The American economy grew considerably in the 1920s
The sudden growth of the economy in America at this time was also know as the ‘boom’, and was a huge growth of industries, a reduction in unemployment and an improved standard of living. The aim of politicians at the time was `A car in every garage and a chicken in every pot.’ Some of the features were massive increases in the sales of consumer goods such as cars and fridges, more and wider reaching travel, the availability of electricity to most people and the growth of the entertainment industry. This is shown by the increase of car sales from 9 million in 1919 to 26 million in1929, and the 162000 civilian aircraft flights in 1930, when there had been almost none on 1918. There were also new ideas such as catalogue shopping, chain stores and the building of impressive skyscrapers in huge cities such as New York. These huge changes were affected by long and short-term causes.
Some of the long-term causes include the natural resources of America, such as oil, coal, iron and excellent farmland. This meant that it did not need to import any raw materials, so the if raw materials were needed they were bought from within America, boosting there industries. There was also a very large population because of the number of immigrants who came to America. It was seen as a ‘land of opportunity’ and attracted a wide variety of people with different skills and backgrounds. They brought with them new ideas and provided a large workforce, and there were skilled people to develop new technology and run businesses. There was also a lot of cheap, easily employable unskilled labour available. The massive population was also potential customers to buy goods. Because the population was continually growing, the housing market was always important as well. There was plenty of land, so people settled and built new houses, rather then moving into old ones.
Another of the affect of number of immigrants was the attitudes of the ‘American dream’ and the ‘pioneering spirit’, which were beliefs that you could travel to America and really make something of yourself. People believed that there was potential business success everywhere, leading to many entrepreneurs starting their own businesses, which boosted the economy. The dream was the idea that everyone had the right to prosperity, and for many this was symbolised by the consumer goods suddenly available in the 1920s. Consumerism was seen by many as the way to ‘the good life’ they had hoped for when they immigrated to America.
America had the most efficient and successful agriculture industry in the world, and this meant that not only that there was plenty of cheap and easily available food so people had more money to spend on luxury items. Farmers could experiment with new technology and growing more exotic crops.
Part of American politics had always been a policy of ‘isolation’, meaning they tried to stay out of wars and disputes between other countries. This meant that America could save their resources and use them to boost their economy. Because it did not need to import or export many goods or materials, the economic problems of other countries did not affect America very much, which meant it could grow safely.
There were two turning points that lead to the boom: the First World War and the political politics in the 1920s. In the First World War, many countries, such as Britain, France, Germany, Russia and many other European countries pooled all their resources into the war effort. This meant that the industries that they had controlled they could no longer run effectively, and America’s policy of isolation meant that they could take over from them. For example, before the war Germany’s chemical industry was one of the most successful in the world, but when progress stopped during the war America was able to develop their market and overtake Germany by far.
The war also increased research and development into weapons, ammunitions and explosives, which lead to the development of new industries such as plastics which were still useful after the war ended. The war also stopped countries producing their own food, so America was able to sell some of the surplus that farmers were producing with their improved methods and make a large profit. They also lent money to the countries to help with funding the war, and profited from the interest they earned. America did eventually join the war, but only near the end, when it could not drain their resources in the way it had the other countries’, and it quickly recovered.
Previous to 1920s, the political party in power was the Democrats. However, in 1921 Warren Harding, a Republican, became president. The Republicans believed that government should not be involved in businesses, and stayed out of their affairs. This style of government is called ‘laissez-faire’, and helped the economy in the following ways. Tax was kept very low, so people had money to save and buy luxury goods they could not normally afford if they were poor, and if they were rich they had money to invest in industry. Import tariffs were set very high, so if a foreign company wanted to sell their goods in America they had to pay a lot of money to the government.
This meant that very few foreign goods were sold in America, which reduced competition and allowed American industries to grow. The government also allowed the development of trusts, which were huge corporations controlling the whole of one industry and lead by one person or family. The Democrats had not allowed these because if one person went bankrupt, an entire industry collapsed. However, in the 1920s industries were thriving and this was not a problem. The trusts brought prosperity, so they were left to grow as they wished. The government also lowered income tax, so people’s wages grew as the big industries made more money. This meant that they had more money to spend on luxuries. The Republicans stayed in power until 1933, and implemented these policies all the time.
