held only by banks who are members of the system. Each bank holds stock proportionate to its capital. Ownership and membership are synonymous. Moreover, there is no such thing as "class A" stock. All stock is the same.
This stock, furthermore, does not carry with it the normal rights and privileges of ownership. Most significantly, member banks, in voting for the directors of the Federal Reserve Banks of which they are a member, do not get voting rights in proportion to the stock they hold. Instead, each member bank regardless of size gets one vote. Concentration of ownership of Federal Reserve Bank stock, therefore, is irrelevant to the issue of control of the system (italics in original).
According to the web site for the Federal Reserve System, the individual Federal Reserve Banks "are the operating arms of the central banking system, and they combine both public and private elements in their makeup and organization." Each bank has a nine-member board of directors: three elected by the commercial banks in the Bank's region, and six chosen – three each by the member banks and the Board of Governors – "to represent the public with due consideration to the interests of agriculture, commerce, industry, services, labor and consumers." These regional banks are in turn controlled by the Federal Reserve Board of Governors, whose members are appointed by the President of the United States.

Member banks ("[a]bout 38 percent of the nation's more than 8,000 banks") are required to own capital stock in their regional banks, and the regional banks pay a set 6% dividend on the member banks' paid-in capital stock (not the regional banks' profits) each year, returning the rest to the US Treasury Department. The Fed has noted that this has created "some confusion about 'ownership'":
[Although] the Reserve Banks issue shares of stock to member banks...owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan….
In his textbook, Monetary Policy and the Financial System, Paul M. Horvitz, the former Director of Research for the Federal Deposit Insurance Corporation, stated,
...the member banks can exert some rights of ownership by electing some members of the Board of Directors of the Federal Reserve Bank [applicable to those member banks]. For all practical purposes, however, member bank ownership of the Federal Reserve System is merely a fiction. The Federal Reserve Banks are not operated for the purpose of earning profits for their stockholders. The Federal Reserve System does earn a profit in the normal course of its operations, but these profits, above the 6% statutory dividend, do not belong to the member banks. All net earnings after expenses and dividends are paid to the Treasury.
In the American Political Science Review, Michael D. Reagan wrote,
...the "ownership" of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank "profits." ...Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates.

Transparency issues

One critique is that the Federal Open Market Committee, which is part of the Federal Reserve System, lacks transparency and is not sufficiently audited. A report by Bloomberg News asserts that the majority of Americans believes that the System should be held more accountable or that it should be abolished. Another critique is the contention that the public should have a right to know what goes on in the Federal Open Market Committee (FOMC) meetings.

Wall Street Crash of 1929

From Wikipedia, the free encyclopedia

Wall Street Crash of 1929
Crowd outside nyse.jpg
Crowd gathering on Wall Street after the 1929 crash
Date4 September 1929–13 November 1929
TypeStock market crash
CauseFears of excessive speculation by the Federal Reserve

The Wall Street Crash of 1929, also known as the Great Crash, was a major stock market crash that occurred in 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange collapsed.

It was the most devastating stock market crash in the history of the United States, when taking into consideration the full extent and duration of its aftereffects. The crash, which followed the London Stock Exchange's crash of September, signaled the beginning of the Great Depression.

Background


The "Roaring Twenties", the decade following World War I that led to the crash, was a time of wealth and excess. Building on post-war optimism, rural Americans migrated to the cities in vast numbers throughout the decade with the hopes of finding a more prosperous life in the ever-growing expansion of America's industrial sector. While American cities prospered, however, the overproduction of agricultural produce created widespread financial despair among American farmers throughout the decade, which was later blamed as one of the key factors that led to the 1929 stock market crash.

Despite the dangers of speculation, it was widely believed that the stock market would continue to rise forever: on March 25, 1929, after the Federal Reserve warned of excessive speculation, a small crash occurred as investors started to sell stocks at a rapid pace, exposing the market's shaky foundation. Two days later, banker Charles E. Mitchell announced that his company, the National City Bank, would provide $25 million in credit to stop the market's slide. Mitchell's move brought a temporary halt to the financial crisis, and call money declined from 20 to 8 percent. However, the American economy showed ominous signs of trouble: steel production declined, construction was sluggish, automobile sales went down, and consumers were building up high debts because of easy credit.

