Reasons for the economic boom

What the specification asks for

“The economic benefits of the First World War. Reasons for economic boom in the 1920s, Henry Ford and mass production, hire purchase, advertising, consumerism and the popularity of the stock market.” — examined through causation. Incandio is aligned to specification 4HI1; it is not published by, endorsed by or affiliated with Pearson.

1 · Understand it

What the war left behind

The United States entered the First World War in 1917 and fought for nineteen months. Its territory was untouched, its casualties were a fraction of the European powers', and it spent the war years supplying food, munitions and loans to Britain and France. It ended the war as the world's largest creditor, having been a debtor in 1914, and with an industrial plant expanded to meet demand that did not disappear when the fighting stopped.

European competitors, meanwhile, had spent four years destroying one another's capacity. American manufacturers therefore entered the 1920s with new machinery, an enlarged home market and much weaker foreign competition, which is the starting condition for everything that follows.

Mass production and mass consumption

Henry Ford's moving assembly line, introduced in 1913, cut the time to build a Model T from around twelve hours to about ninety-three minutes. The saving went into the price: a Model T that had cost several hundred dollars more in 1913 sold for roughly $290 by 1925, which was in reach of a worker on a decent industrial wage. The car then created demand for steel, rubber, glass, petrol, road-building and roadside businesses, which is why the motor industry is the standing example of an industry that pulls a whole economy behind it.

The same method spread to radios, refrigerators, vacuum cleaners and washing machines. Two further innovations turned production into consumption. Advertising became a national industry using the new mass-circulation magazines and, from the mid-1920s, radio. And hire purchase allowed goods to be bought on instalments: by 1929 something like sixty per cent of cars and eighty per cent of radios were bought on credit.

The stock market completed the circle. Rising share prices attracted small investors, and buying on margin allowed shares to be purchased with roughly ten per cent down and the rest borrowed against the shares themselves. Between 1921 and 1929 the market rose several times over, and by the end a substantial part of the buying was being done with borrowed money by people who had no intention of holding anything.

Why the same list explains 1929

This is the analytical point the whole option depends on, and it should be established here rather than left to key topic 3. Hire purchase means that consumption in 1928 has been borrowed from 1930. Margin buying means that a ten per cent fall in a share price wipes out the buyer and forces a sale, which drives the next fall. Mass production without rising wages means that the goods eventually exceed the customers.

Each of those was described as prosperity while prices rose and as a cause of the collapse afterwards, and neither description is wrong. What changed in October 1929 was not the facts but which direction they were operating in.

For a source question this matters in a specific way. Contemporary sources from 1925 and from 1931 will describe the same arrangements in opposite terms, and a candidate who treats one as accurate and the other as biased has missed what is actually going on. Both are reporting the same structure from different points on its arc.

2 · Learn it — the notes

The dates that earn marks

1913

Ford's moving assembly line cuts Model T build time from about twelve hours to ninety-three minutes. Why this date: It is the mechanism by which a luxury became a mass product, and the price fall that followed is what created the consumer market.

1917–18

American participation in the First World War; the country ends it as the world's largest creditor. Why this date: It supplies the capital, the industrial plant and the weakened competitors that the 1920s boom rests on.

1925

A Model T sells for around $290. Why this date: Roughly three months' wages for many industrial workers, which is what makes the car the engine of a consumer economy.

1926–29

The steepest phase of the market's rise, increasingly financed on margin. Why this date: It converts a boom in goods into a boom in expectations, which is a far less stable thing.

The figures, and how far to trust them

• About 60 per cent of cars and 80 per cent of radios — The share bought on hire purchase by 1929. (Contemporary estimates vary by sector and by source; the order of magnitude is well established.)
• About 93 minutes — Model T assembly time after 1913, against roughly twelve hours before.
• About 10 per cent — The typical margin deposit on a share purchase, meaning ninety per cent was borrowed.

