America’s Economic Transformation: From Post-War Boom to Depression
The Roaring Twenties: America’s Economic Boom and Bust
1. Consequences of World War I for the U.S.
The United States was exceptionally well-positioned after the First World War. During the conflict, the sale of food, weapons, and industrial products to the Allies allowed the country to accumulate half of the world’s gold reserves, and the dollar became a strong bargaining chip. Moreover, human losses were significantly lower compared to other belligerent nations.
By the end of the war, the United States had emerged as the greatest power in the world economy. Its agricultural and industrial production was remarkably high, representing 44.8% of global output. This opened up more competitive international markets for American products, which began to invade markets worldwide, previously dominated by European industries. Additionally, many European countries were indebted to the United States as a result of war loans.
In stark contrast to the expanding North American economy, impoverished European countries, with their agricultural and industrial production in retreat, struggled to face war loans and the depreciation of their currencies.
2. American Prosperity: The Decade of Mass Consumption
U.S. economic growth continued for ten years following the end of the war, a period known as the decade of prosperity and the consolidation of an American way of life based on mass consumption. The United States of America became a haven for millions of immigrants from around the world.
The expansion of the United States, marked by increased consumption and stock market growth, was fundamentally based on a profound transformation in the production of goods, dominated by technical innovation. Furthermore, Taylorism and Fordism significantly helped to increase productivity and reduce costs. The rise in workers’ wages, aggressive advertising campaigns, the widespread use of hire-purchase (installment plans), and accessible bank loans paved the way for this new era of consumption.
This prosperity was vividly reflected in a significant boom in the stock market. Business success fueled an increased demand for shares, whose value rose steadily. This euphoria generated a large stock market bubble—an increase in share prices driven by heightened demand rather than a genuine increase in industrial profits. Investors were not buying shares for long-term dividends but rather to sell them within a few days for quick gains. The investor frenzy was so intense that many buyers even took out loans to purchase stocks.
3. The Crisis of Overproduction
However, this prosperity did not benefit everyone equally, and several elements foreshadowed the impending crisis. Farmers were among the first to suffer. During the war, they had indebted themselves to acquire new land and machinery, further increasing production, which they sold to belligerent countries.
After the war, exports decreased, and the American domestic market could not absorb all the production. Given the increased supply, stocks accumulated, prices fell rapidly, and farmers could not repay their loans. This led to ruin for thousands of people who lost their land, machinery, and homes. Many migrated to the cities, where the lack of work often led to marginalization.
A similar phenomenon occurred in industry. Production grew faster than the market demand, and factories produced more than they could sell. The accumulation of unsold goods brought down prices, leading many companies to go bankrupt and close their doors. Unemployment spread, and as the population had less purchasing power, overall consumption declined. The “Roaring Twenties” were rapidly coming to an end.