Economic Boom of the 1920s:
This article provides reasons for the Economic Boom and the causes of the Economic bust - the 1920's example of the Boom and Bust Cycle.

Economic Boom 1920s
The economic policy of the United States was highly influenced by the policies of the Mellon Plan when the Secretary of the Treasury, Andrew Mellon, introduced policies which reduced taxes on the wealthy and the businesses in America that encouraged growth and led to the economic boom and the rise in stock market investments.

Economic Boom 1920s Facts for kids: Fast Fact Sheet
Fast, fun facts and Frequently Asked Questions (FAQ's) about the Economic Boom in America during the 1920s.

What is a Boom? A boom is a time of financial prosperity, stock growth and rapid progress. A Boom is often followed by a Bust indicated by a fall in production and an increase in unemployment.

What caused the Economic Boom of the 1920s?
The causes of the Economic Boom of the 1920s were the Republican government’s policies of Isolationism and Protectionism, the Mellon Plan, the Assembly line and the mass production of consumer goods such as the Ford Model T Automobile and luxury labor saving devices and access to easy credit on installment plans.

Facts about Economic Boom of the 1920's
The following fact sheet contains interesting facts and information on Economic Boom of the 1920's.

What is a Boom? Definition: A boom is a time of financial prosperity, stock growth and rapid progress. A Boom is often followed by a Bust indicated by a fall in production and an increase in unemployment.

Following WW1, America experienced a massive economic boom bringing an increased demand for American goods (Consumerism) and rapid industrial growth. Before World War One, America was in debt to Europe. After WW1 the situation was reversed and the former Allies owed America more than $10 billion for the cost of armaments and food supplies.

After an initial recession in 1919, middle class Americans moved to a period of  prosperity. Between 1921 - 1924 the nation’s gross national product (GNP) jumped 40% from $69 billion to $93 billion and wages rose by an average of 22% per person.

During World War One (1914 - 1918) manufacturing techniques, efficiency and production increased through necessity in order to meet the urgent demands of the war effort.

The new advances in manufacturing techniques and technology were transferred from focusing of the needs of the military to the production of consumer goods.

The advances in technology led to the age of steel and electricity. Industries switched from coal to electricity and many homes, especially in the industrialized cities, were powered by electricity.

Access to electricity provided Americans with the power required to run new labor-saving luxury, devices such as radios, phonographs, electric razors and irons, refrigerators, washing machines and vacuum cleaners. Refer to Inventions in the 1920's and Industrial Revolution Inventions

The factory system and the efficiencies of the Assembly Line were introduced by entrepreneurs and industrialists such as Henry Ford.

Mass Production techniques, such as the introduction of the Assembly Line, enabled massive quantities of products to be produced quickly, cheaply and efficiently by automated, mechanical processes and reduced consumer costs.

The Ford Model T automobiles, mass-produced on moving assembly lines, increased production and reduced costs and by 1924 a new Ford Model T could be purchased for just $260.

Many ordinary Americans, who were once "prudent and thrifty",  were able to purchase cars and other luxury goods on easy consumer credit, paying some money down at first, followed by 1 -5 years of monthly payments. The new philosophy of the economic boom was "Live now, Pay later". Refer to Buying by Margin and The Long Bull Market

The rapid development of the automobile industry had a positive effect on other industries due to the need for more rubber to make tires, more glass for windscreens, more paints and an increased requirement for leather for car seats. The rise of the car industry revolutionized transportation in America and the construction industry also boomed to meet the requirement for new roads, petrol stations and motels.

Advances in Technology led to a boom in the chemicals and movie industries. Refer to Hollywood in the 1920s

In the movie industry the studios made epic films such as Ben-Hur (1925) which alone grossed $5,500,000. By 1929 over 25,000 cinemas had opened and an average of 100 million Americans went to the movies on a weekly basis. Audiences of this vast size ignited the imagination of manufacturers and merchants with products to sell. The movies became one of the most important advertising mediums of the 1920's.

The movie stars contributed to the economic boom in other ways. The Movie stars were idolized and their fans were eager to follow the new fashions that were advertised via newspapers and magazines.  The 1920's saw the emergence of the youth culture and the age of the Flappers. Young women were influenced, and wanted to imitate, the glamorous clothes, fashion and styles of movie stars. Refer to 1920's Fashion for Women

The movie industry led to a massive boom in clothing and other items such as cosmetics, hair dye, mouthwash, deodorants and perfumes. All of these  added to the ever-growing list of new consumer products manufactured in America.

Mass advertising: Mass advertising promoted a massive range of new products in the consumer society of America and led to the general acceptance of buying by on credit as a way to finance consumption. 70% of radios sold in the 1920's were purchased through credit plans.

The Radio Industry: Annual sales of radio equipment sky-rocketed from $12.2 million in 1921 to $842.5 million in 1929. The latest Jazz music and other types of popular music of the Jazz Age was played on the radio, leading to the booming sales of gramophones and records. By the end of the 1920s there were over 100 million radios in use in America - all selling advertising time.

The Radio Industry made a massive contribution to the rise in Advertising, which became big business in the late 1920's and fueled Consumerism in America. In the 1928 election campaign radio networks sold more than $1 million in advertising time to the Democratic and Republican Parties.

The development of new products and new industries resulted in more jobs. The profits made by the businesses also resulted in higher wages. For example, between 1922 and 1928, the average income on tax returns of those earning more than $100,000 increased by 15%, and the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 - $100,000 increased 84%, whilst the number reporting income of less than $10,000 fell.

The economic boom in the United States was enhanced by the abundant supply of core goods such as coal and oil.

The Republican backed Mellon Plan resulted in the Revenue Act of 1924 that cut federal tax rates. In 1920 the majority of tax payers paid 4% federal income tax and wealthy Americans paid 73% income tax. By 1928 the majority of tax payers were paying ½% income tax and rich Americans had their income tax reduced to 73%

The Mellon Plan also cut government spending and significantly reduced the WW1 government debt. Between 1921 and 1929 the Republican Mellon Plan reduced the nation's debt by $7 billion. Andrew Mellon was called "the greatest Secretary of the Treasury since Alexander Hamilton."

Isolationism: The Republican governments of the 1920's also adopted the policy of Isolationism which avoided foreign entanglements and limited foreign competition by imposing high import tariffs (taxes).

The 1922 Fordney-McCumber Act saw the introduction of the highest tariffs in American history, this policy was called Protectionism

The Republican Presidents adopted a 'laissez-faire' (free market) policy which allowed big businesses to expand without being held back by the government.

The Easy credit of the 1920's saw a massive increase in consumer indebtedness, together with an equally dramatic decline in savings. 75% of the  population spent most of their yearly income to purchase goods including food, clothes, radios, and automobiles. Consumer Credit outstanding in 1929 totaled over $3 Billion. And ordinary Americans had started to gamble on the Stock Market, believing it was a 'safe bet'.

The excess of the 1920's and the confidence inspired by the Economic Boom ended abruptly with the 1929 Wall Street Crash. Share prices began to fall and $30 billion was lost in just 2 days.

The Total Consumer Goods purchased on Credit in 1929 was $7 Billion.

The Stock Market crash led to the ruin of many Americans and was followed by the Great Depression. The Great Depression witnessed the end of the Economic Boom in the 1920's and the 'Bust' of the 1930's