Despite all the economic warning signs and the market breaks in March and May 1929, stocks resumed their advance in June and the gains continued almost unabated until early September 1929 (the Dow Jones average gained more than 20% between June and September). The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929. Shortly before the crash, economist Irving Fisher famously proclaimed "Stock prices have reached what looks like a permanently high plateau." The optimism and the financial gains of the great bull market were shaken after a well-publicized early September prediction from financial expert Roger Babson that "a crash is coming, and it may be terrific".[7] The initial September decline was thus called the "Babson Break" in the press. That was the start of the Great Crash, but until the severe phase of the crash in October, many investors regarded the September "Babson Break" as a "healthy correction" and buying opportunity.

On September 20, the London Stock Exchange crashed when top British investor Clarence Hatry and many of his associates were jailed for fraud and forgery. The London crash greatly weakened the optimism of American investment in markets overseas: in the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes were interspersed with brief periods of rising prices and recovery.

Crash

Overall Price Indexon Wall Street from just before the crash in 1929 to 1932 when the price bottomed out
 
Selling intensified in mid-October. On October 24, "Black Thursday", the market lost 11 percent of its value at the opening bell on very heavy trading. The huge volume meant that the report of prices on the ticker tape in brokerage offices around the nation was hours late and so investors had no idea what most stocks were actually trading for. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. 

With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other "blue chip" stocks. The tactic was similar to one that had ended the Panic of 1907, and succeeded in halting the slide. The Dow Jones Industrial Average recovered, closing with it down only 6.38 points for the day.

The trading floor of the New York Stock Exchange in 1930, six months after the crash of 1929
 
On October 28, "Black Monday," more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 12.82%.

The next day, the panic selling reached its peak with some stocks having no buyers at any price. The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 23% in two days.

On October 29, William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices. The massive volume of stocks traded that day made the ticker continue to run until about 7:45 p.m.

Dow Jones Industrial Average on Black Monday and Black Tuesday
Date Change % Change Close
October 28, 1929 −38.33 −12.82 260.64
October 29, 1929 −30.57 −11.73 230.07
After a one-day recovery on October 30, when the Dow regained 28.40 points, or 12.34%, to close at 258.47, the market continued to fall, arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60. The market then recovered for several months, starting on November 14, with the Dow gaining 18.59 points to close at 217.28, and reaching a secondary closing peak (bear market rally) of 294.07 on April 17, 1930. The Dow then embarked on another, much longer, steady slide from April 1930 to July 8, 1932, when it closed at 41.22, its lowest level of the 20th century, concluding an 89.2% loss for the index in less than three years. 

Beginning on March 15, 1933, and continuing through the rest of the 1930s, the Dow began to slowly regain the ground it had lost. The largest percentage increases of the Dow Jones occurred during the early and mid-1930s. In late 1937, there was a sharp dip in the stock market, but prices held well above the 1932 lows. The Dow Jones did not return to the peak closing of September 3, 1929, until November 23, 1954.

Aftermath

In 1932, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The following year, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.

After the experience of the 1929 crash, stock markets around the world instituted measures to suspend trading in the event of rapid declines, claiming that the measures would prevent such panic sales. However, the one-day crash of Black Monday, October 19, 1987, when the Dow Jones Industrial Average fell 22.6%, as well as Black Monday of March 16, 2020 (-12.9%), were worse in percentage terms than any single day of the 1929 crash (although the combined 25% decline of October 28–29, 1929 was larger than that of October 19, 1987, and remains the worst two-day decline ever).

World War II

The American mobilization for World War II at the end of 1941 moved approximately ten million people out of the civilian labor force and into the war. World War II had a dramatic effect on many parts of the economy, and may have hastened the end of the Great Depression in the United States. Government-financed capital spending accounted for only 5 percent of the annual U.S. investment in industrial capital in 1940; by 1943, the government accounted for 67 percent of U.S. capital investment.

Analysis

The crash followed a speculative boom that had taken hold in the late 1920s. During the latter half of the 1920s, steel production, building construction, retail turnover, automobiles registered, and even railway receipts advanced from record to record. The combined net profits of 536 manufacturing and trading companies showed an increase, in the first six months of 1929, of 36.6% over 1928, itself a record half-year. Iron and steel led the way with doubled gains. Such figures set up a crescendo of stock-exchange speculation that led hundreds of thousands of Americans to invest heavily in the stock market. A significant number of them were borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the U.S. at the time.

