The Boom

In the USA in the 1920s the country went into an economic boom. That is it saw significant success in trade.

How did this happen?

Well the USA came out of the First World War relatively untouched. It was not bombed and as it had only been in for a year the cost was not too much of a problem.

American trade went to fill the needs of its own citizens and the needs of Europe as it was too war damaged to produce its own requirements.

America had a number of new developments to help.

1) Mass production. New factories that used the ideas of Henry Ford meant productivity was up.

2) Mass consumption. High wages, new consumer goods all meant demand increases.

Holidays and credit meant more free and easy spending.

3) Trade tariffs. Foreign goods were taxed when sold in the USA. This meant American goods were in greater demand as they were cheaper.

4) Credit. People could pay for goods on easy terms over as long period of time. This meant people were even more willing to spend.

So how do you get into boom.

1) Increase your spending. If you are on low pay you spend a high percentage of your money on essentials. So it is not hard to understand that if you get more cash you tend to spend more on all of those luxuries you wanted. The more you send the more jobs are created. If everyone wants a car, then car workers see a  boom.

2) The more that people spend, the more factories want to employ. It sort of creates a self-fulfilling prophecy. If I want to invest in a company I will only do it in one that makes money. If it makes money people will invest more. It then makes more money because you are investing in it!!!! Does this make sense? I think so.

This brings us to a very unusual idea but one that is not as hard as you think. THE MULTIPLIER EFFECT.

If you throw a stone in a lake, it has a ripple effect. This is the effect that new money has into the economy. If you get more cash we have already said you tend to spend more. So you take this extra cash and buy consumer goods. Now this extra cash causes other to spend and then on it goes. So the extra cash you spend has a ripple effect which causes a disproportional addition to the economy.

NOW YOU KNOW IT ALL!!!!!!!!!!!!!!!!!!

Well you know the boom bit. But what goes up must come down and in 1929 it came down with a crash. But this is for another page!