However some people weren’t:
* The unemployed.
The farmers were not happy because they were the second cause of depression. This was because new machinery meant farms produced more food in the 1920s than ever before. This combined with a slight drop in the population lead to a surplus of food. This caused food prices to drop and lower incomes for farmers. The simple response was for farmers to maintain their income by growing even more food. In effect this caused food prices to drop even further as did their incomes. Farmers then borrowed the money, which they were unable to pay back and as a result many of them were evicted. By 1929 millions of farmers and farm workers were out of work and hungry.
America could not solve these problems by selling her surplus food and goods to other countries because; in 1923 the government had put tariffs, or custom duties, on foreign goods coming into America. The government did this to help American industry. Tariffs made foreign goods more expensive, so people naturally brought American goods. The disadvantage was that other countries did exactly the same; they put tariffs on foreign goods coming into their countries. This would not matter as long as Americans could consume everything made in America. In 1929 there was a huge surpluse of goods and America couldn’t consume that much, and it could not be sold abroad.
There were five main reasons why America was prosperous in the 1920s and these were:
1. Industrial Strength
2. The First World War
3. Republican Policies
4. New industries
5. A state of mind
The USA is a vast country, rich in natural resources, with a growing population. It didn’t need to import many raw materials and it didn’t need to export all its goods. The home market was large and was growing.
The First World War
America had two enormous advantages as a result of the First World War:
* They sold large amounts of arms, ammunition and food stuffs to their allies
* They were able to capture many of the European markets from those countries involved in the War whose industries were producing Wartime goods.
The republicans introduced two measures designed to protect and encourage America industries.
* Import duties these made it expensive to import foreign goods into America. These tariffs protected businesses against foreign competition and allowed American companies to grow more rapidly.
* The republicans kept taxation as low as possible. This brought some benefits to ordinary working people but it brought even more to the very wealthy. The Republican thinking was that if people kept their own money, they would spend it on American goods, which would stimulate the economy. Similarly, very wealthy people would re-invest their money in industries.
New industries, new methods
During the 1920s new industries and new methods of production developed in America. Mass production methods based on the production line allied to new methods of advertising and new systems of credit formed the basis of an enormous boom in consumer goods e.g. telephones, washing machines, vacuums etc. The most important of these new industries was the car industry. In 1929 48 million cars were made.
By the end of the 1920s the motor industry was Americas biggest industry. The “knock on” effect was to increase the market for many other industries e.g. glass, leather, steel, rubber, petrol, hotels, holiday resorts and hot dog stands!
A state of mind
Up to the 1920s thrift (being careful with money and saving for a rainy day) had been seen as a good quality. In the 1920 this was replaced by spending money. Spending money was a better quality. Many Americans came to believe that they had a right to prosperity, which is i.e. to fulfil the American dream and if it meant borrowing money then so be it.
As spending was now a good quality Hire purchase credit was introduced.
Credit HP systems “buy now, pay later.” How HP works is you pay a deposit and over a matter of months you pay the rest off. The item you have brought does not become yours until you have paid it all off. If at one point you don’t pay an instalment they will take it back off you and you would not get anything back.