Economic Prosperity and Republican Policies

A growing economy, but an uneven boom

The USA’s ‘Roaring Twenties’ were a period of expanding production and consumption. Factories produced more cars and household goods, businesses made profits, and many families could afford products that had previously been beyond their reach. An economic boom means rapid growth in economic activity, not simply a rise in the wealth of a few individuals.

However, growth across the economy did not mean that everyone prospered. New industries and many urban middle-class families benefited, while small farmers, workers in declining industries and many poorer Americans struggled. Understanding the decade means explaining both how the boom developed and why its benefits were uneven.

Republican government: supporting private business

Republican economic policy favoured private enterprise: businesses operating for profit rather than being run by the state. Republicans believed that allowing businesses to grow would encourage investment, employment and prosperity. Their laissez-faire approach meant keeping government regulation of business limited.

Low taxes supported this approach. Businesses could retain more of their profits to invest in production, while people paying less tax had more income available to spend or invest. However, people with low wages did not automatically become prosperous simply because taxes were low.

Republicans also supported high tariffs, which were taxes on imports. By making foreign goods more expensive, tariffs helped American manufacturers compete in their home market. This shows an important distinction: supporting business did not mean government did nothing. Republicans limited some forms of interference while actively protecting American firms from foreign competition.

Ford and the spread of mass production

Henry Ford’s motor company illustrates how manufacturing helped create the boom. The Model T, produced from 1908, used standardised, interchangeable parts. Making the same parts repeatedly was cheaper than producing each car individually, and replacement parts were easier to obtain.

In 1913, Ford introduced a moving assembly line at his Highland Park factory. Rather than workers moving around a car to complete many different jobs, the car moved past workers who each performed a particular task. This cut the time needed to build a car from over twelve hours to under two hours.

Faster production lowered costs. Lower prices brought cars within reach of more customers, increasing sales and encouraging further production. Around 15 million Model Ts had been sold when production ended in 1927. From 1914, Ford also paid a daily wage of $5, high for the time. This helped him retain workers and gave them money to spend.

The motor industry’s growth spread beyond car factories. Cars needed steel, rubber, glass and oil, while increased car ownership encouraged road-building. A successful industry therefore created demand and employment in other parts of the economy.

Advertising and credit turned production into sales

Factories could only keep expanding if people bought their goods. Nationwide advertising on billboards, radio and in cinemas encouraged consumers to want particular products and brands.

Hire purchase made buying easier. A family could take home a car, radio or refrigerator after paying a deposit, then pay the balance in instalments. Instead of saving the full price before buying, customers could use goods while paying for them.

Together, mass production, advertising and credit reinforced one another. Cheaper goods attracted more buyers; advertising increased demand; instalments made purchases more manageable. Higher sales could then encourage businesses to expand and employ more workers. Nevertheless, credit was a debt, not extra income: buyers still needed enough money to keep up their payments.

Who benefited most?

New consumer-goods industries benefited from expanding markets. Car manufacturers and producers of household goods could sell more products, while businesses supplying materials to growing industries also gained. Workers in successful industries could receive better pay and have more money for goods and leisure.

Urban middle-class Americans, including professionals, skilled workers and small business owners, were well placed to benefit. Their incomes allowed them to buy consumer goods, use hire purchase and, in some cases, invest in shares. A share is a small ownership stake in a company; selling it for more than its purchase price could produce a profit, although this was not guaranteed.

Farming was not uniformly unsuccessful. Some large farming businesses could diversify their crops and use machinery effectively. Demand from cities for fresh fruit and vegetables also created opportunities. These advantages help explain why the experience of a large commercial farmer could differ from that of a small farmer struggling with debt.

Why small farmers and older industries struggled

During the First World War, farmers had been encouraged to increase production. Many continued producing heavily after the war, using land and machinery bought with borrowed money. When the supply of crops exceeded demand, prices fell. Farmers therefore received less for their produce while still having to repay their debts. Some lost their farms, and many could not afford the consumer goods associated with the boom.

Coal and textiles faced different problems. More businesses used oil, gas and electricity, weakening demand for coal. In textiles, man-made fabrics such as rayon challenged cotton, while changing fashions could reduce the quantity of cloth used in clothing. Workers in declining industries faced unemployment or falling wages even while newer industries expanded.

Poverty and discrimination limited access to prosperity

Many African Americans in the rural South worked as sharecroppers, paying landowners with a share of their crop. Falling crop prices made earning a living harder. Discrimination also restricted access to better-paid work, land and credit. Moving north did not guarantee prosperity: Black workers there often faced discrimination and low-paid employment too.

Many immigrants and other low-paid workers also had limited access to the boom. Low earnings made consumer goods unaffordable, even when prices fell. Weak trade unions reduced workers’ ability to bargain for better wages, and the lack of a substantial welfare safety net left people vulnerable when they lost work.

The central distinction is between a richer economy and shared prosperity. Republican policies, mass production and consumer spending helped businesses expand, but they did not ensure that the resulting wealth reached every industry, region or social group.