The 1920s US economy saw high tariffs that boosted domestic industry but hurt farmers and trade, while tax cuts primarily benefited the wealthy. Regulations were reduced and businesses fixed prices. New technologies like the automobile and mass production grew industries and employment. However, easy credit, real estate speculation, and rampant stock market speculation built instability and left many in debt.

1. The 1920s Economy

2. Government policies

3. High tariff rate
• The government put a high tariff rate on foreign goods which made
them more expensive to the ordinary American than goods that had
been made in the USA (Fordney-McCumber Tariff Act 1922).
• The purpose of this was to ensure that Americans bought American,
thus US companies would not have to compete with a foreign market.
• HOWEVER: other countries raised their tariffs in retaliation, meaning
that those in other countries could not afford to buy American goods,
which effectively ceased America’s international trade.
• This had a great effect on agriculture, as farmers now had to pay ridiculously
high prices on imported equipment, and they could no longer rely on foreign
markets to sell their surplus at all.

4. Tax reduction (Andrew Mellon)
• Low taxation fit in with the Republican idea that everyone should be
able to find a way to help themselves without going to the
government for aid.
• The Revenue Act 1925 reduced some taxes and abolished others so
that people would have more money to provide for themselves.
• However, only the taxes of the wealthy were reduced, due to the
belief that if the wealthy had more money, then the wealth would
trickle down to the poorer in society.
• In 1920, the tax rate for those with an annual income of $1m was
65%; by 1928, it was 20%.

5. Fewer regulations
• The Republican government believed in a policy of laissez-faire, that
the economy should be able to run itself without government
intervention.
• Businesses were left to do what they liked, including fixing prices, in
order to maximise their profits.
• There were two regulatory bodies set up to regulate business: the FTC
and the ICC; however, these organisations did nothing, and often
helped business rather than scolded it.
• Leaders were appointed to these organisations who had no intention of
running it properly; a lawyer was appointed as leader of the FTC who had
previously claimed that the organisation was nothing but a threat to business.

6. Technological advances

7. Motor vehicle industry
• The motor vehicle industry was optimised by Henry Ford, who
introduced new methods of manufacturing i.e. mass production,
which brought down costs and time.
• By the mid-1920s, cars could now be made in 1 ½ hours, whereas previously it
had taken 12 hours; they now also cost less than $300.
• The motor industry also boosted those industries which provided the
raw materials needed to make cars: the motor vehicle industry used
80% of the steel produced in the US, as well as the majority of oil.
• The interdependence of industries was revealed when Ford closed down his
Model T factory to open his Model A factory, the US went through a brief
slump.

8. Motor vehicle industry
• The industry was also a big employer; 7% of the workforce was
employed by the motor vehicle industry, and they earned 9% of all
wages.
• Henry Ford also developed welfare capitalism which provided workers
with perks such as holidays and shorter working days, as well as
lunches with 800 calories.
• HOWEVER: the availability of cars meant that people didn’t need
horses as much, which affected agriculture; also, not everyone could
afford a car, so despite the growth in car ownership, there was still a
lot of people who went without.

9. Construction
• Construction was booming in the early-mid 1920s, with the increased
need for housing, offices, highways and transport links provided by
the population growth and the growth in car ownership.
• People with cars could now go on holiday, meaning that hotels needed to be
built; the Great Migration from the south to the north led to urbanisation
which needed to be sustained with housing.
• HOWEVER: the development of property in Florida led to people
making risky investments there, which led to people going bankrupt;
also, after 1926 the demand for housing died down and this led to
unemployment and the decline of raw materials industries.

10. Construction (The Florida Land Boom)
• With the more easy availability of cars, people found that they could
get to new places, such as Florida, and property investment began.
• However, people were buying the land on credit based on ‘success
stories’ sold to them by estate agents which turned out not to be
true.
• Many people went bankrupt as a result, and the business in Florida
for the construction industry died in 1926.

11. Electrical consumer goods
• The development of electrical consumer goods such as hoovers and
washing machines led to a growth in the number of companies using
Ford’s methods of mass production.
• Mass production meant that many people could own such goods, and
the labour-saving devices freed up people’s time for leisure pursuits,
thus boosting the entertainment industries such as cinema and
tourism.
• HOWEVER: electrical companies could not afford to supply the
Southern states; people bought electrical goods on hire-purchase
schemes, which led to a widespread acceptance of debt.

12. New business methods

13. Growth of huge corporations
• Big corporations could now offer their workers welfare capitalism,
which improved their working conditions and pay.
• 800 calorie meals, holidays, $5 8-hour days, bonuses
• They also implemented mass production which made products easier
and cheaper to make, so that they could sell the products for
cheaper; they aimed to make larger profits from lots of small sales.
• HOWEVER: only big corporations could afford to implement welfare
capitalism, and it was not widespread; furthermore, the view that
such policies made workers’ lives easier legitimised the use of yellow
dog contracts which forbade trade union membership.

14. Management science
• Many large corporations adopted Taylorism, a business practice
designed to standardise production and increase profits.
• It involved the specialisation of workers so that they could do one
part of the bigger process, which meant that targets could be set (and
incentives such as bonuses were offered to ensure that targets were
met).
• These targets increased efficiency and led to more sales and more
profit.
• Taylorism was only possible due to the development of mass
production.

15. Advertising and salesmanship
• Thanks to technological advances, advertisers had new media with
which to promote products, such as cinema and radio.
• Advertising appealed to people’s insecurities to create a consumer
culture which provided companies with an almost endless demand as
people began buying what the wanted rather than what they needed.
• HOWEVER: the increase in advertising increased the potential for
false advertising and unethical practices (such as those employed
during the Florida Land Boom).

16. Easy credit
• The emergence of new products also led to the emergence of hire-
purchase schemes, whereby the consumer would pay a deposit then
pay the rest of the product off in instalments with interest.
• By 1929 almost $7b worth of goods had been sold on credit.
• Easy credit was first introduced by the motor vehicle industry and was
later adopted by the electrical goods industry, and so it contributed to
the boost in the entertainment industry through leisure time.
• In 1929, over 80 million cinema tickets were sold.
• HOWEVER: the hire-purchase schemes meant that everyone was in
debt, which would be a problem during the Depression.

17. Stock market speculation
• Stock market speculation was born out of the feeling that anyone
could ‘get-rich quick’ (this feeling also facilitated the emergence of
conmen such as Charles Ponzi).
• Ordinary people as well as companies began buying shares ‘on the
margin’, or with money borrowed from the bank.
• This helped the economy as banks were earning interests on their
loans and companies were receiving investments with which to grow.
• HOWEVER: there was no guarantee that stocks would gain in value,
and if they didn’t, people who had bought ‘on the margin’ would still
owe the banks for their loans.