Causes of the boom (AQA GCSE History): Revision Notes
Causes of the boom
What was the economic boom?
An economic boom refers to a time when a country experiences low unemployment, high wages, and strong sales. During the 1920s, America experienced exactly this kind of boom, with many people enjoying a much better standard of living than before. This period of prosperity didn't happen by accident - several key factors came together to create these favourable economic conditions.
The 1920s economic boom transformed American society, creating unprecedented prosperity for millions of families who had never before experienced such high living standards.
The First World War (1914-1918)
The First World War played a crucial role in kickstarting America's economic boom, even though the country initially stayed out of the conflict.
When war erupted in 1914, the United States government chose not to get directly involved in the fighting. However, American banks and businesses seized the opportunity to lend money to Britain and its allies, while also selling them essential supplies like food and weapons. This created numerous jobs for American workers and generated significant wealth for the country.
The situation became even more favourable for America when it finally joined the war in 1917. By this time, the conflict had already severely damaged European industries, particularly in Germany. This destruction allowed American businesses to overtake their European competitors and become the world's leading producers of important goods like chemicals, medicines, and dyes.
While Europe's industries were being destroyed by war, America was building its industrial capacity and capturing global markets - giving it a massive head start in the post-war economy.
Consumer society development
By 1920, America had become an industrial powerhouse, producing an impressive share of the world's key resources. The country was responsible for producing 70% of the world's petrol, 40% of its iron, 50% of its timber, and 55% of its cotton. This massive production capacity meant that more raw materials could be turned into consumer goods - items that ordinary people could buy for their homes and daily lives.
One of the most significant changes was the spread of electricity to American homes. In 1916, only 15% of American homes had electricity, but by 1929, this figure had jumped dramatically to 70%. This electrical revolution increased demand for new inventions and appliances such as radios, refrigerators, washing machines, and cars, which in turn created even more manufacturing jobs.
The spread of electricity was a game-changer for American households. It didn't just provide light - it opened up a whole new world of labor-saving devices and entertainment that had never been possible before.
Advertising and hire purchase
As demand for consumer goods grew, businesses needed new ways to reach potential customers and make their products affordable.
Companies began investing heavily in advertising campaigns, placing advertisements in newspapers, on billboards, on the radio, and in cinemas. This was particularly important for people who lived far from shops, as they could now see what products were available through mail-order catalogues.
A revolutionary development was the introduction of hire purchase agreements (essentially early credit systems). These allowed people to buy goods by paying for them in instalments rather than needing the full amount upfront. This system proved incredibly popular - by the 1920s, 60% of cars were being bought using hire purchase agreements, making expensive items accessible to ordinary working families.
How Hire Purchase Changed Everything:
Before hire purchase: A car cost 20 per week, so it would take 20 weeks of saving every penny just to buy a car.
With hire purchase: Families could buy the same car for 15 per month for two years - suddenly affordable for the average worker.
Industry and mass production
American businesses embraced new manufacturing methods that transformed how goods were made and sold.
The most important innovation was the introduction of the assembly line. Instead of one worker making an entire product from start to finish, each stage of production was handled by a different person. This approach made manufacturing much faster and more efficient, allowing companies to produce goods at significantly lower prices.
These improvements in mass production meant that items that had once been luxury goods became affordable for average American families, further increasing demand and creating a positive cycle of economic growth.
Henry Ford's assembly line didn't just change car manufacturing - it revolutionised how almost everything was made. What once took hours could now be completed in minutes, dramatically reducing costs for consumers.
Republican government policies
The Republican Party, which controlled the government during most of the 1920s, implemented policies that actively supported business growth.
Republicans believed strongly in laissez-faire economics, which meant keeping government interference in business to a minimum. They avoided regulating the stock market and allowed businesses to operate with few restrictions, which contributed to the stock market boom of the decade.
The Republican philosophy also embraced "rugged individualism" - the idea that people should look after their own needs and help others through private efforts rather than relying on government support. However, the government did take action to help American businesses compete internationally.
The 1922 Fordney-McCumber Tariff Act imposed high taxes on a wide variety of imported goods, making foreign products more expensive and therefore less competitive compared to American-made alternatives. This policy helped protect and boost domestic industries.
The Republican approach was "hands-off" domestically but "hands-on" when it came to protecting American businesses from foreign competition through high tariffs.
The cycle of prosperity
The boom created a self-reinforcing cycle that kept the economy growing. Mass production led to cheaper goods, which meant people had more money left over after buying essentials (more disposable income). This extra spending power meant consumer goods became more affordable and in greater demand.
Higher demand for products meant companies needed more workers, leading to increased employment and rising wages. More people in work with higher wages meant even more customers for businesses. Advertising helped drive this cycle by creating even more demand for products, which led to further job creation and wage increases.
The Prosperity Cycle in Action:
- Mass production → cheaper goods
- Cheaper goods → more disposable income for families
- More disposable income → higher demand for products
- Higher demand → companies need more workers
- More jobs → higher wages and more customers
- More customers → cycle repeats with even greater prosperity
This cycle meant that low unemployment, high wages, and strong sales all reinforced each other, creating sustained economic growth and widespread prosperity.
Timeline of key events
- 1914: First World War begins; America stays neutral but lends money and sells supplies to allies
- 1916: Only 15% of American homes have electricity
- 1917: United States joins the First World War
- 1920: America produces 70% of world's petrol, 40% of iron, 50% of timber, 55% of cotton
- 1922: Fordney-McCumber Tariff Act introduces high taxes on imported goods
- 1929: 70% of American homes now have electricity
Key Points to Remember:
- The First World War allowed America to become the world's leading industrial producer while European competitors were damaged by conflict
- Mass production techniques, especially the assembly line, made consumer goods cheaper and more widely available
- Hire purchase agreements meant ordinary families could afford expensive items like cars by paying in instalments
- Republican laissez-faire policies and protective tariffs helped American businesses thrive with minimal government interference
- The boom created a cycle of prosperity where increased production led to more jobs, higher wages, and greater consumer spending, which in turn drove further economic growth