Background strengths of the US economy
Natural advantages
The 1920s was a period of economic growth and was known as the Roaring Twenties. After World War One, American society was transformed from a largely rural to a modern, city-based society with technological changes, increased travel, and business growth.
Large, growing urban population
The population of the USA in 1920 had risen to around 106 million, which was 15 per cent higher than in 1910. For the first time, the majority of the population were living in towns and cities. The move to a city lifestyle meant that there were huge changes to many aspects of Americans’ lives, including their work, leisure and even diet.
Natural resources
The USA possessed lots of natural resources. Demand for some of these natural resources was boosted by the increasing use of electricity. In the 1920s about 63 per cent of the US population had access to electricity. This meant that huge amounts of coal, gas and oil were needed to power the generating plants. Industrial giants such as John D Rockefeller - the boss of Standard Oil - and Andrew Mellon - who had invested in electricity - increased their fortunes in this period.
Key industries
Motor industry
World War One had encouraged many technological developments that had helped key industries to advance at the start of the 1920s. There was no industry that was more significant to America’s growth than the motor car. Henry Ford’s had introduced and revolutionised industrial output, starting with the car industry. As a result of the increased output, by 1929 a car could be produced every ten seconds.
The purchase price of Ford’s Model T car dropped to as little as $300 by the end of the 1920s. Cars became affordable to a growing urban middle class. By 1930, around 60 per cent of US families owned a car.
The car industry was important because:
- It led to the expansion of cities and the development of suburbs.
- It resulted in a vast national network of roads. During the 1920s, about $1 billion per year was spent on highways.
- It encouraged the construction industry. Petrol stations were built, as were hotels and restaurants.
- It helped other industries to grow rapidly - for example, petrol, rubber and glass.
Mass production of consumer goods
The impact of the and mass-production techniques could also be seen in industries. With a growing urban population and increasing usage of electricity, there was a demand for items once seen as luxuries, including telephones, radios, vacuum cleaners, washing machines and refrigerators.
Manufacturing and exportation
With the growth of mass production and an increase in workplace efficiency, manufacturing rose by 40 per cent in the 1920s. Distribution of goods improved. By 1926, there were around 10,000 Ford dealerships in the USA. There were also other huge chain stores, such as FW Woolworth and Sears, growing across the country.
The biggest companies expanded overseas, with Ford and General Motors building factories abroad. Some food companies expanded into The USA even exported around 25,000 Ford tractors to the in the 1920s. American investors loaned money to European nations to help improve their businesses too. By the end of the 1920s, manufactured goods accounted for 61 per cent of all US exports.
Stable prices and increasing spending power
While manufacturing was increasing, the economy was boosted by the general prosperity of the 1920s. Overall wages increased, although there were variations across the country. Employers like Henry Ford realised that higher wages improved productivity. He introduced a salary of $5 per day, which was much more than the average for factory workers at that time. Other companies copied his approach and increased their pay. While average wages rose, mass production meant that prices remained fairly stable throughout the 1920s. This meant that people were able to purchase more goods.
Despite increasing wages, it was the availability of cheap and mass marketing that helped to sustain the consumer boom in this period. New schemes allowed people to ‘buy now, pay later’. Many people used credit to buy cars, furniture and By 1929, almost 75 per cent of cars were purchased on credit. Advertising encouraged people to pursue a life of luxury, with celebrities advertising a wide range of items from soap to clothing. Many advertisers grew incredibly wealthy - for example, Albert Lasker earned enough money to purchase the Chicago Cubs baseball team.
Wall Street and the financial sector
The growing prosperity of the 1920s was reflected in the which was based on Wall Street and had risen throughout the 1920s. People with disposable income rushed to earn money from trading in because profits rose steadily throughout the 1920s. Owning shares was a status symbol at this time.
In 1925 the stock market was worth around $27 billion but by 1929 this had grown to about $87 billion. Almost 20 million people were investing in shares by 1929. This investment was also backed by credit, with many shareholders able to buy ‘on the margin’. Some people were able to borrow 75 per cent of the cost of their shares on credit. The boom of the 1920s was reflected in the stock market, where confidence remained high and share prices rose consistently.
