America in the 1920s experienced unparalleled economic prosperity and was undergoing radical economic and social change. This is a very simplistic way of viewing this time period. Most see the 1920s as a boom followed by bust, the bust being the Wall Street Crash in 1929 and the depression that followed. But as I mentioned this a very simplified way to look at it, there was much more going on with America’s economy throughout the 1920s than a simple boom, but how real was this prosperity, was it real wealth or was it more of a perception of wealth?
Many factors helped America appear to boom in the 1920s, one such factor was the industrial strength of the country; America had a large amount of natural resources including oil, coal and iron. It also had good cattle ranching and agriculture. This meant that America was able to harvest a large amount of natural resources which helped the domestic production of goods and created a quantity of goods to trade with foreign nations, all this helped to boost America’s economy.
Agricultural business as a whole was large and well financed. Technical advances in agriculture and mass production led to a great increase in production, cereal production was once such area where there was a dramatic increase. The land they worked on was also an extremely profitable asset, as some farmers grew rich by selling their land to housing and industrial development. However the increased production in agriculture would also prove to be its downfall. Overproduction of cereal meant there was far too much of it. As there was too much grain there was no longer as much demand for it so the prices fell.
Tariffs set on American produce by other countries meant that it could not be sold abroad as other countries wouldn’t buy it. This caused over 66% of farms to be producing at a loss. Over-production of the land led to some areas becoming unusable deserts. As a result of all these factors millions left for the cities and for the first time more Americans were living in the cities than were living in the countryside. This shows that there was not a lot of wealth to be made in the agricultural business in the 1920s, most farmers struggled to get by and whilst it seemed at the time many were moving to the city because people were becoming wealthier it was a perception of wealth as many farmers were driven out of the countryside.
World War One actually helped American Industry. America only sent troops to fight in Europe in 1917 so American Industry was not affected by the war anywhere near as much as Britain and France, this helped America pull ahead of them to become the world’s leading exporter. American industry was also able to profit by selling war goods to Britain and France. By the end of the war in 1918 Britain owed the U.S. ï¿½900 million. But this also meant that Britain and France could not afford American food exports so when America started to overproduce grain this caused a big problem, especially when you consider the tariffs the British and French governments placed on imported American goods.
The tariffs helped the American economy in the short term as many more people bought American manufactured goods but it hurt the economy in the long term. It was not a perception of wealth, businesses were making more money, but the wealth earned was undone when businesses started to overproduce and could not sell off their surplus stock abroad. This was perhaps created by a perception of wealth, as businesses started to manufacture their products so that the majority of the population could purchase them when in reality less than half of the population could afford them, leaving them with awful amounts of surplus stock that they could not sell. This was most true in the consumer goods market, as it appeared more and more of the American population could afford these electrical appliances the supply rose with the apparent demand, but not only could most not afford them many did not even have electricity to power them.
The 1920s saw a dramatic change in American Industry. The Ford motor company is one such example of this. Henry Ford came up with the Model T Ford, what was to become the most famous car of the 1920s. It was quite a slow and ugly car but the way it was produced was revolutionary. Mass production made the car very cheap and extremely quick to make. The Car Industry in America was the biggest in the world worth 23 million cars on the road. Supply always managed to exceed demand so anyone who wanted a car was able to get one. Growth in the car industry helped to stimulate growth in other industries as well. There was growth in industries in the areas of road building, garages, motels cars showrooms and of course oil. Workers at the Ford factory were generally well paid for the time and so were doing quite well for themselves; however the Ford Factory was closed for a significant period of time to gear the factory up for the Model A Fords which would replace the Model T. This caused 60,000 workers to lose their jobs.
The Republican fiscal policies can also be said to have helped significantly to leading America into a boom. If you were a President in the 1920s you were a Republican. The three Presidents who worked in the oval office in the 1920s were Warren G Harding, Calvin Coolidge and Herbert Hoover, all of whom were Republicans. The Republicans typically are fiscally conservative, this means they employ a laissez faire policy with the economy of minimal interference and letting the banks regulate themselves and letting the economy run its course. They believed if the did not interfere in people’s lives then they would be free to make money. Although this would later lead to the Wall Street Crash in 1929 it did help to stimulate the economy and create a boom during the 1920s. They also placed tariffs on foreign goods. These tariffs meant that imported goods were given higher tax, making the domestic, American made products cheaper and reducing the competition for American businesses.