The people to place

• Henry Ford — Introduced the moving assembly line and the five-dollar day; made the car a mass product.
• Andrew Mellon — Treasury Secretary through the 1920s; cut taxes on higher incomes and reduced the federal debt.
• Calvin Coolidge — President 1923–29; associated with minimal federal intervention in the economy.

How historians disagree

Attributed interpretations, never voiced — the AO4 seam.

• The 'structural weakness' reading: The boom rested on credit, on a narrow distribution of income and on speculation, and the Crash was the working out of weaknesses present from the start. Contested by The reading that the 1920s produced real and permanent gains in productivity and living standards, and that the collapse was caused by monetary policy and banking failure after 1929 rather than by the boom's own structure..

What students say — and what is actually the case

Not this: Everybody in America shared in the boom.

This: Agriculture, coal and textiles were depressed throughout the decade, and farm income fell by roughly half. Something like half the population saw little benefit.

Not this: The Crash came out of nowhere and destroyed a healthy economy.

This: The mechanisms that produced the boom — credit purchase, margin buying, production outrunning wages — are the same mechanisms that produced the collapse. The direction changed and the structure did not.

Two things students merge

Blurred: Hire purchase and margin buying.

The distinction: Hire purchase borrows against future income to buy goods. Margin buying borrows against the shares themselves to buy more shares. The second is far more dangerous because a price fall automatically forces a sale.

Blurred: Rising production and rising prosperity.

The distinction: Output rose faster than wages through the decade, so the additional goods increasingly had to be sold on credit. Treating the two as the same thing is what makes the eventual glut inexplicable.

What a Grade 9 answer holds here

A Grade 9 answer reads every 1920s source with its date in mind. The same arrangement — a family buying a car on instalments, a clerk buying shares with ten per cent down — is evidence of confidence in 1926 and evidence of recklessness in 1931, and a candidate who notices that the source has not changed its facts but only its position on the curve is doing exactly what AO3 rewards.

3 · How it is examined

This strand is genuinely set through: Paper 2 Section A (a) (6 marks — “Describe TWO features of EITHER … OR ….”); Paper 2 Section A (b) (8 marks — “How far does Source A support the evidence of Source B about …? Explain your answer.”); Paper 2 Section A (c) (16 marks — “Extract C suggests that …. How far do you agree with this interpretation? Use Extract C, Sources A and B and your own knowledge to explain your answer.”).

What earns marks: The hire-purchase percentages and the ten per cent margin, used to show that the boom's causes and the Crash's mechanisms are the same list. On the interpretation question it is what allows a candidate to test a source's optimism against its date.

The cap that bites here: The 6-mark describe question is capped at 3 marks for a single feature, and it is a knowledge question with no introduction and no conclusion.

4 · Prove it — the questions

Answered inside Incandio, where a marker checks what a correct answer must contain and tells you which half was missing. The marking stays in the app; the questions are here.

1. Describe two features of the American economic boom of the 1920s. [6 marks · Paper 2 Section A (a)]
2. How far does Source A support the evidence of Source B about the American economy in the 1920s? [8 marks · Paper 2 Section A (b)]
3. How far does Source A support the evidence of Source B about hire purchase and consumer credit? [8 marks · Paper 2 Section A (b)]
4. Extract C suggests that the American boom of the 1920s was built on credit. How far do you agree with this interpretation? [16 marks · Paper 2 Section A (c)]
5. Extract C suggests that the prosperity of the 1920s was widely shared. How far do you agree with this interpretation? [16 marks · Paper 2 Section A (c)]

Decide it

This lesson feeds a Decide History judgement — a position you commit to, an objection you answer, a criterion you name: Was the boom of the 1920s the cause of the Crash?.

Carry on through the option

• Next lesson: Problems in farming and the decline of older industries
• Also in this key topic: The leisure industry and the changing position of women
• Key topic 1 · The Roaring Twenties · The USA, 1918–41 · the option's timeline · Incandio History
• The other key topics of The USA: Increased social tensions in the 1920s · The USA in Depression, 1929–33 · Roosevelt and the New Deal, 1933–41 · The Opposition to the New Deal