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Why did the American Economy Boom in the 1920’s

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  • Pages: 5
  • Word count: 1075
  • Category: Economics

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In the 1920’s America experienced an economic boom. This is a rapid increase in the wealth of a country, which meant that America became richer by a significant amount. The root of the economic boom was the cycle of prosperity, which can be set of when there is an increase in demand for goods produced by a country. This meant that America had to increase production of products and for this they would need to employ more workers. This decreases the number of unemployed people and means that people have more money to spend and this created more wealth for America.

This essay will investigate the long-term and short-term causes of the boom. The first part of this essay will discuss the long-term causes of the boom, which created, and environment in which the boom could take place. The first of these long-term causes was that America had a ‘natural advantage’. There were two points to America’s natural advantage, which were raw materials and regional diversity. America had a number of raw materials, which included oil coal and iron. America took advantage of these raw materials to build up its industries.

The materials were also exported to other countries, which were not so fortunate as to have these raw materials. Regional diversity meant that America sold goods to other regions of the country. For this to be possible a country has to have a very large population and America had exactly this. This kick-started the economy in America making it possible to export goods later and companies produced as many goods as possible with all of them being sold as the demand was growing. The second long term cause of the American boom was ‘The American Dream’.

America had a plentiful supply of labour during this time because the believed in the American dream. The American dream was that you could arrive in America barefoot and penniless and become a millionaire. In reality this was not at all true. The fact was that these immigrants just provided a very cheap source of labour for many businessmen and factory owners. Although the dream did not come true for the majority of people the government carried on promoting it as it strengthened there workforce which also helped the economic growth. Propaganda was used to promote the American dream.

One poster said on it “You are ‘BOSS’ of your future” (“USA a Divided Nation” by Neil De Marco). This told immigrants that if they worked hard they could become successful. The final and most important long-term cause of the American boom was the First World War. This was the spark, which started the economic boom in America. It occurred in 1914 when the war first broke out in Europe. There were two major reasons why the First World War set off the economic boom. Firstly, the war was fought in Europe meaning that European farmland and factories were destroyed or used for the war effort.

America also only joined the war in 1917, which meant that her industries were not affected very much by the war. This meant that the European countries did not have very many goods left so they had no choice but to purchase their goods from America, which really set off the cycle of prosperity. The second reason for the war setting off the economic boom was that the war was not fought in America and America did not join the war until late on so the were able to loan money to allies during the war and to Germany after the war through the Dawes Plan of 1924.

The loans were paid back with interest after the war and they made America even wealthier. A lot of the money was spent on American industries, which led to more economic growth and contributed to the boom. The following paragraph will talk about the short-term cause of the economic boom, which were not so major but were needed to help the boom along. The first of these short-term causes was the republican policies. Firstly there was the ‘Laissez-Faire’ policy(French for leave it alone). As a result of this policy the government made very little interference in the economy and in American business.

This meant that the government expenditure was low which directly affected the taxes and kept them low as well. Low taxes also meant that people had more money and could buy more products, which increased the demand, even more. The second economic policy was the use of tariffs. This meant that when businesses imported goods into America a tax was put on them which meant in America the competition from abroad was very low. The second short term cause of the economic boom was new industries in America.

America’s love affair with the automobile deepened as mass production brought prices down and created huge numbers of well paid jobs. By 1929 Americans owned 23 million cars. This had a positive knock on affect meaning that roads needed to be built, together with gas stations, hotels and roadside diners. This also created a large number of well-paid jobs. The introduction of electrical power allowed new industries to flourish as well opening a new market for electrical appliances in the home. Stocks and shares were also a short-term cause of the economic boom in America.

Many Americans invested a lot of money in stocks and shares and this provided extra finance for industry and meant that businesses could expand and prosper even further. Advertising was one of the more important short term causes of the American boom as without a lot of advertising not as many goods would have been sold and then the economy would not have grown so much. Advertising was used to convince Americans to go out and buy certain products and make people feel dissatisfied if they did not own the product. People worked harder to get more money so they could buy more goods.

In conclusion to this essay the most important cause of the American boom was World War One because this allowed America to first start getting stronger by loaning high amounts of money to other countries who could actually be bothered to fight in the war. However without Americas natural advantage the boom could never have been possible. The American dream was also important because people wanted to work hard to try to become rich. I think that all of the long-term causes were the most important causes of the economic boom America experienced in the 1920’s.

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