Why Did the United States Economy Boom In the 1920’s

The main turning point or catalyst of the boom was the First World War and American Isolation. In the First World War America lent millions and millions to Britain and France, they would then be paid back with interest on top of the original money lent. America also exported many of its good and products such as munitions and arms to Britain and France. This was known as "One Way Trade" and it gave a real boost to American industry. America got rich while the European countries were busy fighting. America took over British and French markets by exporting goods to their colonies as Britain and France were too busy fighting. America also took over German markets, before the war Germany was the world's largest chemical producer after the war the USA had stripped Germany of this title as Germany was too busy fighting. America was only able to do all these things as the country was rich and full of resources. America did not suffer any damages in the war whereas it's business rivals such as Britain suffered hugely. There was a huge rise in production at this time.

There were many important medium and short term causes as well as long term that contributed to the boom.

One short-term reason for the boom was the policy of the Republican Party. From 1920 to 1932 all the US presidents were Republican. Republicans believed that the government should interfere as little as possible in the everyday lives of the people. This attitude was known as 'Laissez-Faire'. When the Republicans came to power they introduced tariffs, this made it expensive to buy foreign goods. The tariffs protected US businesses from competition. The Republicans kept taxation as low as possible because of this everybody had more money and they would buy American goods (because they were cheaper) or invest it in the American economy. More Americans also invested money to buy shares in companies as they had more of it. Like industry shares were booming, this provided extra finance for industry and helped big businesses prosper further as well as making the investor richer. The Republican attitude was to interfere as little as possible in business and let people handle it the way they saw fit, the result of this was a richer and happier America. The new government added to a rise in production and consumption.

Another cause of the boom was the 'American Dream'. America had a great supply of labour at this time, many immigrants came to America believing in the American dream. This was the idea that you could arrive in America penniless and become a millionaire, if you worked hard enough. They provided cheap labour for many businessmen and factory owners. Many labourers thought that if they worked hard enough they would live wealthy lives. In actual fact this was not true, by them working harder their wealthy employers got richer. Their businesses also improved and this was even better for the American economy. The government exploited this idea and made people actually believe with hard work anyone one can become a millionaire. They did this by putting up clever posters and advertising one of the posters said 'Is your work so carefully done it would satisfy you if you were the boss? You are the boss of your future.' The harder the workers worked the more and better products their factory produced making their employers and the United States very rich.

Another short-term reason for the boom were the new industries in America. Americans loved new products such as the automobile, by 1929 twenty-three million people owned cars. A massive programme of road production began, this produced jobs and made many people rich. Another important factor which allowed new industries to develop was electricity. Many new products such as toasters, refrigerators and washing machines ran on electricity. By 1927 sixty three percent of houses in the United States had electrical power. These new industries boomed in America, the owners of the businesses got richer and ordinary people's lives became easier as well as improving the economy.

Another short-term cause for the boom was the rise of credit and advertising. Although many people were receiving improved wages people still needed money to buy certain goods. Advertising made people think they needed these products. Advertising came in many forms such as posters, radio, newspapers and cinema. Adverts were very clever and were aimed at the people that were most likely to buy the product. One of the most effective ways of advertising was the ideal home. This made Americans believe that their home was incomplete without certain products, people used Credit to buy these products. Credit was when banks and finance houses lent people money and agreed to pay it back bit by bit but with interest added on top. Credit meant that people were buying more and paying more for it, this meant more money was going into the economy. Advertising and Credit led to a rise in consumption and more money going into the economy.

A short-term cause for the boom was mass production. Mass production methods were pioneered by Henry Ford, it made the manufacture of goods cheaper. Henry Ford trained every worker to do a simple task as a vehicle or engine passed on an assembly line, at the end of it would be a finished car. The advantage was work was completed very quickly. This increased the output of production, making it cheaper to buy cars, which increased consumption. Henry Ford's car industry also helped other businesses, as more people had cars this helped petrol stations and oil companies. As people could now travel holiday resorts were also stimulated. The car production was being a catalyst for the boom.

All the causes of the boom can be linked together in the Cycle of Prosperity. This is where more people have more money and because of advertising they spend it on goods. To buy these goods people used Credit. People also had more money as a result of the low taxes and their businesses doing well because of the Republican policies. Then more goods need to be made and this was done by mass production. Mass production was only able to occur because they had the right materials readily available, this was because of America's natural strength, this was shown during the First World War. The cycle then starts all over again, it was a cycle that got better and better. This was because it was a cycle that kept producing and consuming thus keeping the economy going and booming. Money was flowing around the economy.

America as a whole was definitely booming, however not everybody benefited from the boom. There was a large group of farmers that did not share in the prosperity of the 1920's. Many labourers and factory workers did not truly benefit from the boom. Their wages did go up in the 1920's but they did not increase anything like company profits. The large companies became richer and richer however workers wages did follow in accordance with this. It is estimated that forty-two percent of Americans lived below the poverty line. Unemployment did not fall, the percentage of people unemployed in 1929 was the same as in 1920. There were many whites but an even larger amount of African and Hispanic Americans that did not take part in the boom. This was damaging for the boom as it was consumer led.

In conclusion it is clear to see that the basis of a boom is production and consumption. When a country is producing and its population is consuming there is money flowing around its economy. It can be seen that the most important long-term cause of the boom was America's natural strength. This is because if America did not have its resources it would not have exported goods during the First World War and not have taken over its trade competitors' markets. The producing part of the economy would be non-existent and half of the cycle of prosperity absent. It is also clear to see that the most important short-term cause of the boom was the Republican Party and their policies and Laissez-Faire attitude towards business. This is because they lowered taxes and so people could spend more and they made sure people spent it on American goods. They did this by introducing tariffs making it expensive to buy foreign goods. Without this the first part of the cycle of prosperity would be non-existent. The key to a boom is a country consuming and producing and these two causes largely helped this. Whilst this essay shows it is clear that the American economy was booming not all Americans benefited from it.