The rising share prices encouraged more people to invest, hoping the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. Because of margin buying, investors stood to lose large sums of money if the market turned down—or even failed to advance quickly enough. The average price to earnings ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. According to economist John Kenneth Galbraith, this exuberance also resulted in a large number of people placing their savings and money in leverage investment products like Goldman Sachs' "Blue Ridge trust" and "Shenandoah trust". These too crashed in 1929, resulting in losses to banks of $475 billion 2010 dollars ($556.91 billion in 2019).

Sir George Paish

Good harvests had built up a mass of 250 million bushels of wheat to be "carried over" when 1929 opened. By May there was also a winter-wheat crop of 560 million bushels ready for harvest in the Mississippi Valley. This oversupply caused a drop in wheat prices so heavy that the net incomes of the farming population from wheat were threatened with extinction. Stock markets are always sensitive to the future state of commodity markets, and the slump in Wall Street predicted for May by Sir George Paish arrived on time. In June 1929, the position was saved by a severe drought in the Dakotas and the Canadian West, plus unfavorable seed times in Argentina and eastern Australia. The oversupply was now wanted to fill the gaps in the 1929 world wheat production. From 97¢ per bushel in May, the price of wheat rose to $1.49 in July. When it was seen that at this figure American farmers would get more for their crop than for that of 1928, stocks went up again.

In August, the wheat price fell when France and Italy were bragging of a magnificent harvest, and the situation in Australia improved. That sent a shiver through Wall Street and stock prices quickly dropped, but word of cheap stocks brought a fresh rush of "stags", amateur speculators and investors. Congress voted for a $100 million relief package for the farmers, hoping to stabilize wheat prices. By October though, the price had fallen to $1.31 per bushel.

Other important economic barometers were also slowing or even falling by mid-1929, including car sales, house sales, and steel production. The falling commodity and industrial production may have dented even American self-confidence, and the stock market peaked on September 3 at 381.17 just after Labor Day, then started to falter after Roger Babson issued his prescient "market crash" forecast. By the end of September, the market was down 10% from the peak (the "Babson Break"). Selling intensified in early and mid October, with sharp down days punctuated by a few up days. Panic selling on huge volume started the week of October 21 and intensified and culminated on October 24, the 28th, and especially the 29th ("Black Tuesday").

The president of the Chase National Bank, Albert H. Wiggin, said at the time:
We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged. It was inevitable, because of the tremendous increase in the number of stockholders in recent years, that the number of sellers would be greater than ever when the boom ended and selling took the place of buying."

Effects

United States

Crowd at New York's American Union Bank during a bank run early in the Great Depression
 
Together, the 1929 stock market crash and the Great Depression formed the largest financial crisis of the 20th century. The panic of October 1929 has come to serve as a symbol of the economic contraction that gripped the world during the next decade. The falls in share prices on October 24 and 29, 1929 were practically instantaneous in all financial markets, except Japan.

The Wall Street Crash had a major impact on the U.S. and world economy, and it has been the source of intense academic historical, economic, and political debate from its aftermath until the present day. Some people believed that abuses by utility holding companies contributed to the Wall Street Crash of 1929 and the Depression that followed. Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market.

In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks went down with nearly $1.7 billion in deposits. Many businesses failed (28,285 failures and a daily rate of 133 in 1931).

The 1929 crash brought the Roaring Twenties to a halt. As tentatively expressed by economic historian Charles P. Kindleberger, in 1929, there was no lender of last resort effectively present, which, if it had existed and been properly exercised, would have been key in shortening the business slowdown that normally follows financial crises. The crash instigated widespread and long-lasting consequences for the United States. Historians still debate whether the 1929 crash sparked the Great Depression or if it merely coincided with the bursting of a loose credit-inspired economic bubble. Only 16% of American households were invested in the stock market within the United States during the period leading up to this depression, suggesting that the crash carried somewhat less of a weight in causing it.

Unemployed men march in Toronto

However, the psychological effects of the crash reverberated across the nation as businesses became aware of the difficulties in securing capital market investments for new projects and expansions. Business uncertainty naturally affects job security for employees, and as the American worker (the consumer) faced uncertainty with regards to income, naturally the propensity to consume declined. The decline in stock prices caused bankruptcies and severe macroeconomic difficulties, including contraction of credit, business closures, firing of workers, bank failures, decline of the money supply, and other economically depressing events.

