The American Economic Boom of the 1920s: A Decade of Prosperity
The USA in the Early 20th Century
Between 1850 and 1914, approximately 40 million people immigrated to the USA from Europe, seeking a new life, especially young people.
A Land of Opportunities
- American business and industry led the world. As industries grew during the second half of the 19th century, employers needed workers. New businesses were established, which in Europe was primarily limited to the upper class.
- Wages for skilled and factory workers were significantly better than in Europe. A farm worker could even own their own farm, unlike in Europe where they might face unemployment.
A Land of Freedom
Many immigrants had faced persecution in their home countries for political or religious reasons, such as the Russian Jewish population during the Tsarist era with its pogroms. In the USA, they found freedom to practice their religion and live as they desired, with freedom of the press, religion, and speech.
A Land of Immigrants
As a result, the USA became a diverse society with 103 nationalities coexisting by 1920. The USA’s motto, “E Pluribus Unum” (“From Many, One”), symbolized America as a melting pot where immigrants assimilated into American culture. However, newly arrived immigrants often faced suspicion from those already settled, receiving the worst and lowest-paid jobs.
The Economic Boom of the 1920s
What Was the Boom?
The “boom” refers to the dynamic growth of the American economy in the decade following World War I. In the 1920s, American businesses expanded faster than ever before. As production increased and prices decreased, ordinary Americans purchased more household goods than ever before. Many people bought homes in the rapidly expanding American suburbs. With more disposable income, entertainment industries also flourished. Company profits soared, and confidence was high, leading business leaders and ordinary Americans to invest and take risks. The government invested in infrastructure, building more roads and expanding electricity and phone lines. This era also witnessed the rise of skyscrapers.
In Which Ways Did the American Economy Boom?
1. New Industries: Cars, Chemicals, Electricity, and Electrical Goods
- Cars: Mass-produced cars became affordable for most Americans, allowing them to live in the suburbs and work in city centers. This spurred the growth of holiday resorts and industries like steel, rubber, and glass, while also creating employment in the construction industry.
- Chemicals: The American chemical industry led the world in products like fertilizers and dyes. New products like Bakelite (a heat-resistant plastic used in numerous products) and Cellophane (a transparent packaging material) were developed.
- Electricity: By 1929, most city homes had electricity, and nearly 70% of Americans had electric lights.
- Electrical Goods: A wide range of domestic appliances became more affordable, impacting daily life. Women could complete household chores faster, and food waste was reduced thanks to refrigerators.
2. Transport
- Miles of paved roads doubled.
- The number of cars tripled.
- The number of buses increased.
- Aircraft for civil flights emerged.
3. Construction
- Office building construction boomed as banks, insurance companies, advertising agencies, and other industries grew rapidly. New machinery like concrete mixers and power shovels benefited the building industry.
- The era of skyscrapers began.
4. Advertising
- A robust advertising industry emerged to promote the vast array of consumer goods. Radio and poster advertisements, along with traveling salesmen, encouraged consumption.
- New techniques made advertisements more colorful and engaging.
5. Shopping
- Chain stores like Bloomingdale’s opened.
- Women’s clothing began to be mass-produced due to rayon, a cheap substitute for silk.
- Mail-order companies like Sears, Roebuck and Co. experienced enormous growth, allowing people in remote areas to purchase goods and expanding the market.
6. Entertainment
- Newspaper and magazine circulation expanded significantly, with increased coverage of popular culture, sports, fashion, and movie stars.
- Spectator sports like football and boxing grew in popularity, fueled by increased car ownership and disposable income.
- Baseball became a major sport and a big money-maker, with legendary teams like the New York Yankees and Boston Red Sox emerging. Most events were broadcasted on the radio.
7. Cinema
- Hollywood became the film-making capital of the world, and movie-going became a popular leisure activity, offering affordable entertainment and escapism.
- The industry rapidly developed, transitioning from silent films to “talkies” by the end of the 1920s.
Why Was There an Economic Boom in the 1920s?
1. Abundant Natural Resources
The USA possessed vast natural resources (wood, iron, coal, minerals, oil, and land), which fueled its industrial power and provided a foundation for economic expansion in the 1920s. These resources enabled the production of steel, chemicals, glass, and machinery, contributing to the growth of industries and the mass production of affordable goods.
2. New Technology and Consumer Goods
The era witnessed significant innovation, with the development of new plastics like Bakelite used in household products. Technological advancements in areas like concrete mixers and conveyor belts modernized existing industries and fostered new ones. The development of electricity provided a cheaper and more efficient power source for factories and led to a boom in consumer goods like washing machines, vacuum cleaners, and refrigerators.
3. Investment of War Profits
World War I benefited the American economy, allowing it to focus on growth without war-related damage. The USA’s chemical industry became a global leader, surpassing Germany. Advertising techniques developed during the war were applied to mass marketing. The coal, steel, and iron industries, which expanded during the war, were repurposed for peacetime production.
4. Pro-Business Policies
Republican presidents and a predominantly Republican Congress implemented pro-business policies that encouraged the boom. They followed a laissez-faire approach, minimizing government intervention in the economy. President Harding encouraged industrial growth through low taxes on income and company profits, providing wealthy individuals with more capital to invest and ordinary Americans with more disposable income. The Fordney-McCumber Tariff of 1922 made imported goods more expensive, encouraging the consumption of American products and protecting domestic producers. The government also allowed the development of trusts, believing they understood the American economy better than politicians.
5. Mass Production
Mass production techniques, pioneered by Henry Ford in the car industry with the assembly line, enabled the production of goods at a lower cost and on a larger scale. Ford’s first moving production line in 1913 revolutionized manufacturing, and by 1927, the Model T car was being produced at a rate of one every 10 seconds. The assembly line was subsequently adopted by other industries.
6. Expansion of the Car Industry
The car industry became the largest in the USA, directly employing hundreds of thousands of workers and indirectly supporting other industries. Road construction and the oil industry also benefited. Cars enabled people to live in the suburbs, fueling the growth of house construction and the development of holiday resorts.
7. Advertising and Mass Marketing
Companies invested heavily in advertising, employing techniques developed during the war to promote consumer goods. Poster and radio advertisements, along with traveling salesmen, played a significant role. The expansion of mail-order companies provided consumers in rural areas with access to a wider range of goods.
8. Growth of Credit
The availability of credit allowed Americans to purchase goods even without immediate funds. Companies offered installment plans and hire purchase options, enabling consumers to buy on credit and pay over time. This facilitated the sale of a significant portion of products in stock.
9. High Confidence Levels
Confidence among Americans was crucial to the economic boom. Business leaders were confident in investing in new industries and hiring employees. Consumers were confident in purchasing goods on credit, believing in their ability to repay their debts. Ordinary Americans also invested in the stock market, further fueling economic growth.