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The American economy boomed in the 1920's. Why did this happen?

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Introduction

The American economy boomed in the 1920's. Why did this happen? As Europe was beginning to recover from a very damaging and costly war, both in human and economic terms, America entered a period of prosperity. In the years following the end of the First World War America experienced an economic boom, a rapid growth of wealth. It resulted from an economic cycle known as the cycle of prosperity. This is a continuous cycle, one aspect of which leads on to another and so on. In the USA it began with the rise of demand for goods produced which led to the need to increase production. This in turn naturally led to the need to employ more workers providing people with jobs and thus with money to spend on goods produced. The result was a further increase in demand and the continuation of the cycle. As the cycle continued, the country experienced an economic boom and became more and more prosperous. This essay will assess the causes of the boom, both long and short term, and their relative importance. This essay will firstly examine the first long-term causes that created an environment in which the American economy could boom. The first long-term cause was America's natural advantage. Without this long-term cause it is questionable whether the boom would have happened at all. There were two parts to America's natural advantage; raw materials and regional diversity. Since America was (and still is) such a large country, she had an abundance of raw materials. During the nineteenth century America "had been busy developing these riches"(Harriet Ward "World Powers in the 20th century") ...read more.

Middle

This meant that it was America's aim to make her businesses rich, powerful and successful. The Federal Government also started to use tariffs. High taxes were put on foreign goods, this encouraged Americans to buy American products as imported goods would cost more. There were two tariff acts. In 1922 the Americans introduced the Fordney - McCumber Tariff Act and in 1929 tariffs were made even higher as a result of the Hawley - Smoot Tariff Act. The tariffs added to the circle of Prosperity as it created more demand for American goods. The Circle of Prosperity was continuing to go and grow as a result of the Federal Governments policies. Another short-term factor which contributed to the economic boom was that companies used a great deal of advertising during the economic boom. This is supported by the fact that in 1914, approximately $250,000 was spent on advertising in magazines but by 1929, this had increased dramatically to $3 billion. Companies and businesses started to spend more and more money on advertising because it directly created demand for their products. "Posters advertisements, radio advertisements and travelling salesmen encouraged Americans to spend" (Modern World History, Ben Walsh). The aim of the advertising was to make people feel dissatisfied if they did not have a certain product. The advertisements led people to believe that their lives would be enhanced and improved by the certain products or goods. A range of advertising methods such as posters, radios and magazines were used. Advertising was very important because it stimulated demand and consequently maintained and increased the cycle of prosperity and the economic boom. ...read more.

Conclusion

The prices were able to go down because more products could be made within the same amount of time, with the same amount of workers so companies could afford to lower their prices. This essay has shown that both long-term and short-term causes were necessary to cause the American economy to boom in the 1920s. The boom would not have happened without the long-term or short-term causes. The long-term causes created an environment for which an economic boom could happen in and the short-term causes maintained and increased the economic boom once it had started. Both the long-term and short-term causes fed into the cycle of prosperity. The long-term causes created it and the short-term causes stimulated it and kept it going. The First World War was probably the single most important factor that caused the economic boom to happen. Without the First World War America would not have had an external market to sell her goods to. America also leant money to European countries after the war, this money was repaid to America with interest. If this hadn't happened it would have meant that not as much money would have been coming into America, therefore not as much money would have been invested into American companies and businesses, making them probably less successful. However, all the factors that created and maintained the economic boom were important. But they all needed to happening at the same time and to and to a great extent. This happened when there was increased demand, increased means of production and increased spending power. However the economic boom only lasted a short whist and on the 29th of October 1929 the American economy crashed during the Wall Street Crash and a period of depression followed. Carl Gelibter ...read more.

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