Why was there an economic boom in the USA in the 1920s

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Last updated: November 8, 2019

Several factors in the USA in the 1920s caused an economic boom to occur. For example, the USA had many natural resources with which to develop products, whilst financially it had benefited from World War I because of exports to Europe. Confidence allowed prosperity to flourish in the USA and thus allowed an economic boom.

Those without the funds to buy goods could rely on credit to be able to pay off the loans eventually.The new methods of mass producing products stimulated the growth of other industries, manufacturing goods with which to make the products e. g. ubber industries prospered due to higher demand for tyres, from cars. It also increased consumption of petrol, and petrol stations with which to fuel cars, allowing an economic boom. New methods of production allowed goods to be made far more efficiently and cheaply on a larger scale.

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Many pioneers, such as Henry Ford, allowed mass production in the car industry by introducing an assembly line before the war. Cars were so cheap later on in the 1920s, that most Americans could afford them. This meant that the USA did not have to make cars individually at expensive costs in a long time.The demand for cars also increased in this way, as there was now a greater supply of them at lower costs. The mass production demanded a larger number of workers, therefore reducing the unemployment numbers, allowing an economic boom. Since the demand for cars had been increased, many Americans were to be able to buy a car now, and pay off existing loans later, through the use of credit.

Any person, even immigrants or black people in inner cities and the countryside could borrow money to buy luxurious goods and items which they could never afford without this new development.Firms did this by arranging for customers to pay instalment or hire purchase. This was an almost essential ingredient in fuelling the boom – there was now anyone who could use credit for most goods and a higher demand for products such as cars, thus funding the economic boom further, due to increased employment in the transport sector. The growth in the use of credit was not possible without the vital ingredient of confidence in the economic boom.

This meant confidence to buy goods, invest in companies, and try out new products and ideas.Debt was not a problem that occurred to Americans – they believed they could buy now and pay later without getting into trouble with the credit company. This made the situation very worrying as people were borrowing more than they could afford, perhaps making the Wall Street Crash in the late 1920s worse than it could have been, as people would have been more careful about being in the debt without confidence and credit. Similarly, the willingness to invest in new companies was really the cause of the Wall Street Crash.

However, the growth of confidence helped the economy for the time being. The impact of The First World War perhaps funded confidence slightly, as the USA came out of the war well compared to other countries. There had been no fighting on American soil and had benefited greatly by supplying Europe with many goods and by doing so had taken over European overseas markets. The USA had now come out on top of the other countries, taking over Germany in many industries; due to the impact of the Treaty of Versailles e. g. the USA was now the number one producer of chemicals.This allowed the USA to claim the loans owed from European countries after the war. The USA did not suffer very many losses during WWI, the only products being shipped over to Europe were excess food supplies, made using new farming methods.

It also hastened technological change, which US industry benefited from. Perhaps the main reason why the impact of the First World War was so successful was because of the USA’s natural resources at its disposal. The USA was blessed with many oil fields, due to the country’s geography, as well as coal, iron and wood.Oil and coal could be used as fuel for factories, whilst wood was used in the construction business. This meant the USA did not have to imports its resources, allowing and economic boom. As the country was blessed with bountiful quantities of natural resources, it allowed the development of new products, allowing the introduction of a new era of technological change, allowing a period of great innovation.

New plastics like Bakelite were developed effectively for the first time and were used in new household products.This also fuelled mass production, mentioned earlier, which helped develop new methods in the primary and secondary sectors of business. This helped modernize existing industries and develop new ones. Electricity was also born – a cheaper, more efficient source of power and light for factories and households. Radios and refrigerators were also introduced. This allowed more efficient methods of production to be developed, to make products even more efficiently made, fuelling the economic boom further.Credit accompanied this technological change, as anyone could afford these new products on the market. The era of technological change would not have happened without the ability to effectively market them.

Companies spent huge amounts on advertising these products. Items sold in bulk were sold to a mass-market, depending entirely on people’s knowledge or liking of the product. If the marketing was not good enough, the system would collapse. Expansion of mail-order companies gave consumers countryside access to goods on offer.

This fuelled the economic boom greatly – without the effective mass marketing, nobody would know about the product, decreasing employment for the industry, no confidence in credit, and no further development in technological change. Mass marketing would never have happened without the `laissez faire` policy of the Republican presidents. This meant that they didn’t interfere with in business or put any control on financial institutions. The Republican presidents believed strongly in the policy of isolationism, cutting themselves off from the rest of global society.This lead to putting tariffs on imported goods, encouraging Americans to buy American made goods, and helped American industries this way. They also lowered taxes on income, giving the wealthy industry owners more money to spend on American goods. This meant that Americans did not want to buy overseas goods – even without the tariff they were still very expensive – Europeans were still trying to recover from the war, thus increasing prices of goods, especially in Germany, hit badly by the Treaty of Versailles and Hyperinflation of 1923/1924.

This allowed industries to flourish from Americans’ money, allowing mass-production and mass-marketing to occur. In conclusion, I think the most important cause of the economic boom was the introduction of the use of credit. This was because Americans could see any product at all accessible through the use of credit. This allowed the growth of industries because Americans bought whatever they wanted, without fear of debt, allowing less caution towards buying expensive goods. Demand rose because of credit, and so did supply, as now all goods were accessible to everyone, even if most could not afford it.The policy of isolationism also allowed the USA economy to prosper, as Americans did not really want to buy overseas goods. However, without new methods of mass-production and technological change, the USA would never have developed products quickly enough for people to develop confidence and use credit, as if there is low supply the good is more expensive.

All the factors combined in the end to allow an economic boom, and with the policy of isolationism and the use of credit, the wealth became self-generating.

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