Reasons For the Economic Boom (AQA GCSE History)

What is an Economic Boom & How did it Impact the USA in the 1920s? - Timeline & Summary

An economic boom is a period of rapid economic growth and prosperity within a country. In the context of the USA, the country experienced a significant economic boom following the First World War.

During the 1920s, the USA experienced significant economic growth. Many factors contributed to this growth. One key factor was the emergence of new industries and technologies, such as cars, radios and consumer appliances. Inventors and businessmen were determined to innovate and invest. 

In the 1920s, there was also a surge in consumer spending and confidence. Workers had more disposable income than ever before due to rising wages and increased access to credit. This allowed more US citizens to purchase goods and services. This consumer-driven demand led to further economic expansion. Businesses had to produce more to meet this demand, increasing their profits.

The Republican government's policies also helped the economy boom. They cut taxes and allowed businesses to operate without government intervention. This promoted business investment and entrepreneurship. 

The economic boom of the 1920s had a profound impact on the USA. It led to a rising standard of living, increased urbanisation and the emergence of a modern consumer culture. The widespread availability of consumer technology transformed daily life for many US citizens. New products and wealth offered an opportunity for leisure and entertainment.

The First World War

• Many US citizens did not want the USA to join the First World War

  • It eventually entered the war in 1917

• The USA did not suffer as much as European countries in the First World War

  • No fighting occurred on US soil

  • The USA suffered fewer casualties

• Before entering the First World War, the USA gave loans to Allied countries

• Woodrow Wilson, the US president, wanted to achieve lasting, global peace after the First World War

  • Wilson was an idealist

  • He played an important role in the Versailles Settlement

  • He created the concept of the League of Nations

Why didn’t the USA want to join the First World War?

• Many people in the USA were isolationists both before and after the First World War. This was because the population:

  • Did not want the USA to get involved in other countries’ conflicts

  • Was concerned that there would be deaths of more US soldiers in conflicts abroad

  • Did not want the US government to pay to maintain world peace

• There was mass emigration from Europe to the USA before 1914 to escape problems in Europe

  • US citizens became concerned about the number of immigrants entering the USA

• The Republican candidate, Warren Harding, campaigned aggressively against Wilson’s ideas

  • The Senate voted twice on the Treaty of Versailles and US membership to the League of Nations between November 1919 and March 1920

  • Wilson failed both times to get the Senate's ratification of the bill 

  • The public elected Harding as president in 1921

    • He won using the campaign slogan “America First”

How did the First World War cause the US economy to boom?

• At the end of the conflict, the USA began to recall the loans to Europe this increased their wealth

  • The UK repaid $7.5 billion to the USA

• The First World War did not destroy US industry or infrastructure

  • European countries needed goods to rebuild their infrastructure

  • The USA began selling goods to these overseas markets

Mass Production

• Mass production is a way of making lots of products quickly. This can involve:

  • Machinery

  • Improving the manufacturing process

• Many US industries embraced mass production in the 1920s

  • One of the key industries to use mass production was the car industry

• The three big car manufacturers in the USA in the 1920s were:

  • Ford

  • Chrysler

  • General Motors

• In 1913, Henry Ford developed the concept of the moving assembly line with the Ford Model T car

  • The car moved through the factory on a conveyor belt

  • Each worker and machine only focused on one task in the car’s production, for example, painting the car

  • The car moved through each of these stages until it was fully assembled

• All Model T’s were the same colour (black) and the same engine size to reduce costs

• In the 1920s, one Model T car was made every ten seconds

How did mass production cause the US economy to boom?

• Other industries adopted the assembly line

  • This made other goods cheaper for US citizens to buy

• The expansion of the car industry led to the growth of other industries

  • Steel, rubber, glass, leather and oil manufacturers supplied parts to the car industry

• By 1929, there were 23 million cars in the USA

  • The mass production of cars led to improvements in the USA’s road network and the development of cities and suburbs

Advertising & Consumer Culture

• Mass production meant that US citizens had a vast choice of products

  • These products were much cheaper than they had been before the First World War

  • Consumers could purchase these products from:

    • Chain-stores

    • Mail-order companies

• Companies could advertise their products through:

  • The radio

  • The cinema

  • Newspapers and magazines

  • Billboards

• Persuasive advertising fuelled a high demand for new technology such as:

  • Refrigerators

  • Vacuum cleaners

  • Washing machine

• As a result, the USA developed a vast consumer culture

  • Demand for products increased by 20% in the 1920s

How did advertising and consumer culture cause the US economy to boom?

• Advertising caused an increase in demand for new products

  • This, in turn, increased mass production and profits for businesses

• The consumer culture created a ‘cycle of prosperity’

 Hire-Purchase Schemes

• Hire-purchase means that a person can purchase goods without having the money needed to buy them outright

  • Consumers could buy a product like a vacuum cleaner on credit

  • Consumers would then pay for the product in monthly instalments over many months

How did Hire-Purchase Schemes cause the US economy to boom?

• Hire-purchase meant that people could buy a lot of products without needing to pay for them on the day of purchase

  • This encouraged people to buy more new goods

  • This, in turn, increased mass production and profits for businesses

Republican Policies

• The Republican Party protected the interests of businesses in the 1920s by:

  • Reducing taxes

    • This meant businesses made more profits

    • The businesses could then invest their profits back into the company. For example, they could build new factories

  • Having a laissez-faire approach to business

    • This is French for ‘allow to do’

    • It meant that the Republican government did not interfere with how businesses were run

• In 1922, Congress passed the Fordney-McCumber Tariff

  • This was a tariff on foreign goods entering the USA

  • However, other countries responded by placing tariffs on US goods coming into their countries

How did republican policies cause the US economy to boom?

• The Republicans’ laissez-faire attitude meant that businesses were unregulated

  • This meant that businesses could make more profits, improving the US economy

• The Fordney-McCumber Tariff made foreign goods more expensive

  • This encouraged US citizens to purchase US goods

  • The tariff protected US jobs and industries from foreign competition

Confidence in the Economy

• Many US citizens believed that the economic boom would last forever

• More workers could purchase shares in companies than ever before

  • Workers brought shares ‘on the margin’

    • This meant that the workers were buying shares with borrowed money. This is because interest rates were low

  • Workers could sell their shares for a profit because the economy was so successful

How did confidence in the economy cause the US economy to Boom?

• Share prices continued to rise, meaning many working-class people made large  profits on the stock market

• Workers could use these profits to either:

  • Pay back the bank where they had borrowed money from

  • Invest in even more shares to make more money

• Both options increased the amount of money circulating in the US economy