CHAPTER THEME After World War I, the American public hoped for a “return to normalcy,” as President Warren G. Harding put it. Wartime controls were removed, taxes were cut back, and the Republican administrations of the 1920s generally looked to market forces to produce economic growth. After a severe but brief recession in 1920 and 1921, the economy moved into a long expansion. A new American middle-class lifestyle emerged that relied on consumer durables, especially the automobile. The stock market surged, and the belief took hold that the economy had moved into a new era of continuous growth and prosperity that would eventually eliminate poverty. But the stock market crash in October 1929 and the fall into the depths of an unprecedented depression in the early 1930s made pessimists out of the most determined optimists.
A central question is whether the disasters of the 1930s were the inevitable outcome of the prosperity of the 1920s and its reliance on a free market economy, or whether they were the result of shocks and policy mistakes in the 1930s. Was there, to put it somewhat dramatically, a fatal cancer growing in the economy of the 1920s that brought disaster ever closer, even as the economic physicians of the day continued to pronounce the patient in good health? Economic historians have suggested numerous problems carried over from the 1920s to the 1930s—changes in the distribution of income, the ongoing problems in agriculture, the stock market boom and bust, and so on. The vast research on this period shows, however, that the depression could have been prevented or at least ameliorated if the right policies had been followed in the early 1930s. The prestige of the market economy peaked with the stock market. In the depression, the nation turned from the free market model of 1920s to the central-planning model of the war years to restore prosperity and growth.
World History
