Reasons for the prosperity of the 1920s

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  • Created on: 30-12-15 14:02

Urban Development

Large numbers of black migrants from the southern states 

Black migrants moving into cities meant that the white population moved into suburbia

1920-30, percentage of families:

§  with inside flushing toilets rose from 20% to 51%   

§  with central heating 1% to 42%

§  electric lighting 35% to 68%

Development of consumer production in 1920s meant that standard of living improved (for those who benefited from the boom)

Tension between urban and rural was inevitable 

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Urban Development

Large numbers of black migrants from the southern states 

Black migrants moving into cities meant that the white population moved into suburbia

1920-30, percentage of families:

§  with inside flushing toilets rose from 20% to 51%   

§  with central heating 1% to 42%

§  electric lighting 35% to 68%

Development of consumer production in 1920s meant that standard of living improved (for those who benefited from the boom)

Tension between urban and rural was inevitable 

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Production of consumer goods

85% of homes in cities had accesstoelectricity by 1930

Range of goods became available;

§  Vacuum cleaners, owned by 30% of families

§  Washing machines, owned by 24% of families

§  Refrigerators, owned by 8% of families 

The cost of supplying rural US meant that it would take too long for power companies to make a profit

Prices charged for rural communities that did have electricity were at least twice as much as those in the cities  

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Stimulants to consumption

Advertisement became key in encouraging consumers to buy goods

By 1929, American companies were spending $3 billion a year on advertising – a five-fold increase on the amount spent at the start of the decade

New methods of distribution – Sears Roebuck mail order catalogue began in 1893

Consumer credit began in the motor industry

To buy a car outright with cash it would take the average American five years to save up sufficient funds

Initial payment was put down, then regular payments were made to purchase an item 

Credit became an acceptable way to buy expensive goods

By the end of the decade, 60% of all furniture and 75% of all radios were bought on hire purchase schemes

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Development of entertainment

New areas of entertainment key in the prosperity of the 1920s – provided jobs, stimulated stock market and investment boom and promoted a feel good factor

Most pursuits dependent on technological advancements (radios and cinema)

By the end of 1922 – 556 radios broadcasting across the US to 3 million radio sets

RCA (Radio Corporation America) founded in 1919 – share price rose by 929% between 1925 and 1929 

By 1920 – 20,000 cinemas – the number kept rising until virtually every town in the USA had its own cinema 

1920s and 1930s were the heyday of American cinema – 800 to 1000 films being produced each year

By 1930 – 100 million cinema tickets were being sold every week 

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Reasons for the prosperity of the 1920s

Mass production and scientific management were well embedded by 1917

The 1920s saw a doubling of US industrial output whilst the size of the workforce barley increased

Increase in employment and wages = increase in disposable wealth = increase in demand for goods

Model T was first produced in 1908 10,000 sold in the first year

1925 – Ford was still producing more than 9000carsa day($300each)

In 1918, 8 millioncars on the roads in the US 

By 1929 there were nearly 27 millioncars in the USA

People were able to travelfurther and more easily – the distance between urban and rural US broke down 

Increase in the growth of suburbs as travel became easier

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Coolidge as President

Harding had promised a 'return to normalcy'

Coolidge initially felt that he had to keep Harding’s cabinet out of respect

The country was in an economically sound position 

Production levels continued to rise: 100% in 1913, 122.2% in 1920, 97.9% in 1921 (a brief slump) and 148% in 1925

Coolidge’s Presidency coincided with the economic prosperity of the period and so his reputation remained undamaged 

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Business interests

To support business, both Harding and Coolidge favoured limiting government intervention of business 

Cost of WW1 had increased the National Debt – became government priority to reduce -          debt  

Reduction of federal taxes also seen as priority of the Republicans

 Money should left in the pockets of the people, not take by a wasteful government in Washington 

Feeling that Trade Union power had grown too much during WW1 and restricted good business management and profitability 

‘laissez-faire’ policies were adopted when it came to business and the economy 

Republicans accepted that the government should assist the economy through tariffs and limiting immigration 

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Taxation

Taxes had rise between 1916-18 in order to fund the war 

Andrew Mellon believed that taxes had to be reduced in order to promote economic growth 

If the wealthy retained more of thier income they would use this to create companies which would create new jobs and thus contribute to the economy

Mellon wanted the max. rate of income tax to be 25% - it took three cuts - 1921, 1924 and 1925

Although the level of taxes had been reduced, the government still increased its income due to the prosperity of the period

This showed that by 'getting the government off the back of the people' prosperity would increase 

Level of government income reduced the level of national debt

1921 Budget and Accounting Act – established Bureau of the Budget, the President had to submit to Congress an estimate of federal income and expenditure annually

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Tariffs

There were concerns among the Republicans that higher levels of imports would threaten economic prosperity

1921 Emergency Tariff Act – reintroduced under Harding, it stated there would be taxes on a range of agricultural products in order to protect the prices US farmers would receive

1922 Fordney-McCumber Tariff – extended tariffs to range of industrial goods and food imports

The American Valuation Plan put forward that the tariff would be calculated on the basis of the cost of the item in the US – this would have increased the level of the tariff for most imports

Tariff Commission set up – President also given power to vary the rates by 50%

Underwood-Simmons Tariff of 1913 – average rate of 27%

Fordney-McCumber Tariff of 1922 – average rate of 38%

 Prices rose for American consumers on a range of imported goods

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Government intervention of agriculture

After falling prices in the 1880s and 1890s, WW1 witnessed a huge increase in production

After the war, as European production recovered, world prices began to fall again

Value of farm products more than halved from $10 billion to just over $4 billion between 1919 and 1921

Cotton slumped – 35 cents per pound during the war to 16 cents in 1920

Corn fell from wartime high of $1.50 to $0.52 per bushel

Debt and foreclosures by banks on mortgaged farms became commonplace

Farmers increased production in attempt to deal with these problems – this drove prices down even further

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Government intervention of agriculture (2)

1921 – Grain Futures Trading Act – attempt to prevent the manipulation of the grain market which was believed to be keeping grain prices artificially low

1922 – Capper-Volstead Act – enabled farmers to work together in order to facilitate the production and marketing of agricultural products

1923 – Intermediate Credit Act – established a credit system to channel agricultural loans to farmers on easier terms than were currently available

1924 – McNary-Haugen bill – proposed that the Federal Government should sell surplus           supplies of wheat and corn abroad at the best prices that could be achieved – bill failed to pass Congress in 1924 and 1926

The bill was broadened in 1927 to include cotton and tobacco in an attempt to win over Southern members of Congress – it passed through Congress but was vetoed by Coolidge – he felt it ran contrary to the policy of ‘laissez-faire’

Farmers continued to suffer from falling prices and overproduction      

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