Why there was an economic boom in the 1920s

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The USA had a great store of natural resources such as wood, iron, coal, minerals, oil and land. These had helped America to become a great industrial power by the beginning of the twentieth century, and provided a sound basis for further expansion in the 1920s

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Technological Change

This was a period of great innovation. Plastics like bakelite were developed effectively for the first time and were used in new household products. There were technological developments in many areas - automatic switchboards, glass tubing, conveyor belts, and concrete mixers. These helped modernise existing industries and develop new ones. Underpinning all these changes was the development of electricity. Electricity provided a cheaper, more efficient source of power for factories. It also led to the production of new consumer goods such as refrigerators, vacuum cleaners and radios.

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Mass Production

New techniques meant that goods could be produced much more cheaply on a large scale. Henry Ford had pioneered mass-production in the car industry by introducing an assembly line before the war. He made cars so cheaply that thousands of ordinary Americans could afford them. In the 1920s, his ideas were applied throughout industry, particularly to the new consumer products.

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Impact of First World War

The USA had come out of the war well. It had supplied Europe with many goods during the war and had taken the European overseas markets. In some areas, US industry was now the world leader, e.g. chemicals. The war hastened technological change which US industry seized on.

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Mass Marketing

Mass-produced goods have to be sold to a Mass-Market: if enough people do not know about or buy goods, the system would collapse. So companies spent huge amounts on advertising. This new industry developed sophisticated techniques to persuade people to buy. The expansion of the mail-order companies gave consumers in the countryside access to the wide range of goods on offer. 

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The growth of credit made it much easier for people to buy goods even though they did not have enough cash to pay for them on the spot. Firms arranged for customers to pay by instalment or hire purchase. 

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Confidence amongst Americans was sky high. This meant confidence to buy goods, invest in companies, and to try out new ideas. Confidence is a vital ingredient in any economic boom. 

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The policies of the Republican Presidents

Republican pro-business policies encouraged the boom:

  • They lowered taxes on icome and company porfits, giving the wealthy more money to invest in American industry and buildings, and people more money to spend on American goods
  • They put TARIFFS on imported goods. This made imports more expensive compared with American-made goods and thereby helped American producers 
  • They didn't interfere in business or put any controls on financial instituitions
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