What Caused The Economic Boom In The 1920's

The economic boom in the 1920's was a period in American history often referred to as the 'Roaring Twenties'. The word 'boom' portrays the rapid increase in the wealth of a country thus showing that America utterly became economically wealthy. This boom also changed the society's attitude to think on a wider perspective and boost their much-needed confidence. The boom was initially caused by three main factors- The World War 1, New Ideas and Industries, and Republican Policies.

The World War 1 in 1914 when the war broke out in Europe, was the most vital long-term cause of America’s Boom. There were two main reasons why the first world war caused a spark in America’s economic Boom. First, the war was fought in Europe which meant that European
factories and farmlands were mostly destroyed. When America joined the war three years later, their industries were not very much affected by the war. This was a big advantage to America because Europe countries’ supplies were running out and they had no choice but to buy the goods from America which was the start of an increase in the prosperity of America’s economy. The second reason was that America acted as the Banker to the World because they were lending out loans to countries in need. In the end of the war the countries owed America billions of dollars plus interest which gave a significant boost to America’s economy and fueled the economic boom. Even though the countries paid America slowly after the war, America started to grow by ‘stealing’ European consumers as they were fighting the war and America used this benefit to attract their customers by selling the arms and chemicals to them which helped America to earn a lot of profit. All of the money gained by America was invested on American industries that grew rapidly, and was also spent to improve people’s standard of living causing a fruitful Boom in the United States.

Talking about investment in new industries, America’s automobile industries had a major impact on the booming economy.
There was a mass production of automobile goods in America during that time that brought the prices down and also helped to create a larger number of well-paid jobs. There was a sale of 23 million cars in America by 1929, which meant that roads had to be created. This caused a knock on effect which meant that new jobs had to be created for building roads, along with roadside diners, gas stations and hotels. All these jobs were well paid and the unemployment rate was at its lowest during the time, showing that America’s economy was growing at a rapid pace. As people were earning high income, they could now afford to buy houses and thus this too created jobs for people to build the homes. This was when there was an introduction of electric power helped new industries to prosper. Moreover, it allowed the new industries to prosper too as it opened a new market for electric appliances in home. Many Americans during this time started investing a lot of money on buying shares which created a bullish market and provided extra finance for industries and also helped businesses to grow. However, all these benefits would have not been possible without Advertising. Advertising helped businesses and industries to attract consumers to buy their goods and services and caused the economy to grow. Advertising was also a tool of motivation for people to work harder so that they can buy more goods. All of these factors were what sparked the Economic Boom in
America.

None of the factors mentioned above would have been possible without a strong government. The Republican policies implemented by the government of United States in the 1920s also played a vital role that helped to improve the economy tremendously and thus aided economic boom. The government adopted the policy of ‘laissez faire’, which means that the government had very little intervention in the running of the economy. They believed that if the businesses are left alone, they will turn out higher profits and this will help create more jobs and higher wages as a result. The government also reduced the taxes which was one of the major reasons for job creation. Reducing the taxes meant that people would have more money to spend on American goods, which increased sales of goods and thus made businesses hire more workers reducing the unemployment rate in America. The American government also introduced the policy of tariffs which raised taxes on foreign imports making them expensive, and thus less appealing than American goods. This helped to protect the domestic industries against foreign competition making them more competitive. Therefore, this policy helped to increase the sales of American goods and helped to fuel the economic boom. However, this caused a retaliation from foreign countries who in turn increased the tariffs on American goods, limiting the significance of raising tariffs. The Republican policies also believed that they should not stop firms to get too bigger or powerful. These big firms would enjoy the benefits of ‘economies of scale’ which would reduce their average costs and thus they would be able to sell the goods at a lower price making it more affordable for Americans to buy them.