Why did the American economy grow considerably in the 1920s - Assignment Example

After its reluctant participation in the First World War, America was once more ready to concentrate on internal affairs, principally business and money matters. This led to a massive increase in industrial production, prosperity and improvement in living conditions all over the nation, and in the 1920s America’s wealth rose to unprecedented levels. So why was there an economic boom in the 1920s? It was due to a combination of factors which had been present over a long period of time, and ones which acted as a trigger for the boom. I will discuss and explain these in my essay.

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The fact that American industry had been thriving for over half a century meant that an economic boom was feasible in the near future. By the 1920s, America led the world in most areas of industry, including steel, coal and textiles, and it was the leading oil producer. This success was due to America being rich in natural resources and having the ability to utilise them efficiently. America had plenty of coal, oil and iron and also farming land, so there was no need to import materials, and because of America’s large and rising population there was no need to export goods either – the home market was already large and growing. This all meant that America was self-reliant and it controlled its own economy.

America’s industrial strength meant that there was an opportunity for new manufacturing techniques to be developed. Compared to Russia in the 1920s, a country of similar size and resources, America was extremely advanced and capable. The managers of these industries were also competent and skilled, negotiating deals with Europe, Latin America and the Far East, and so selling more and more products across the world. The combination of advanced industry and professional workforce meant that American industry was highly efficient and improving all the time. This was significant in the long-term by providing a good situation for an economic boost.

Americans had always believed that the nation should keep apart from the disputes of other countries. So when the First World War broke out in 1914, America left the fighting to Europe and continued to focus on business matters instead of exhausting resources, finance and manpower in conflict. As a result, the war situation actually brought many benefits to the US economy – the opposite effect to the European countries – mainly by stimulating industrial production. For instance, the sudden demand for weapons and ammunition encouraged the steel industry and created jobs in manufacturing, and a profit was still made after the goods were sold to the Allies.

As a second result of the war, America’s newer industries were given time to expand while the European powers were preoccupied with fighting. Before the war, Germany was the world’s leading chemicals manufacturer but the war interrupted its progress. By the end of the war, America had overtaken other countries and it now supplied chemical products that had previously come from Germany, therefore industry had grown and was stronger.

The First World War made American industry stronger and provided a good situation for industrial expansion, laying the foundations for a boom in economy.

The fact that the Republican Party was in power since 1920 certainly enhanced America’s prosperity by prompting industrial growth. Republicans believed in ‘laissez-faire’ which was their policy of non-interference in the everyday lives of the people. They predicted that the economy would grow faster if businessmen were left to manage things their own way and it did indeed cause industrial expansion because it made it easier for these industries to spread and become successful.

This idea of not interfering was also reflected in another Republican view – isolationism. By staying out of European affairs and refusing to trade with other countries, American companies grew quicker and the country became entirely self-reliant, meaning that America had power over its own economy. The introduction of import tariffs reinforced this; by making it very expensive to bring foreign goods into the country American businesses were protected against foreign competition and left to grow more rapidly.

The Republicans lowered taxes as much as possible with the idea that the money would be recycled back into industry. This worked to alter the state of mind of the people – with lower taxes, the people had more money to spend on consumer goods made by American industry and stimulate more production. Very wealthy people would also have more money to invest into industry, therefore both the economy and industry would be stimulated.

The Republican policies made it easy for industry and the economy to grow, so acted as a trigger for development in these.

In the 1920s, many new industries and methods of production were introduced meaning that America was now able to exploit its vast resources to a greater extent. Materials such as glass, steel, chemicals and machinery were now produced relatively easily. This was an important boost for industry because it meant that popular consumer goods such as telephones, radios, vacuum cleaners and washing machines could be efficiently produced and in larger numbers, making them cheaper for the public to buy. The lower prices resulted in more demand and sales for these items, which in turn stimulated more industrial production and put money into the economy. The latest and most effective methods were used, as suggested by the ‘Industrial Efficiency Movement’.

To increase sales, the big industries used modern and sophisticated advertising techniques. Posters, radio advertisements and travelling salesmen inspired Americans to spend. New ‘buy now, pay later’ schemes were introduced so people were buying even if they did not have the money. As a result, the economy benefited and industry was encouraged.

The new motor industry was the biggest industry and it made the most impact on the economy. In the past, cars were rare and expensive because skilled craftsmen made them and they took a long time. But with the development of new production methods, such as the moving car production line, it was made quick and easy to manufacture cars. The mass-production of cars made it the biggest single industry, employing the most workers, which all added to the prosperity of Americans.

The fact that cars were in demand meant that other industries were stimulated. Glass, steel and petrol were all needed for the cars and the production for these went up. Similarly, cars needed roads to drive on and led to more roads being built around the country. The new available transport meant that people were able to live further and further away from the cities and this resulted in more homes being built in the suburbs, so the construction industries were stimulated. The motor industry boosted most other industries, adding to the overall industrial strength of America and so acted as a trigger for industrial expansion and growth in the economy.

During the 1920s, the attitudes of Americans towards money changed drastically. Previously the common approach was to be very sparing with money, and saving was seen as being a good quality. But in the 1920s, due to the increase of prosperity, this opinion was replaced with a belief that spending money was a better idea. People began thinking that they had a claim to ‘prosperity’ and the right to own a nice house, good job and the latest consumer goods, and so people began buying more and more. The increasing demand stimulated industrial production, and it was this attitude which spurred industry and enabled growth in the economy.

It can be seen that the economic boom in the 1920s was caused by a combination of factors. America’s industrial strength combined with the circumstances of the First World War provided a good situation for a growth in economy to occur, and it was the short-term factors such as the Republican policies, new industries and state of mind, which really gave rise to the boom. However, it was America’s industrial strength combined with the policies of the Republican Party which was the most significant cause of the boom; no economical boost could have occurred without a productive industry. The Republican policies consequently made new industries grow, made the country self-reliant and altered the public attitude and this was the main reason for the considerable growth in the American economy in the 1920s.