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Causes of the boom years
Employers were working fewer hours however were being paid more. This therefore meant industrial goods produced were also increasing. American’s had more time for leisure and more money so electrical labour-saving devices were being introduced becoming affordable by many people. Motor cars eased travel to and from work as well as for leisure pursuits. It was the golden age for cinema and sport attracted vast crowds.
Reasons for prosperity: government policies
Calvin Coolidge stated ‘the chief business of the American people is business.’ This was his government policy to let business operate as far as possible, free of regulation. Andrew Mellon and him believed wealth filtered down naturally to all classes and to ensure increased living standards for all was to allow the rich to continue make money to invest in industrial development which therefore meant more job opportunities, more wage earners, more consumption etc. this policy was laissez-faire but the government intervened to support business in 4 ways:
Fordney-McCumber Act 1922 ï raised tariffs to cover difference between domestic and foreign production costs
Cheaper to buy goods from USA than abroad
Tariff level ï foreign goods more expensive than USA even though produced cheaper in USA
Foreign trade reduced = domestic demand for goods high
Government reduced federal taxes – 1924, 1926 and 1928 (benefited wealthy)
Mellon ï handed out tax reductions
Coolidge ï operated on surplus
Aim ï reduced national debt, federal tax cuts = meant little to poor as not able to pay taxes
Federal Trade Commission ï unable and unwilling to operate effectively causing businesses unhindered
Coolidge ï avoided involvement in foreign affairs due to budget cutting an recognition that Americans didn’t want to see troops getting caught up in foreign disputes. This meant that investors would favour profit ever over ethical concerns
Technical advances in industrial production made increases in quantity and variety of products
Motor vehicle industry:
This industry grew dramatically in the 1920s. It was the largest for commodities. Previously cars had only been for the wealthy but Ford wanted the ordinary to be able to afford one
Effects of growth in car ownership:
Ford thought this would strengthen traditional American values but it led to:
Road deaths ï 20,000 per year
By 1929, motor industry employed 7% of all workers and paid them 9% of all wages
Closure of Ford ï factor to recession of 1927
Loss of business by companies providing components to Ford real problems in economy
Breaking of laissez-faire ï federal government expend on road building in 1920s
Federal Highway Act 1921 ï responsibility for road building to central government and highways. Construction = 10,000 miles per year by 1929
Chief Designer in Bureau of Public Roads 1936 ï roads built unfit for use because of amount of traffic
Motor vehicles ï new service industries e.g. garages, petrol stations etc.
Improved transportation = new opportunities for industry
Electrical consumer goods:
New technology = large scale development of labour saving devices as cheaper to produce
Serious over production = problems in economy
New business methods:
Growth of huge corporations
Large corporations manufacturing business = could invest in and exploit raw materials of USA on vast scale
Large corporations could dominate industry by:
Operating cartel (group of companies agreeing to fix output and prices to reduce competition and maximise profits). Although illegal, government accepted which involved exploitation of raw materials, retail outlets etc.
Some organisations were able to adapt to holding companies which resulted in firms competing against each other
Increased size of businesses ï complex to manage = different management roles by different people in administration
Growth of business schools
Management science, occupation for upper class = indication harder to start own company
Advertising and salesmanship: Cinema
Millions of cinema-goers to copy lifestyle of stars meant potential for advertising was enormous
Began with KDKA station which announced results in 1920 elections
Radio’s controlled by 2 companies with a vast audience
Constant need to create demand:
Growth in industrial production needed a continuous market in order to fuel the boom as people needed to be convinced to buy things frequently. An aspect of a campaign needed to be bought in which would differentiate between one’s product and that of the competitors to promote unique selling point. Advertising techniques worked for many consumers.
Massive consumer boom was financed largely by easy credit facilities
1929 ï $7 billion goods were sold on credit – 75% of cars and half of major household appliances
Availability of credit meant borrowers took on debts which they could not repay
Influence in foreign countries:
High tariffs were used to protect US markets however the government also encouraged businessmen to develop extensive interests abroad in terms of raw materials that fuelled technological developments. US exported vast amounts of manufactured products.
In the 1920s with almost full employment, low inflation, high tariffs keeping foreign goods out of USA, benevolent government policies and a consumer boom the prosperity would go on forever.