Economic Factors of the Roaring 20s

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    The Peace Dividend

    • The end of World War I in 1918 played an important role in the economic expansion of the 1920s. U.S. companies found new, eager markets in Europe, where many industries suffered heavy wartime damage. Spending on the military fell, allowing the federal government to lower tax rates. Military veterans swelled the domestic labor force, allowing companies to keep wages low and profit margins high. Peacetime also encouraged speculation in the stock market, as investors gained confidence and a long-term outlook on the country's business prospects.


    • Immigration, which had slowed to a stop during the war, rose sharply. Immigrants provided a ready pool of inexpensive labor and a strong market for housing, food and household goods. Although nativist groups strongly resisted these new arrivals, and the government passed new restrictions on immigration, newcomers swelled city populations, which became magnets for people seeking new jobs and a better standard of living.


    • The automation of manufacturing allowed factories and companies to produce products for lower labor costs. Ford and General Motors led the way with assembly lines that mass-produced cars. These processes spread to other manufacturing industries, while newly affordable electronic goods, such as radios and vacuum cleaners, found a nationwide market. The nation's productivity improved, while its manufacturers enjoyed rising profitability.

    Stock Speculation

    • The stock market experienced a steady advance throughout the 1920s. Millions of new investors jumped into the market, eager for the riskless gains promised by brokers and stock speculators. A rise in share prices helped companies raise capital for new plant and equipment. The rising money supply helped the banks keep interest rates low, a boon to new business formation and to consumers allowed to buy on installment plans. Unfortunately, the speculation got out of hand by late 1929, and stock prices lost any relation to income earned by companies. The stock market crash of October brought about a general depression in business conditions that continued though the 1930s.

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