The beginning of 1920 was not looking good. During WW1 the government had spent three times more than income taxes were netting. In an attempt to balance the budget, they scaled back on spending which engineered a severe depression. However, this state did not last long as the U.S. had some large factors in its favor. Their late arrival to the war and the fact that cities and industries were not destroyed during the conflict meant, that at the end of the war it was able to capitalize on the perilous state of European industry and dominate their markets.
abstention by governments from interfering in the workings of the free market and allowing things to take their own course with minimal intervention. Also, being that the manufacturing sector was heavily invested in during the war, an explosion of productivity would serve up the best decade the American people had ever seen financially.
The 1920's saw new discoveries and inventions in nearly every sector and patent attorneys did a roaring trade. Huge technological advances in the industry saw factories become automated. This allowed huge amounts of goods to be made at a fraction of the cost. The age of mass production had arrived. That decade's economic output increased by a staggering 50%. Because goods could now be produced in greater numbers and at much lower prices, a sustaining cycle was established. Larger profits were recognized by factory owners, which were then plowed back into new factories and more importantly, wage raises.
such as cars, refrigerators, radios, furniture, pianos and vacuum cleaners. Previously, these items had only been obtainable by the wealthy. The number of millionaires grew from 21 to over 15,000 that decade! Yet not everyone would benefit from mass production. Heavy industries such as coal and shipbuilding found themselves sinking in a sea of debt brought on by a fall in overseas demand for their goods which led to over-production, lower prices overall and a fall in wages for workers.
minorities tended to be paid lower wages and were usually the last to be hired and the first to be fired. Black sharecroppers faced insurmountable problems. A combination of working smaller plots, no access to new technology and incredibly low prices paid for agricultural produce led to black farmers falling heavily into debt.
Farmers and other rural dwellers were negatively impacted by the new technologies that increased farm production dramatically. Lower prices were paid for their goods and once Europe's agricultural output recovered, the demand for American exports fell steeply. The problem was further compounded by widespread drought. As a result, incomes were drastically reduced and high debts incurred. This encouraged a population movement of over 1,000,000 from rural areas to cities. Inflated incomes for city dwellers resulted in an enormous increase in consumer spending. If the buck would have stopped here perhaps the dark days to come would not have been recognized.
overextended themselves by offering ridiculously low terms to consumers. Advertising then began targeting housewives, persuading them that instant gratification through installment plan purchases was the new lifestyle ideal. New forms of media such as radio allowed for reaching a much wider audience. Catalog-based purchases became the norm.
Consumers, fueled by easy credit, and confidence in their ability to pay loans back because of their new-found high wages, found it far too easy to overspend and live beyond their means. This effectively caused a plethora of new banks to pop up, offering more of the ever growing demand for credit. Due to the new economic model of mass consumption, overproduction became rampant. The market was already saturated with consumer goods, yet purchasers had already bought everything they needed, and more.
As confidence slipped and consumers began to try and save money, sales figures went down. The economic crisis had begun. Banks also contributed to the nation’s downfall by failing to maintain adequate reserves, investing heavily in the stock market and making risky loans. Because of the laissez-faire policies of the government, the integrity of these banks was never confirmed. Banks blithely loaned tremendous amounts of their investors' cash, expecting big profits. Increased sales had brought with them increased stock values and all the problems that come with them. Bonds and Treasuries which had always been the main investment vehicles were now being forgotten in favor of quick profits in shares. The Share Market climbed to dizzying heights as speculators bought stocks on credit from Wall Street brokers and brokerage houses that sprang up everywhere. Following well-publicized successes, the general public who had never previously considered investing in stocks, jumped on the bandwagon looking for easy profits.
When stock prices predictably slumped because of a lack of demand for the over-produced items, many investors had to sell shares to meet "margin calls" forcing share prices to drop further, exacerbating the problem and leading to the Share Market crash of October and November 1929. When the crash transpired, panic-stricken investors demanded their money back. Many banks, lacking the resources to comply, called in their loans to the general public. People stampeded to withdraw their money and most banks collapsed. It was a nation-wide blind panic that ended in mass unemployment, bankruptcy, poverty, and despair. People were uprooted from their homes and relocated in shanty towns. Thus ended the roaring twenties era