What caused the stock market boom of the 1920's?

Answer 1

1. Explain the main causes of the economic boom in 1920.

The economic boom in 1920 was caused by many different factors, such as; World War One, Republican policies, new methods in industries and many more. It was a time of luxury, money and fun.

The USA was very rich in Natural Resources, such as oil, people and land. It was a large country, with many immigrants coming in - most with a very good work ethic and lots of new things were made because there were lots of people to fill the job vacancies. The immigrants believed America was a 'land of opportunity' and that you could go there with nothing and through hard work you could become rich.

During the First World War, America sold weapons, food and supplies to the European soldiers. The USA had no competition from any other countries, and so made quite a lot of money during the war, which definitely boosted their economy. This also strengthened their friendship with Britain because they were seen to be helping them out in their hour of need - in the war. This friendship was strengthened so much that in the end America fought with the Triple Entente at the end of the war.

During the economic boom, many companies put new manufacturing techniques in place. For example Mr Henry Ford wanted to increase the amount of cars he made, and to introduce mass production of cars. He improved the efficiency of his workers, by rearranging their work flow (time and motion studies), and introduced a new method of construction of his cars. In a shed in Detroit, the car would move along a conveyor belt, and each worker would do the same job all day to the car, (e.g. put on a wheel) and at the end of the conveyor belt the car would be finished. The most famous model of car was the Model T and in 1927 they came off the production line at a rate of one every ten seconds. In 1929 4.8 million cars were made.

Advertising was also a key contributor to the success of cars such as the Ford Model T because it encouraged consumers for the first time to buy because they had seen a picture of it, and because it had persuaded them to buy it. Advertisements appeared on public transport routes, the radio, and in places where Americans would spend their leisure time. The posters were often made up of brightly coloured pictures and very often contained the phrase 'labour saving device".

Consumers could also buy these products even if they didn't have the money - or couldn't leave the house. Introduction of 'hire purchase' (credit) where people could pay for things in instalments after leaving a deposit. This method was used throughout America to pay for the new products such as radios, cars, telephones, and many more. Also if they couldn't leave the house for some reason, home order was very popular too. This meant that they could order something from a catalogue instead of going to the shops. From this, companies would get more money and this boosted the economy even more.

In addition to this, the government had introduced republican policies. Republicans believed that the government should interfere as little as possible in the everyday lives of people. This attitude is called 'Laissez Faire'. In their view, the job of the president was to leave the business man alone, and to let him do what he wants to do. They kept taxation as low as possible, and did not tax wages or profit of the business. The government thought that if the consumer's money was not spend on tax then it would be spend on consumer goods, which would help the economy. The government also protected American industry by placing tariffs on foreign goods coming into the USA. This approach called protectionism made a foreign product more expensive than the same American product.

Furthermore, thousands of people bought stocks and shares in US business. The American Stock Exchange enjoyed a sustainable bull market (a rise in all prices). Between 1921 and 1929, share prices rose 500%. As far as the market was concerned the only way was up.

One of the things that runs through all the factors of the start of the economic boom is an attitude or state of mind. Most Americans believed they had a right to prosperity. Consuming was becoming more and more of the American dream to have material possessions. In earlier decades thrift (saving money for a rainy day) was seen as a good quality. In the 1920's this was replaced by a belief that spending money was a better quality.

In conclusion the economic boom was a combination of many things. In my opinion the key contributor was

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The First World War created the perfect opportunity for America's businesses to maximise their profits as they supplied the Allies with food and munitions, they also took over markets that had previously been under Britain and Germany's control. Therefore, the War meant that America changed from a debtor nation to being the world's main creditor. New technology and production methods also helped to expand businesses. The introduction of the assembly line in 1913, sped up manufacturing and dramatically cut its costs, giving American industrialists the chance to make large profits. However, it was mostly the Republican Government that helped America's economy to prosper. While fully believing in the lassez-faire approach, they also introduced new policies and acts that benefited business and industry. The introduction of lower taxes meant that businesses could use their profits to invest in future development but more importantly, it also gave the middle and upper classes the spending power to buy everything they wanted cheaply. At the same time, the creation of protectionism meant that imported goods were made too expensive therefore more Americans were choosing to buy from home.

Answer 2

The economy boomed well because:

1. America had a great stock of natural resources to work with which they found out they had after World War One.

2. America took over many of the overseas markets because Europe were recovering from their losses in the First World War.

3. The development of technology led to many new and exciting products for example fridges, radios and vacuum cleaners. Many of these were laborsaving devices. Industries were modernised and became more efficient with new machines.

4. New manufacturing techniques such as mass production meant that products could be made cheaply and efficiently.

5. Advertising was introduced on a large scale. This persuaded the American citizens to buy goods and many industries became very rich.

6. Credit made it easier for the middle-classes to buy expensive things. Credit is when you can pay for something in manageable installments.

7. Confidence in the Stock Market grew considerably. People believed that the boom would never stop so it became self-generating. It became fashionable to spend money.

8. The Republican Presidents of the USA held the policy that they wouldn't interfere with business and wouldn't take any control of financial institutions also lowered taxes on the companies' income, giving the wealthy more money to invest in businesses. This meant that businesses did extremely well.

9. After World War One the Americans decided to change their attitude. Instead of having the attitude of saving money they decided to change it to 'Live the dream'. This meant they would now live their dream and spend all their money

I'm learning about it in school now, and we were taught that cars had a big part to play in the boom. The boom included the mass production of cars, invented by Henry Ford, which enabled people to travel further and work at jobs further away. Also trucks allowed factories to transport goods around.

Always link back to something called the Cycle Of Prosperity.

It goes like this.

Spending ->Companies get more profit -> Companies use profit to expand in business -> Jobs available -> Confidence in spending money since they have got a flow of income... and then back to the top.

Answer 3

There were many causes of the boom, here are some of them:

Laissez faire- A policy that the American government made to not interfere with companies or economy, they also lowered taxes but raised taxes on stuff from abroad.

Prohibition- A lot of gangsters made money from selling alcohol illegally during the prohibition.

New technology- Electrical appliances like vacuum cleaners were being developed so it opened a new place in the market.

Mass production- Henry Ford invented the assembly line. This led to cars being made quickly and cheaply.

Resources- America was rich with resources like: Steel, glass, petrol and e.t.c. This saved a lot of money because it didn't need to be imported.

Answer 4

The stock market boomed because the U.S. inflated their money to go along with Britain after WW1. People thought they had more money than they actually did. People invested money into the stock market that wasn't really there and then when they had to pay back the money they had borrrowed off "on margin" buying they ran out of money