Some of the short-term reasons followed on directly from the First World War, while others were as a result of new technologies being developed. One of the biggest developments in industry was the idea of the production line and mass-produced goods. Henry Ford, the head of Ford cars, started this. He open the first ever moving production line, where each worker was given one or two small jobs to do, and by the time the car reached the end of the line it had been transformed from a shell to a finished car ready to sell. Previously, making cars had needed skilled professionals and took a long time, but now cheap, unskilled labour of the immigrants could be used. To make the cars, it was necessary to have raw materials, such as steel, glass, leather and rubber, and these industries suddenly had a huge new demand, and started to make more profit then ever before. Petrol was also needed for the car to run on, and this became big business, not only in America but also to export to other countries.
Roads were also needed for the cars to drive on, and this meant an increase of transport and communications all over the country. This meant that corporations could expand and become nation-wide, and spread themselves across the entirety of the huge country. This, together with the development of the plane because of the war, meant people could travel further than ever before. This stimulated the tourist industry, leading to the development of many hotels, holiday resorts and also increasing the leisure industry, for example building swimming pools. The transport network also meant that people did not need to live close enough to their workplace to walk, so suburbs started to grow. This lead to the growth of huge cities, with a massive workforce in a small area, which was perfect for the new style mass production lines.
For the first time, electricity became widely available in people’s homes. By 1929 almost all homes had it, and this lead to growth of the appliance market. Goods such as vacuum cleaners, fridges and washing machines were suddenly available everywhere, and the development of the production line meant that they could be mass produced and sold very cheaply.
The film industry in America became one of the world’s most successful. The number of immigrants meant that there was a huge mix of people living in America, which gave it a unique culture. This was often expressed through the arts, and made the film industry in the USA different from any other in the world. Because of lower taxes and higher wages, the ‘average man’ had money to spend on entertainment such as going to the cinema, and for the first time top directors and actors, as well as the studios they worked for, could really make a lot of money. Actors and actresses became idols for the people, and the country was united by their love for the Hollywood stars of the silver screen.
We have already seen how the war promoted the plastics industry, and this was developed to fill the growing market for consumer goods. For example, for the first time radios could be made cheaply and easily from plastics that had newly become available, as well as being mass-produced on the same way as cars and fridges. This meant that the number of radio stations grew hugely from 1 in 1921 to 508 in 1922, and they also made massive profits. The radio, together with the cinema, became the starting point for the new industry of advertising. Because of the car industry, motorways were built, and this meant that billboard advertising also became common.
People had never been exposed to advertising on such a huge scale before, and so were very susceptible to it. Adverts made them think that they ‘had’ to have the new products available, and they induced people to spend their money, when before they would have saved it. This meant that money was flowing through the industries, rather than staying in a bank account. The advertising also meant that if people did not have enough money to buy the goods they wanted and that they thought other people had, they wanted to borrow money o get them.
The banks lent out vast amounts of money, knowing that people would pay it back with interest, giving them more money to invest into industries. People borrowed money to buy luxury goods, and paid it back slowly with the extra money they had from their increases wages and lower taxes. The ‘hire purchase’ scheme also became extremely popular, where people would put a small deposit on an item such as a car, then were allowed to keep it and pay for it in many small instalments over time. In fact, very often the sellers would charge ridiculous amounts which people would not ever realistically be able to pay off, but because they paid in small amounts, it did not cause people a problem. This system, known as the ‘never never’ system because it seemed people could never finish paying off the price, made companies a great deal of regular and reliable money.
People also used the money lent to them to buy shares in companies, which they hoped would increase in value which they could then sell off at enough profit to pay back the loan with interest and still have money to spare. Before, only professionals had bought and sold shares, but as so many businesses became so successful, many untrained people started to buy them and they were seen as a quick way to easy money. They also put money back into the companies, so they could invest in better technology and more efficient methods of working. It also meant that the money people made on the stock market could be spent on more goods, boosting the economy even further.
In conclusion, there were many factors that contributed to the growth in the economy, but two of the most important were the First World War, and the industries the USA took over. The second was the invention of the motor car, leading to mass production and stimulating the growth of many consumer industries that had made little or no money before. These and other, smaller factors all promoted this huge growth in the American economy.