The resultant rise of mass unemployment is seen as a result of the crash, although the crash is by no means the sole event that contributed to the depression. The Wall Street Crash is usually seen as having the greatest impact on the events that followed and therefore is widely regarded as signaling the downward economic slide that initiated the Great Depression. True or not, the consequences were dire for almost everybody. Most academic experts agree on one aspect of the crash: It wiped out billions of dollars of wealth in one day, and this immediately depressed consumer buying.

The failure set off a worldwide run on US gold deposits (i.e. the dollar), and forced the Federal Reserve to raise interest rates into the slump. Some 4,000 banks and other lenders ultimately failed. Also, the uptick rule, which allowed short selling only when the last tick in a stock's price was positive, was implemented after the 1929 market crash to prevent short sellers from driving the price of a stock down in a bear raid.

Europe

The stock market crash of October 1929 led directly to the Great Depression in Europe. When stocks plummeted on the New York Stock Exchange, the world noticed immediately. Although financial leaders in the United Kingdom, as in the United States, vastly underestimated the extent of the crisis that ensued, it soon became clear that the world's economies were more interconnected than ever. The effects of the disruption to the global system of financing, trade, and production and the subsequent meltdown of the American economy were soon felt throughout Europe.

In 1930 and 1931, in particular, unemployed workers went on strike, demonstrated in public, and otherwise took direct action to call public attention to their plight. Within the UK, protests often focused on the so-called Means Test, which the government had instituted in 1931 to limit the amount of unemployment payments made to individuals and families. For working people, the Means Test seemed an intrusive and insensitive way to deal with the chronic and relentless deprivation caused by the economic crisis. The strikes were met forcefully, with police breaking up protests, arresting demonstrators, and charging them with crimes related to the violation of public order.

Academic debate

There is ongoing debate among economists and historians as to what role the crash played in subsequent economic, social, and political events. The Economist argued in a 1998 article that the Depression did not start with the stock market crash, nor was it clear at the time of the crash that a depression was starting. They asked, "Can a very serious Stock Exchange collapse produce a serious setback to industry when industrial production is for the most part in a healthy and balanced condition?" They argued that there must be some setback, but there was not yet sufficient evidence to prove that it would be long or would necessarily produce a general industrial depression.

However, The Economist also cautioned that some bank failures were also to be expected and some banks may not have had any reserves left for financing commercial and industrial enterprises. It concluded that the position of the banks was the key to the situation, but what was going to happen could not have been foreseen.

Some academics view the Wall Street Crash of 1929 as part of a historical process that was a part of the new theories of boom and bust. According to economists such as Joseph Schumpeter, Nikolai Kondratiev and Charles E. Mitchell, the crash was merely a historical event in the continuing process known as economic cycles. The impact of the crash was merely to increase the speed at which the cycle proceeded to its next level.

Milton Friedman's A Monetary History of the United States, co-written with Anna Schwartz, argues that what made the "great contraction" so severe was not the downturn in the business cycle, protectionism, or the 1929 stock market crash in themselves but the collapse of the banking system during three waves of panics from 1930 to 1933.

Glass–Steagall legislation

From Wikipedia, the free encyclopedia

The Glass–Steagall legislation describes four provisions of the United States Banking Act of 1933 separating commercial and investment banking. The article 1933 Banking Act describes the entire law, including the legislative history of the provisions covered herein.

As for the Glass–Steagall Act of 1932, the common name comes from the names of the Congressional sponsors, Senator Carter Glass and Representative Henry B. Steagall.

The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits, and commercial Federal Reserve member banks from:
  • dealing in non-governmental securities for customers,
  • investing in non-investment grade securities for themselves,
  • underwriting or distributing non-governmental securities,
  • affiliating (or sharing employees) with companies involved in such activities.
Starting in the early 1960s, federal banking regulators' interpretations of the Act permitted commercial banks, and especially commercial bank affiliates, to engage in an expanding list and volume of securities activities. Congressional efforts to "repeal the Glass–Steagall Act", referring to those four provisions (and then usually to only the two provisions that restricted affiliations between commercial banks and securities firms), culminated in the 1999 Gramm–Leach–Bliley Act (GLBA), which repealed the two provisions restricting affiliations between banks and securities firms.

By that time, many commentators argued Glass–Steagall was already "dead". Most notably, Citibank's 1998 affiliation with Salomon Smith Barney, one of the largest US securities firms, was permitted under the Federal Reserve Board's then existing interpretation of the Glass–Steagall Act. In November 1999, President Bill Clinton publicly declared "the Glass–Steagall law is no longer appropriate".