Another typically Republican policy enacted in the 1920s was lower taxes, they believed that the Government should not take away loads of the people’s money and then spend it on welfare, but rather that the people knew how to spend their money best so allow people to have more of their own money and allow them to spend it, this would help the economy grow. Neither of the political parties in America, the Republicans and the Democrats have particularly high public spending rates compared to the UK, as Americans generally see high public spending on anything such a welfare as too socialist, but out of the two political parties the Republicans are the party of low taxes and low public spending compared to the Democrats. Trusts flourished under the Republican presidencies, large companies were allowed to control whole industries, such as Carnegie controlling the steel industry, as it was believed this would lead to them becoming more efficient and successful.
However by 1929 20% of the nation’s wealth and 40% of wealth generated by business activities was possessed by 200 corporations. Cartel companies were generated to fix prices and holding companies were set up by the massive corporations to dictate input and output price levels. These statistics show better than any other points I have written how much the wealth in America was just a perception. 20% of the nation’s wealth was in just 200 companies, as well as 40% of wealth generated by business. If this much of the wealth generated by business goes to just 200 companies it is not surprising to learn that smaller businesses were struggling. Big business has always seemed to strive from Republican policies in the 20th century and the 1920s are no exception. Whilst these policies seemed at the time to be helping the general population to become wealthier they were actually just helping the rich get richer. The result of these policies are a major sign that the wealth in the 1920s was not real, and that it was just a perception of wealth because the countries figureheads to foreign nations, massive corporations were becoming extremely wealthy whilst the average man on the street was no better off.
The Foreign Policy of the United Sates helped the economy as well, Coolidge left out troops from foreign disputes, and he preferred to use a policy of diplomacy and conciliation. This lenient foreign policy allowed the US to invest in countries such as Japan, (although this would come back to haunt them as lack of investment in China and Japanese presence in China would lead them to becoming Communist.) Whilst this saved many men’s lives it also saved lots of money. But foreign relations were being damaged by the tariffs placed on imported goods, intended to help eliminate competition for American business it was damaging businesses in foreign countries who were hoping to be able to sell a large volume of their produce in America. To counteract this, foreign governments started to place high tariffs on imported American goods. This meant that in the areas in which America was suffering over production, the consumer goods industry and agriculture, they could not export their surplus produce, this forced prices down, most notably in grain hurting the industries. The wealth in the agricultural industry was growing, it was just unfortunate for the farmers that tariffs place on their goods would mean when they started to overproduce they could not sell their surplus and they would be driven out of the countryside.
A combination of growing strength in America’s industry and lower taxes allowing the people to have more money increased confidence in the people of the monetary situation in the country. This confidence led them to spending more which in turn helped the economy to grow even faster. American’s became confident enough to start borrowing money to buy goods. Companies increasingly offered “hire purchase” where consumers could “buy” the product but pay later, you could hire a car over a long period of time and once you have paid enough money the car was yours. But the introduction of credit caused many people to spend way beyond their means to keep up with the craze of buying new and exciting consumer goods. $7 billion worth of goods was bought on credit during the time period, this lead to a staggering amount of debt and repossessions. This is perhaps one of the main factors that created the perception that average Americans were getting wealthier, as many were going out and buying increasingly lavish consumer goods, when the reality was that most of them were not better off, they were just able to purchase things with money they didn’t have, leading to the inevitable recession and the end of the 1920s.
Old industries started to face increasing competition from new growing industries, the coal industry started to face serious competition from the petrol industry. This was great in helping business’ to become more efficient and helped to spread the wealth around. But the wealth was not being spread around enough and 75% of people lived in unsatisfactory conditions. 32% of the wealth went to the top 5% of people and only 10% of the wealth went to the poorest 42%. Women and ethnic minorities had lower incomes on average and the Industrial North East and the North West had higher incomes. The farmers were losing out due to tariffs and were being evicted and fluctuating demand in goods caused severe instability in job security. Nearly half of all Americans were too poor to talk part in the consumer goods boom. The distribution of wealth at the time is another clear indication that the wealth was more apparent than real. The economy was growing but only the top 5% of the people were benefitting from the effects whilst the bottom 10% was suffering worse than ever.
In conclusion, many big businesses’ thrived throughout the 1920s; the laissez faire policies of the Republican Presidents helped them to grow significantly. However a growth in big business did not help the ordinary Americans. Wealth was far from evenly distributed and the poorest 42% of the people only received 10% of the nation’s wealth. The countries wealth as whole was growing but this only created the illusion that the whole of the country was getting richer, the poor stayed poor. Only the face of America that was shown to the rest of the world, huge corporations, benefitted from the “boom” in the 1920s. Many small businesses and farmers suffered once they started to over produce, as tariffs placed on foreign goods by the American government created a response of tariffs being put on goods the American’s exported, meaning they could not sell their surplus grain and the prices were driven down. The consumer goods boom was only a boom for the richer half of the population, as over half the country could not afford to partake in it, and those who did bought products on credit and ended up in debt. The prosperity of the USA in the 1920s was more apparent than real.