The rise and fall of the American economy, 1910-29
The United States of America had an essential supply of natural resources such as timber, iron, coal, minerals, oil and land. This enabled America to become a huge economic power at the beginning of the twentieth century. These resources were an important foundation for the economy.
In order to help American people to purchase the new goods that were available, systems of hire-purchase and credit [Hire-purchase and credit : A way of borrowing money. The ability to get the goods and pay back over a period of time. ] were introduced. This meant that a person could buy something by paying for it on a monthly basis. As a result, the majority of Americans could afford expensive goods. In order to encourage Americans to take advantage of the scheme, advertisments [Adverts: Use of posters etc to inform people about the new goods. ] were placed on roadsides, on the radio, in newspapers and in cinemas.
During the same period, chain stores appeared for the first time, eg J P Penney. Catalogue shopping also became fashionable as it was a convenient way of buying goods.
Electricity developed slowly before the war but during the 1920s the electricity industry experienced a huge boom [Boom: A period of prosperity in the economy. The economy was doing well and many people benefited. ]. By 1929 the majority of houses in America had electricity and 70 per cent of them used it for lighting purposes. As a result of the development of factories to produce consumer goods for the American people, the demand for electricity doubled. Electrical power was introduced in factories to drive machinery, and thus it became possible to introduce mass-production [Mass-production: Method of producing goods on a large scale and quickly. ] to a number of factories, eg refrigerators, washing machines, vacuum cleaners and radio sets.
The car industry is the best example of mass-production during the period. Henry Ford was a pioneer with his idea of producing affordable cars for the people of America. He set about realising his dream by producing his early cars in small workshops. He had groups of men working for him and gradually the cars were built.
Henry Ford’s hard work bore fruit. As he produced more and more cars, he could reduce his prices. By 1925 the price of a car was around $290, which was much cheaper than the price of $850 in 1908. Henry Ford was of the opinion that it was better to sell more cars for a small profit, as that meant employing more workers.
By 1929 Americans owned 23 million cars. The workers earnt good wages ($5 per day), thousands of jobs were created, roads were built, petrol stations were built, as were hotels and restaurants. Therefore the entire economy was given a substantial boost due to the car industry.
The United States was led by three Republican Presidents during the 1920s, namely Warren Harding, Calvin Coolidge and Herbert Hoover.
The policy of these Republican Presidents was that government should leave the economy alone – they adopted a laissez-faire [Laissez-Faire - Free Market: Freedom for the economy. ] (free market) policy. This meant that big businesses were free to expand without being held back by the government.
His promise was a
"return to normality". He reduced taxes to give businesses more money to grow and to put more money in the pockets of ordinary Americans. In 1922, he introduced the Fordney-McCumber Tariff Act [Fordney-McCumber Tariff Act: Taxes were imposed on goods from abroad in order to encourage people to buy American goods. ] which imposed a tax on goods from foreign countries. This made foreign goods more expensive than domestic goods, and so this encouraged Americans to buy American goods only. The name for this policy was protectionism.
"Business is America's business," said Calvin Coolidge. He stuck to the same policy as Harding. Although he didn’t do much (his nickname was 'Silent Cal'), Americans believed he was a good President because of the strength of the economy. He had a huge respect for businessmen and adhered to the laissez-faire policy. He gave businessmen the freedom to make a profit and become rich. Even the Wall Street Journal praised this policy:
"No government ever before, either here nor in any other country, has succeeded in uniting so thoroughly with the business world."
He became President in 1929 following his promise to
"put a chicken in every cooking pot, and a car in every garage". Hoover believed in laissez-faire, but also in rugged individualism [Rugged individualism: Freedom to succeed, namely that people should be responsible for themselves. ]. This meant that people should not depend on the government for help - they should solve their own problems by working harder. Hoover lost the next Presidential election in 1932 because of this viewpoint - it was too severe.
|President||Term||Main statements and key terms|
The Republican presidents (PDF file 301 kb)
The industrial growth of the USA doubled in the 1920s. The biggest increase was in new industries such as chemicals, electrical goods and cars. The introduction of electricity in the home triggered a huge expansion in the household electrical goods industry. In 1919, 60,000 radio sets had been sold, but in 1929 10 million were sold. There was a similar growth in sales of telephone equipment, from 10 million in 1915 to 20 million in 1930.