Some commentators have stated that the GLBA's repeal of the affiliation restrictions of the Glass–Steagall Act was an important cause of the financial crisis of 2007–2008. Nobel Prize in Economics laureate Joseph Stiglitz argued that the effect of the repeal was "indirect": "[w]hen repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top". Economists at the Federal Reserve, such as Chairman Ben Bernanke, have argued that the activities linked to the financial crisis were not prohibited (or, in most cases, even regulated) by the Glass–Steagall Act.

Sponsors

Sen. Carter Glass (DVa.) and Rep. Henry B. Steagall (DAla.-3), the co-sponsors of the Glass–Steagall Act.

The sponsors of both the Banking Act of 1933 and the Glass–Steagall Act of 1932 were southern Democrats: Senator Carter Glass of Virginia (who in 1932 had been in the House, Secretary of the Treasury, or in the Senate, for the preceding 30 years), and Representative Henry B. Steagall of Alabama (who had been in the House for the preceding 17 years).

Legislative history

Between 1930 and 1932 Senator Carter Glass (D-VA) introduced several versions of a bill (known in each version as the Glass bill) to regulate or prohibit the combination of commercial and investment banking and to establish other reforms (except deposit insurance) similar to the final provisions of the 1933 Banking Act. On June 16, 1933, President Roosevelt signed the bill into law. Glass originally introduced his banking reform bill in January 1932. It received extensive critiques and comments from bankers, economists, and the Federal Reserve Board. It passed the Senate in February 1932, but the House adjourned before coming to a decision. The Senate passed a version of the Glass bill that would have required commercial banks to eliminate their securities affiliates.

The final Glass–Steagall provisions contained in the 1933 Banking Act reduced from five years to one year the period in which commercial banks were required to eliminate such affiliations. Although the deposit insurance provisions of the 1933 Banking Act were very controversial, and drew veto threats from President Franklin Delano Roosevelt, President Roosevelt supported the Glass–Steagall provisions separating commercial and investment banking, and Representative Steagall included those provisions in his House bill that differed from Senator Glass's Senate bill primarily in its deposit insurance provisions. Steagall insisted on protecting small banks while Glass felt that small banks were the weakness to U.S. banking.

Many accounts of the Act identify the Pecora Investigation as important in leading to the Act, particularly its Glass–Steagall provisions, becoming law. While supporters of the Glass–Steagall separation of commercial and investment banking cite the Pecora Investigation as supporting that separation, Glass–Steagall critics have argued that the evidence from the Pecora Investigation did not support the separation of commercial and investment banking.

This source states that Senator Glass proposed many versions of his bill to Congress known as the Glass Bills in the two years prior to the Glass–Steagall Act being passed. It also includes how the deposit insurance provisions of the bill were very controversial at the time, which almost led to the rejection of the bill once again.

The previous Glass Bills before the final revision all had similar goals and brought up the same objectives which were to separate commercial from investment banking, bring more banking activities under Federal Reserve supervision and to allow branch banking. In May 1933 Steagall's addition of allowing state chartered banks to receive federal deposit insurance and shortening the time in which banks needed to eliminate securities affiliates to one year was known as the driving force of what helped the Glass–Steagall act to be signed into law.

Separating commercial and investment banking

The Glass–Steagall separation of commercial and investment banking was in four sections of the 1933 Banking Act (sections 16, 20, 21, and 32). The Banking Act of 1935 clarified the 1933 legislation and resolved inconsistencies in it. Together, they prevented commercial Federal Reserve member banks from:
  • dealing in non-governmental securities for customers
  • investing in non-investment grade securities for themselves
  • underwriting or distributing non-governmental securities
  • affiliating (or sharing employees) with companies involved in such activities
Conversely, Glass–Steagall prevented securities firms and investment banks from taking deposits.
The law gave banks one year after the law was passed on June 16, 1933 to decide whether they would be a commercial bank or an investment bank. Only 10 percent of a commercial bank's income could stem from securities. One exception to this rule was that commercial banks could underwrite government-issued bonds.

There were several "loopholes" that regulators and financial firms were able to exploit during the lifetime of Glass–Steagall restrictions. Aside from the Section 21 prohibition on securities firms taking deposits, neither savings and loans nor state-chartered banks that did not belong to the Federal Reserve System were restricted by Glass–Steagall. Glass–Steagall also did not prevent securities firms from owning such institutions. S&Ls and securities firms took advantage of these loopholes starting in the 1960s to create products and affiliated companies that chipped away at commercial banks' deposit and lending businesses.

