REASONS FOR THE ECONOMIC BOOM

REASONS FOR THE ECONOMIC BOOM

1. republican policies

   • Laissez Faire-- Means 'leave alone'. Republicans believed that if the government didn't interfere with people's lives and businesses then they would be free to make money
   • Tariffs-- Taxes placed on imported foreign goods to make them more expensive, which forced Americans to buy American goods. American companies increased their sales
   • Low Taxes-- so people had more money to spend on American goods, therefore helping the economy grow.
   • Encouraged to build the development of large trusts-- Big companies which dominated a market eg. Rockefeller-oil. Big businesses boomed under the republican policies

2. Ford and the motor industry

   • In order to make his cars more quickly and cheaply, Henry Ford needed a new method of production; The moving assembly line. An electric conveyer would bring the parts to the workers (who always stood in the same place) who would be responsible for one area.
   • By 1925, 500000 people worked in the motor industry
   • First used in detroit.
   • A car was produced in one-tenth of the time previously taken. (From 14hrs to 93 minutes)
   • Model T Ford- 15 million made between 1908-1925.
   • 1928, Model T cost $295, three months wages for the average worker.
   • By 1925, 500000 people worked in the motor industry and by 1929, 4 million people's jobs were linked to it.
   • Car production used up 20% of America's steel, 80% of her rubber, 75% of her plate glass and 65% of her leather
   • By the end of the 1920s, American cars used seven billion gallons of petrol a year. This helped to create jobs in the oil industry and made the oil state of Texas rich.
   • Jobs were available in road building, hotels, garages, roadside restaurants ect.

3. Consumer goods - mass production

   • 1916 only 15% of Americans had electricity - 70% had it by 1927
   • This encouraged Americans to buy newly invented gadgets - fridges, vacuum cleaners, telephones ect.
   • Huge demand for these goods create jobs in the factories that created them. These newly employed people had more money so they could buy new consumer goods.
     • THE CYCLE OF PROSPERITY

4. Advertising

   • New methods were created to sell these consumer goods - Advertising
   • These adverts were placed on billboards and put into newspapers and magazines
   • Mail order catalogues were sent out for those who didn't live near big stores while cinema and radio played adverts too
   • Famous slogan - 'Keeping up with the Joneses'. 1927 - companies spent $1.5 billion on advertising

5. Hire Purchase

   • Americans felt so confident that in the 1920s they started to borrow money to buy goods. Companies increasingly offered 'Hire Purchase' - being able to pay for good by instalments.
   • You did not have enough money to buy a product outright - you only had to pay a little bit each week or month - poorer people could now buy products. This increased sales massively. More demand meant more goods, which then meant more jobs.
   • 8/10 radios and 6/10 cars were bought on hire purchase/

6. Stock market and share purchase

   • Many people bought shares in companies as investments - they would get a dividend (share of the profits) each year.
   • Increased demand meant the share price went up - a 'bull' market.
   • People thought the value of shares would continue to increase. They even borrowed money from banks to buy shares - buying shares 'on the margin'. They used their houses to guarantee the loan and sold to buy shares soon after purchase to make a profit and pay back the loan. People now had more money to spend on American products.
   • Banks were lending more money than they actually had, confident loans would be paid back before customers wanted to withdraw their savings. Banks were also buying shares to make money.
   • Share prices increased during the 1920s on average by 300 percent. 1920 - 4 million Americans owned shares, 1929 - 20 million. Companies got money from shares to invest and expand their business.