Economy and Industry in the 1920s
In the 1920s, the United States had one of the most powerful economies in the world. The people of the U.S. took a lot of pride in their flourishing economy and contributed to some major economic changes. The economy during this time period greatly fluctuated which majorly benefited and devastated many citizens. At the start of the 1920s the economy experienced massive growth making the nation a world power, then came to an intense climax in 1929, but horrifically crashed after the stock market disaster.
In the 1920s the United States faced an economic boom like no other (Smiley). This decade long boom was an incredible time in U.S. with many industrial and economic advancements. Throughout this whole period, the overall economy grew approximately 42% (Amadeo). First of all, the Gross National Product, or value of goods, had an incredible growth rate of 4.2 percent every year from 1920 to 1929, this is considered jaw-dropping even today (Smiley). Secondly, another aid that assisted in building the economy was certain presidential policies. With President Calvin Coolidge’s Laissez-Faire economic policy, the gross national product rose 12.1 billion dollars, from 86.1 billion in 1923 to 98.2 billion in 1928 (O’Neal 58). With that change in value, prices of goods began to fall and more citizens were able to buy goods at affordable prices. For the average buyer, prices dropped by almost 11.2% from 1920 to 1921 and then 6.6% from 1921 to 1922 (Smiley). From that point on, changes in the American economy and industry would be setting world records.
There were many innovations and products that lead to America’s success in the 1920s. The assembly line is one of the most important innovations from this period. Although it was an old idea, it wasn’t used much until Henry Ford introduced it into the factory setting, letting the whole world realize its effectiveness. Also, the use of electricity in manufacturing let workers use advanced equipment, work at night, and have more effective motors (Smiley). These methods fed into many other important industries. Rubber, for example, was a very important industry as it was needed to make everything from the famous Model T car to soles in shoes. Then, as an effect of the rubber industry’s massive size, it ruled almost half of the stock market (Marcovitz 59). Another large and growing industry was the car industry. One of the biggest corporations, the Chrysler Corporation, sold almost 200,000 cars every year up to 1927 (Marcovitz 59). Also Henry Ford’s Model T price dropped from $850 to $300 in 1926 because of his effective assembly line (Yancey 1). Many citizens were now able to afford this car and as a result of that, Ford’s Model T made up 40% of cars bought in America (“Model T”). Not only the car and rubber industry helped the U.S. economy reach its full potential in the 20s, but many others too paved the path to helping the economy grow.
As the economy continued to blossom throughout the 1920s, the United States was producing almost half of the world’s output (Amadeo). With export levels so high, American companies were thriving and many Americans wanted to contribute to the growing companies and economy by investing their money into stocks (O’Neal 58). With a strong and stable economy, people began taking great risks in business and the stock market (Smiley). The number of shares traded per day rose to 5 million (Amadeo) and in 1921, due to this boost in the economy, approximately 173 million stocks were shared in total (O’Neal 58). Many inexperienced stock buyers were purchasing stocks and the stock market was growing at an exponential rate. Because of this, the stock market increased by 20% in value each year (Amadeo). The number of stock shares being sold everyday continued to rise and by 1929 americans bought about 1.1 billion shares in the stock market (O’Neal 59). Many people were able to buy and trade stocks because of their growing incomes and grew with the economy. The average income for the average worker rose from $6,460 per year to $8,910 per year in this decade (Amadeo). With so many Americans working, unemployment reached a low of only 4.6% (Smiley) and later in 1926 only 1.9% of people were without a job (O’Neal 58). The stock market and U.S. economy thrived and continued to grow into far into 1929.
There were many signs of the economic crash but it took many by surprise due to conflicting news reports (Norton 1). Credit was an invention of the 20s and everyone became an investor and had easy access to credit. This is just one weakness that aided the cause of the Great Depression (Amadeo 1). Another cause of the crash was the fact that banks held fake reserves. For example, banks would count checks as real money before they were approved (Amadeo). The government got eventually got concerned with what was happening in the