America's building industry was busier than it had ever been during the 1920s. This was partly due to the demand for new factories and new office buidlings for banking, insurance and advertising companies. This was the age of the skyscraper – companies wanted to demonstrate their power and importance by building the tallest and grandest offices.
It was Ford's idea to build a car an electrical assembly line [Assembly line: The goods moving towards the worker in the factory. ]. The car would move slowly along the line with each worker only doing one specific task. In this way, it would be possible to build a Ford Model T car in an hour and a half instead of 13.5 hours. By the mid 1920s, 7,500 cars were being produced daily - one car every 10 seconds!
The car changed America in every way. It led to the construction of new roads and suburbs. People's way of life was changing in a big way. The development of the car industry sparked a growth in other industries, eg cars used 90 per cent of America's petrol, as well as 80 per cent of the country's rubber and 75 per cent of its glass.
At the end of this unit, it is important that you can:
Farmers were producing too many crops and couldn’t sell them. So prices fell and farmers had to borrow money from the banks to be able to survive. More and more of them got into debt until they eventually had to sell their farms and leave. Many left to go wandering around America looking for any kind of work – these wanderers were called hobos [Hoboes: Workers who travelled around the country looking for work. ].
Go to the the Erroluys website and make notes of all the factual information you can find there about hobos.
By 1928 half of all USA farmers were living in poverty. Since prices were so low, 600,000 farmers lost their farms in 1924 alone.
Black people suffered economically, especially in the southern states, where segregation [Segregation: Laws separating black and white people in public places in society. ] was in effect. The ancestors of the black people in the south had been slaves. The majority worked on small farms owned by white landlords. The black people were labourers or sharecroppers [Sharecroppers: Black farmers who had to pay for the land by giving a proportion of their produce to the owner. ] and they lived in immense poverty.
The segregation that was happening in the southern states (Alabama, Louisiana and Mississippi) made the situation of black people even worse. White and black people lived separately – they had different education, transport and housing facilities. They were not allowed to use the same toilets and water wells. Anyone who tried to improve the rights of African Americans were challenged and threatened by the Ku Klux Klan. As a result, thousands of black people moved to northern cities like New York, Detroit and Chicago to look for work, but when they got there they had to live in ghettoes.
Many immigrants had not been educated and were willing to work in any kind of job for very low wages. Because of this, they endured more and more prejudice.
The traditional industries failed to respond to the new mass-production methods of the 1920s, unlike the Ford company that was making a good profit and could pay impressive wages. Also, following a reduction in the powers of Labor Unions [Trade Unions: Workers joining a union to protect their working rights. ] (Trade Unions), the workers were not in a position to be able to claim better wages and working conditions in the old industries.
Not everyone was rich in America during the 1920s. Can you name five groups of people who were not rich?
|People who felt the benefits of the boom||People who didn't benefit from the boom|
|Owners of consumer goods factories||Farmers|
|Assembly line workers||Sharecroppers|
|White people in the cities||Black people|
|Speculators on the stock market||People in rural areas|
|Early immigrants||Coal miners|
|Middle class women||Textile workers|
A number of financial experts warned that the American economy was slowing down and in September 1929 some investors started selling shares [Shares: Financial stakes in a company or business. ] in large numbers. Many people started feeling nervous and investors went into panic and rushed to sell their shares. On 24 October, now referred to as Black Thursday [Black Thursday: It was called a 'black' day to show how bad the effect of selling shares that day was. ], 12.8 million shares were sold. Thousands of people saw their fortune, or any money they had in the bank, disappear. On 29 October 1929, 16 million shares were sold at very low prices. The Stock Market [The Stock Market: A centre where shares are bought and sold. ] New York in had collapsed.
The Roaring Twenties came to a sudden end. Investors lost their money in the Crash and could not pay their debts. Many banks closed, ordinary people lost their savings and people lost all hope for the future. People could no longer buy consumer goods like cars and clothes. As a result, workers were made redundant, other workers' wages was cut and unemployment rose to very high levels. This was the start of The Great Depression [Great Depression: A downturn in the economy for a lengthy period. This usually means the value of goods and their prices falling, unemployment, less investment, lack of credit and bankruptcies. The Wall Street Crash led to a global depression. ] of the 1930s.
Boom and bust (PDF file 193 kb)