The US Economic Boom

Henry Ford laid the foundations for “Welfare Capitalism” and this is a term which is best suited in describing the short – term contributions of the motor industry towards the economic prosperity of the 20’s. Through the introduction of the $5 day, workers were able to be trained and retained – this reduced production costs and became an overall stimulant to increased productivity within the economy. In relation to the the long – term effects of the motor industry, it was the source from where other industries were able to develop e. g. motorway development, electricity and steel.

However, although the motor industry was a important stimulant, other factors, such as the advancements in technology, the “laissez faire” policy adopted by the Republicans and the creation of a creditor nation post WWI also contributed. By 1929 there were 27 million cars in America and this rapid growth of the motor industry resulted in an increase in trade domestically, due to the fact that the internal barriers that were once placed between small town suburbia and the urban areas were virtually non – existent – this increased tourism, generating more money for the economy because it provided a much wider radius for consumers to shop.

This development of the transport network was parallel to the increased construction of roads, servicing industries and the steel, rubber areas – an example being that between 1921 and 1929, the number of roads increased from 387,000 to 662,000 miles. Motor car and the servicing industries further reduced unemployment, providing increasing amounts of jobs which in turn stimulated the economy because more people had more money to invest in consumer goods that before were considered as luxury pastimes.

An example of the effectiveness of the motor industry in stimulating the economy can be witnessed in Ford’s shutdown of factories which caused a mild recession in 1927. Furthermore, one would argue that without the development of the motor industry, consumerism would have been isolated to only a small sector of American society and therefore without the basis of transport, consumerism, technology and ultimately economic prosperity would have been inhibited or restricted to only a certain area.

Although the motor industry stimulated economic development, the rate or extent at which prosperity was achieved was dependent on technological advances both in terms of manufacturing and consumerism. Taylorism provided a set of principles that increased worker efficiency and the use of standardized assembly lines leading to mass production made set tasks faster and cheaper because an unskilled workforce was able to be employed.

Mass Production combined with Taylorism reduced production costs and increased the productivity of industries. Similar to how servicing industries were able to expand from the motor industry, without mass production techniques, the motor industry would have never been able to prosper to the rate which it did and therefore although the motor industry contributed to economic development, it was allowed to, due to the techniques of mass production and Taylorism.

Synonymous to the increased output of consumer goods was the increase in the demand; which grew due to the development of advertising. Products were advertised on billboards and magazines – an example being the ‘good house keeping magazine’. Magazines such as this painted the idyllic image of an American family living the American dream – which all families could aspire to. This optimism was the source of the popularity of consumer credit. Radios were a further medium for advertising.

During the 20s the process of enlargement (by where larger companies merged smaller radio stations to form national networks such as NBC) led to an increase in stock prices – in 1921, RCAs stock price rose by 929%. The growth of advertisement, combined with greater means of distribution (the Sears Roebuck Catalogue) further allowed consumers to buy goods from the comfort of their homes, in particularly farmers who were once isolated from commercial life. The increased quality of adverts provided consumer goods/cars with the exposure that they required to become the 4. million of 1928. The greater efficiency in distribution techniques provided the consumer with easier access to products that before would have been virtually impossible to grasp. This increased morale and feel good factor contributed to the growth of consumer credit (this being essentially a loan from the finance company which the customer could repay back in set installments) an example being that 75% of all radios were brought on hire purchase schemes during the ‘roaring twenties”.

Consumer credit became acceptable and almost a necessity within American culture and this represents the ‘buy now pay later’ attitude which Americans ignorantly held – with consumer credit they were able to buy expensive commodities, however the inability to pay the loans back can be seen as a factor which led to the wall street crash in 1929. the business of America is business” this was the view adopted by the Republican administration and it led to them reducing taxes and imposing tariffs on imported duties during the 20s. Taxes were reduced to the maximum rate of 25%, this compared to the 77% during the war; through this Harding and Coolidge increased the profits that the wealthy had to invest in future development – providing more jobs and therefore reigniting the American economy.

The declaration of the Fordney-MCumber tariff, reinforced the idea of Protectionism and therefore in the short – term could be viewed to have contributed to the prosperity by increasing the amount of goods being made and sold by American businesses. However, in the long – term the introduction of tariffs cannot be seen to have contributed to economic prosperity in the 20s due to the fact that it was parallel to retaliatory measures imposed by European countries – which left the majority of farmers in debt and facing foreclosures by banks.

Personally, although the Rep government attempted to contribute to the economic prosperity of the 20s, realistically, their policies were over rated due to the fact that they coincided with the “good” years in America. The fact that Coolidge won the presidency after the corruption at the heart of the Rep administration, further conveys this blindness of the public during these years. WWI restricted trade between Europe and the global trade markets – America was able to exploit these markets – an example being Asia.

America invested in these global markets and the loans that they offered were reinforced with high interest rates – by 1919, the USAs oversea investment stood at 10billion. An example being the Dawes Plan of 1924 and the huge repayments from Britain and France. These high interest rates, combined with minimal war damage and use of mass production methods, America was able to move from a debtor nation to a creditor nation by 1919.

Although this is not within the 20s, the economic development in the war contributed to the prosperity in the 20s, because it provided the USA with the financial capabilities to offer increased amounts of consumer credit to consumers, it provided the funds for the technology and the methods of mass production and Taylorism were already well embedded throughout the course of the war. The war also saw the enfranchisement of women who were able to increase the size of the workforce after the ratification of the 19th amendment.

Overall, although the motor industry played a vital role in the prosperity of the 20s by laying the basis for development of other industries, the extent to which the industry contributed depended on the technological advances in the form of electricity and mass production. Furthermore, without the popularity of consumer credit and the exposure provided by adverts, the motor industry would have never reached the heights that it did because without credit no one could actually afford to buy cars and without adverts the majority of the populace would not even know about the invention.

Therefore, although the motor industry was a huge factor; it was a combination of factors which in unison provided America with economic prosperity. WWI however, is the main contributor because through the creditor nation established post war, America was able to build towards industry/consumer credit/adverts/mass production and consumer goods due to the fact that it had the funds and the morale of a nation of prosperity.

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