This was partly to do with World War 1, as throughout WW1 the USA had sold arms and munitions to Britain and France, as well as food and other materials. This one way trade created large profits for the USA and enabled them to take control of the European markets, making more money as Europe future hung in the balance during the war. By the end of WW1 America had the largest chemical industry, overtaking Germany who was engaged in the fighting. This also opened up German markets. Also the War stimulated the growth of new American industries, such as plastics and metals, possibly even explosives. Although American industry had to re- adjust to peace- time there was no doubt WW1 built up many of the American industries and areas of the economy that were going to be fundamental for the economic boom.
The American government at the time also helped the progression of industries. At the time all US presidents were republican and the republicans had dominated congress. They worked by the policy of “laissez- faire” (leave alone) approach to businesses, trying to interfere as little as possible. They believed prosperity came from this idea. The republican Warren Harding won the election of 1920 promising a return to normalcy (isolationism). He introduced tariffs to make it expensive to buy foreign goods, encouraging Americans to buy US goods and pour money back into the economy. This protected US businesses and allowed them to grow rapidly. The republicans also kept taxes low as they thought that this would lead to more money being spent e.g. on consumer goods, the republicans believed that this would help the economy grow. Despite Harding being exposed as a corrupt man, his policies helped the progression of the economy and were adopted by the next president, Calvin Coolidge, who was also republican and believed the same policies as Harding but used different styles. He used the ideas of trusts, large companies were allowed to control whole industries e.g. Carnegie controlled the steel industry. It was believed that this would lead to them being more successful and sufficient. Additionally, the 1922 Fordney McCumber tariff raised import duties to their highest ever level.
WW1 led to new markets being opened in America. This resulted in America developing new industries and new industrial ideas. The 1920s, a period of great innovation, saw the invention of products such as Bakelite, the world’s first plastic. Household products made use of these new materials, attracting new customers. Other new inventions included automatic switchboards, glass, tubing, conveyor belts and concrete mixers. Inventions such as these allowed industries to expand massively, from local businesses to nationwide sellers. The development of electricity allowed a cheaper, more efficient source of power in factories, furthering the industrial explosion. Electricity led to more inventions- refrigerators, vacuum cleaners and radios. All of these new inventions allowed for the beginning of massive consumer spending.
All these factors helped Americans feel more confident, this was essential. Their beliefs in prosperity and wealth meant they were willing to buy new products, invest in companies and try out new ideas. Instead of keeping their money to themselves, they poured it into the economy, boosting America’s wealth. Consumer spending was a vital part of the cycle of prosperity. Confidence is a vital ingredient of the economic boom.
As I said earlier there were also little causes that sprouted out of the five main causes above. The first of which was mass production, which meant that goods could be produced much more cheaply and on a larger scale. Henry Ford’s assembly line was a prime example of this. He made cars so cheaply that thousands of ordinary Americans could afford them, spawning new industries e.g. road building that themselves generated huge amounts of money. Mass production also took off in other industries, towering product prices, encouraging consumerism and expanding businesses. Another of the little causes was mass- marketing; this enabled the mass- production products to be sold to a mass- market. So companies spent huge amounts of money on advertising. This new industry developed sophisticated techniques to persuade people to buy. The expansion of mail order companies gave consumers in the countryside access to a wide range of goods on offer. The final small cause was credit; this made it easier for people to buy goods if they did not have cash in hand. Firms allowed customers to pay by installment or hire purchases. Combined with consumer confidence, credit created a great deal of sales.
In conclusion there are 5 main reasons why the economic boom of the 1920s happened in USA, these being the growing strength of American industry, the effects of ww1, government policies at the time, American development of new industries and new industrial ideas and finally confidence. There are also smaller causes that sprouted out of these bigger ones, including credit, mass- marketing and mass- production. All of these factors fed into the boom but not just one of them could have started the boom by itself. They were all needed so that once the boom had started it could become self- generating.
By Joshua Banks
