1920s Economic Boom and the 1929 Crisis

Posted on Feb 9, 2025 in Economy

Economic growth in the 1920s: From 1922, the developed world experienced significant growth, largely due to the recovery of engine production and the recovery of European nations hardest hit by the effects of the Great War, such as France and Germany. The war transformed the United States into a leading world power.
The Intensification of Production: The most important change was the increase in industrial productivity. Taylorism, based on the elimination of downtime in production chains and their maximum automation, was implemented. This reduced product costs by decreasing manufacturing time. These processes introduced new concepts such as line work and specialization, focusing a worker’s timing on a single task. This work system caused a great increase in productivity, which in the U.S. doubled between 1913 and 1939. Employers increased their profits, and consumers benefited from cheaper goods. As a result, consumption increased due to reduced prices and advertising. New forms of production concentration accentuated business growth.


THE CRISIS OF 1929. The stock market crash in New York: What began as a simple drop in stock prices in New York in autumn 1929 became the greatest crisis in the history of capitalism. In 1925, prices rose, and the stock market accumulated profits. Easily obtainable credit increased speculation. From the start of 1929, the New York Stock Exchange index stagnated. Government officials felt seriously concerned about the uncontrolled credit. On Thursday, October 24, a large number of shares were released, which provoked a fall in prices that continued in the following days. That day, dubbed “Black Thursday,” signaled the end of rising values. Many investors tried to sell their shares, stressing the fall of the New York Stock Exchange. The stock index plunged in a few months. In 2 ½ years, Wall Street reduced the value of their contributions to one-sixth of what they were when the crash occurred. From 1933, a slow recovery began.
The crisis extended to all sectors: The financial crisis spread from the U.S. to the world. Panic hit the banks when investors could not repay debts, and savers rushed to redeem their funds. 23,000 U.S. banks were closed, leaving only 5,000. The freezing of credit and bank failures affected the completion of industry projects. Many factories were forced to close due to the decline in demand. American industry entered a situation of overproduction. Weak demand facilitated lower prices, falling profits, and industrial closures. The agricultural sector was also affected, accentuating the difficulties of the Great War. The most significant consequence was the increase in unemployment. In a few months, millions of Americans in all economic sectors were jobless. The crisis spread around the world. The first countries to be affected were those whose economies were based on raw materials. The crisis meant a reduction in demand and prices. They were forced to undersell their growing “stocks.” The cause of the crisis in Germany and Austria was the repatriation of American capital, which precipitated the collapse of their economies. Bank failures extended across the continent.