2_Factors behind the Boom

1. Industrial Strength

  • Natural resources & population: The USA was vast, rich in resources, and had a growing population (123 million by 1923), mostly urban, working in industry and commerce with higher wages than farming.

  • Domestic market: New town dwellers created a strong internal market; most US companies did not need to export to thrive.

Leading industries:

  • Steel, coal, textiles – world leaders by WWI.

  • Oil – USA was the top producer.

  • Technology – motor cars, telephones, electric lighting. Electricity and electrical goods were key to the boom.

  • Chemicals – fast-growing sector.

  • Film industry – already world-leading.

→ Skilled management: Industry managers became more professional, selling both domestically and internationally (Europe, Latin America, Far East).

→ Agriculture: Highly efficient and productive, contributing to overall economic confidence.

Summary: By 1914, American industry and agriculture were strong and growing, forming a solid foundation for the 1920s boom.

2. The First World War

Economic boost during the war:

  • The USA tried to stay out of WWI but lent money to the Allies and sold arms, munitions, and food to Britain and France.

  • This one-way trade strongly boosted American industry.

Expansion of global trade:

  • While European powers were fighting, the USA took over much of Europe’s overseas trade.

  • American exports to areas controlled by European empires increased significantly.

Growth of new industries:

  • Germany’s chemical industry collapsed during the war, allowing the USA to overtake Germany in chemical production.

  • Explosives manufacture led to new industries and by-products, including plastics and new materials.

  • Aircraft technology improved during the war and was later adapted for civilian use.

  • From almost no civilian airlines in 1918, by 1930 US airlines were flying 162,000 flights per year.

Second Industrial Revolution:

  • Historians describe this period of rapid growth and change as the USA’s second industrial revolution.

  • The war helped, rather than slowed, this industrial transformation.

Limited impact of US involvement:

  • The USA joined the war late, so its resources were not drained like Europe’s.

  • A short post-war downturn occurred, but by 1922 the economy was growing rapidly again.

US-System of Government (Background Knowledge)

1. The Federal System

  • Individual states control internal affairs (e.g. education).

  • Federal government in Washington D.C. deals with national issues (e.g. foreign policy).

2. The Constitution

  • The Constitution sets out how the government works and limits its powers.

3. The President

  • The president is the most powerful political figure and is elected every four years.

  • Power is limited by Congress and the Supreme Court, acting as checks and balances.

4. Congress

  • Made up of the Senate and House of Representatives.

  • Passes laws and controls taxation and government spending.

5. Supreme Court

  • Composed of highly experienced judges.

  • Can declare laws unconstitutional, protecting citizens’ rights.

6. Political Parties

  • Two main parties: Republicans and Democrats.

  • In the 1920s–30s:

    • Republicans were stronger in the industrial north and favored limited government intervention.

    • Democrats were stronger in the south and were more willing to intervene in everyday life.

3. Republican Policies

A key factor behind the 1920s boom was Republican government policy. From 1920–1932, all US presidents were Republican, and the party also controlled Congress, allowing their ideas to shape the economy.

1. Laissez-faire

  • Republicans believed the government should interfere as little as possible in people’s lives and business.

  • This policy is known as laissez-faire.

  • They believed prosperity came from leaving business leaders alone to create wealth.

  • Linked to ‘rugged individualism’: admiration for self-reliant Americans solving their own problems without government help.

2. Protective Tariffs

  • Republicans supported import tariffs, which made foreign goods more expensive.

  • Example: Fordney–McCumber Tariff (1922) increased the price of imported food and goods.

  • Tariffs protected American businesses from foreign competition, helping US industries grow faster.

3. Low Taxation

  • Taxes were kept as low as possible.

  • Ordinary workers benefited, but the wealthy benefited most.

  • Republican belief:

    • People would spend more if they kept their money.

    • Wealthy individuals would reinvest profits into American industry, stimulating growth.

4. Powerful Trusts

  • Trusts were huge corporations that dominated industries.

  • Democrats (under Wilson) had tried to limit trusts, fearing men like Carnegie (steel) and Rockefeller (oil) had too much power.

  • Republicans allowed trusts to operate freely, believing ‘captains of industry’ knew better than politicians how to run the economy.

Summary: Republican policies of laissez-faire, tariffs, low taxes, and support for big business encouraged rapid economic growth, helping drive the 1920s boom.