Reasons for the economic growth

There was a great economic growth in the USA in the 1920s, which led to the “Boom” and the “Roaring Twenties”. Between its many reasons, there were hire purchase, that consisted on buying the good at the moment but paying it later on instalments, set by the seller; and credits, that were loans given by banks to consumers, so they could buy products. How important were hire purchase and credits among others causes for the economic growth?

There is many people who firmly believes that they were the two main causes for the boom. To begin with, the Boom was a consumer-led boom, so the industries needed people to buy their products. Credits and hire purchase had an important part on making this happen, as they made possible for people such as factory workers and farmers to be able to afford to buy goods, such as cars, refrigerators, vacuum cleaners, radios, etc., as banks would lend people or small companies if they needed so, and most shops and companies used the hire purchase scheme. Moreover, hire purchase was used by many firms, such as the motor car industry, revolutionized by Henry Ford, due to the fact that the number of sales increased because of it and it was an easy way of making people buy what they produced. Credits allowed many speculators to invest on companies, what caused a rise in their shares’ prices, as there was more demand than offer. It was possible for them to buy shares because they bought them on the margin, what meant that they only paid for 10% of the total value. Most of speculators got the money to pay for shares by borrowing it (mainly from bank credits), and payed back when they had already sold the share and recovered money. Most people saw the share stock market as a quick way of getting rich, and many new millionaires flourished from that market indeed.

On the other hand, some people believe hire purchase and credit were not major reasons for the economic growth. Even though they were very important reasons, there were other causes. One of the main causes was the USA’s industrial strength. The country’s industry was successful because they had the raw materials they needed within its borders and did no needed to import anything, added to the fact that electricity made everything easier, allowing factories to produce goods (the new household consumer goods as vacuum cleaners and radios) faster and in higher quantities. Besides, they were able to produce everything they needed for their population`s consumption, and exported their surpluses to other countries. Moreover, other main cause for the economic growth was the development of new methods of production, as Fordism, the use of new technologies and the Republican Policies (Laissez-faire, tariffs for importation, low taxation and the development of trusts). Another thing that boosted goods sales were the mass-marketing and advertising strategies used: the advertisers who campaigned to encourage people to join the army in the WWI now worked with companies to sell their products. Furthermore, some people believe the First World War had great influence in the economic boom, since it allowed the USA to sell arms and food to the allies and this one-way trade gave the American industry a great income. Moreover, after the First World War the USA became a world leader in several sectors of industry, such as the chemical industry which had been led by Germany before the world ruined the country. 


The way I see things, despite the fact that credits and hire purchase were indeed two major causes for the economic growth in the USA in the 1920s, this would not have been possible without the other reasons, such as advertising, the country’s industrial strength and the influence of the First World War.