American industrial strength became so successful when mass production was then introduced. An example of this would be Ford motors. Instead of a Model T taking 14 hours to make, it now took 93 minutes. Aswell as there being a high supply of products now you would still need the consumer to be able to afford them, but due to economy of scale the price of each individual car decreased by $760 from 1909 to 1928. This was revolutionary to the people of America as they were now more available to the America man, by 1925 an average paid worker could buy a car with three months wages. When the new production line method was introduced, employers could use un-skilled employees to manufacture their products for little money in comparison to those who used high-skilled professionals to produce the same types of products. The raw materials they used for this manufacturing was also fairly cheap as nothing had to be imported, therefore they were able to sell the product at a cheaper price, which ultimately increased the products overall demand.
Meanwhile, other industries were expanding rapidly, with modern production techniques and electric motors taking over from steam motors. Synthetic industries also mushroomed- for example, rayon transformed the textiles industry.
The American man’s state of mind helped the economy boom also. Due to how the economy was flourishing the American man’s perspective on how there life could be changed. Many people realised they were living in prosperity, they owned things that they originally they could only dream about. They were living the ‘American dream’. The construction industry boomed as a visible sign of prosperity. For example, New York gained a new skyline where 20-storey skyscrapers were replaced by 60-story skyscrapers. Other copied what New York was doing. And as part of the American dream, there were now new marketing techniques and ways of people to pay for these products, such as hire purchase. This meant people paid a deposit and then paid off the rest in instalments. It was also very easy to borrow money from the banks at relatively low rates of interest. This led to a boom in sales, which increased demand in the factories, producing more jobs and higher wages. Development in entertainment industries became apparent when people had more money. This again reinforced the idea of ‘the American dream’ because people had extra money to buy things they didn’t need. There were also movies, consisting of people like Charlie Chaplin.
The belief that the government should 'leave well alone' (laissez faire) and the widespread belief that Americans could succeed solely by their own efforts (rugged individualism) contributed to the boom. Laissez means that businesses and trade should be left to function naturally, the government should not put on artificial tariff barriers and taxation.
These policies and beliefs aided the economic boom in a number of ways:
A government that believes in 'laissez faire' as the Republicans did will not tax the profits that a businessmen makes heavily and will do little to interfere in the workings of the economy. Eg they will not financially assist struggling businesses, nor will they attempt to regulate wages in any way. The effect of this (in theory and in practice) in 1920s America was to encourage investment in profitable industries (whilst declining industries were allowed to 'go to the wall') As I am sure you are aware, the more successful a business is the more people will want to invest in it and this pushes up the prices of shares on the Stock Market.
On the whole 'big' investors in the Stock Market have their heads screwed on and make (mostly) decent, sensible decisions. What fuelled the boom in 1920s USA was that perfectly ordinary people were able to buy shares; some people had to do it on credit because they didn’t actually have the ‘real’ money and these were the people who panicked first in October 1929. One could argue that the Republican government laissez fair beliefs were responsible for this since there was no control on bank lending (to those inexperienced 'speculators').
A belief in 'rugged individualism' is also connected here since it is 'glorified' the idea that hard work and individual effort would be rewarded with financial success and takes no real account of the fact that individuals have little control over economic forces. Whilst times were 'good' though this philosophy encouraged ordinary men and women to think that the 'bubble' would never burst and that further fuelled investment in the Stock Market.
The imposition of tariffs on imported goods of course protected American industries from foreign competition and in that way created a 'captive market' for American goods and would have had the effect of artificially raising profits (and thus share prices).
I expect you realise that the prices of Shares on the Stock Market depend heavily on people's confidence in the future. At its simplest - when confidence is high prices go up. When prices go up fast enough you have an economic boom. The reverse is also true.
In conclusion it is clear to see that the basis of the boom was production and consumption. When America was producing and its population was consuming there was 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 prosperity cycle absent. It is also clear to see that the most important short-term cause of the boom was the Republican Party and their policies 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 prosperity cycle would be non-existent. The key to a boom is a country consuming and producing and these two causes largely helped this.