While permitting affiliations between securities firms and companies other than Federal Reserve member banks, Glass–Steagall distinguished between what a Federal Reserve member bank could do directly and what an affiliate could do. Whereas a Federal Reserve member bank could not buy, sell, underwrite, or deal in any security except as specifically permitted by Section 16, such a bank could affiliate with a company so long as that company was not "engaged principally" in such activities. Starting in 1987, the Federal Reserve Board interpreted this to mean a member bank could affiliate with a securities firm so long as that firm was not "engaged principally" in securities activities prohibited for a bank by Section 16. By the time the GLBA repealed the Glass–Steagall affiliation restrictions, the Federal Reserve Board had interpreted this "loophole" in those restrictions to mean a banking company (Citigroup, as owner of Citibank) could acquire one of the world's largest securities firms (Salomon Smith Barney).

By defining commercial banks as banks that take in deposits and make loans and investment banks as banks that underwrite and deal with securities the Glass–Steagall act explained the separation of banks by stating that commercial banks could not deal with securities and investment banks could not own commercial banks or have close connections with them. With the exception of commercial banks being allowed to underwrite government-issued bonds, commercial banks could only have 10 percent of their income come from securities.

Decline and repeal

It was not until 1933 that the separation of commercial banking and investment banking was considered controversial. There was a belief that the separation would lead to a healthier financial system. As time passed, however, the separation became so controversial that in 1935, Senator Glass himself attempted to "repeal" the prohibition on direct bank underwriting by permitting a limited amount of bank underwriting of corporate debt.

In the 1960s the Office of the Comptroller of the Currency issued aggressive interpretations of Glass–Steagall to permit national banks to engage in certain securities activities. Although most of these interpretations were overturned by court decisions, by the late 1970s bank regulators began issuing Glass–Steagall interpretations that were upheld by courts and that permitted banks and their affiliates to engage in an increasing variety of securities activities. Starting in the 1960s banks and non-banks developed financial products that blurred the distinction between banking and securities products, as they increasingly competed with each other.

Separately, starting in the 1980s, Congress debated bills to repeal Glass–Steagall's affiliation provisions (Sections 20 and 32). Some believe that major U.S. financial sector firms established a favorable view of deregulation in American political circles, and in using its political influence in Congress to overturn key provisions of Glass-Steagall and to dismantle other major provisions of statutes and regulations that govern financial firms and the risks they may take. In 1999 Congress passed the Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act of 1999, to repeal them. Eight days later, President Bill Clinton signed it into law.

Aftermath of repeal

After the financial crisis of 2007–2008, some commentators argued that the repeal of Sections 20 and 32 had played an important role in leading to the housing bubble and financial crisis. Economics Nobel prize laureate Joseph Stiglitz, for instance, argued that "[w]hen repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top", and banks which had previously been managed conservatively turned to riskier investments to increase their returns. Another laureate, Paul Krugman, contended that the repealing of the act "was indeed a mistake"; however, it was not the cause of the financial crisis.

Other commentators believed that these banking changes had no effect, and the financial crisis would have happened the same way if the regulations had still been in force. Lawrence J. White, for instance, noted that "it was not [commercial banks'] investment banking activities, such as underwriting and dealing in securities, that did them in".

At the time of the repeal, most commentators believed it would be harmless. Because the Federal Reserve's interpretations of the act had already weakened restrictions previously in place, commentators did not find much significance in the repeal, especially of sections 20 and 32. Instead, the five year anniversary of its repeal was marked by numerous sources explaining that the GLBA had not significantly changed the market structure of the banking and securities industries. More significant changes had occurred during the 1990s when commercial banking firms had gained a significant role in securities markets through "Section 20 affiliates".

Post-financial crisis reform debate

Following the financial crisis of 2007–2008, legislators unsuccessfully tried to reinstate Glass–Steagall Sections 20 and 32 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Both in the United States and elsewhere around the world, banking reforms have been proposed that refer to Glass–Steagall principles. These proposals include issues of “ringfencing” commercial banking operations and narrow banking proposals that would sharply reduce the permitted activities of commercial banks.

Operator (computer programming)

From Wikipedia, the free encyclopedia https://en.wikipedia.org/wiki/Operator_(computer_programmin...